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 0-11699
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BALCOR PENSION INVESTORS-IV
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(Exact name of registrant as specified in its charter)
Illinois 36-3202727
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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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 Pension Investors-IV (the "Registrant") is a limited partnership formed
in 1982 under the laws of the State of Illinois. The Registrant raised
$214,803,000 from sales of Limited Partnership Interests. The Registrant's
operations have consisted of servicing wrap-around mortgage loans and, to a
lesser extent, servicing other junior mortgage loans and first mortgage loans.
The Registrant also currently operates two properties acquired through
foreclosure. All financial information included in this report relates to this
industry segment.
The Registrant originally funded thirty-eight loans. A portion of Mortgage
Reductions generated by repayments was reinvested in four additional loans and
a portion was used to make special distributions to Limited Partners. The
remainder was added to working capital reserves. As a result of the repayments,
foreclosures and write-offs of forty-two loans, the Registrant has no loans in
its portfolio as of December 31, 1996. Fourteen properties were acquired
through foreclosure and one loan was reclassified to an investment in joint
venture with affiliates. The Registrant has since disposed of twelve of these
properties and its investment in joint venture with affiliates, and has two
properties remaining in its portfolio as of December 31, 1996. See "Item 2.
Properties" for additional information.
The Registrant's remaining properties face various levels of competition for
retention of their tenants from similar types of properties in the vicinities
in which they are located. The Registrant has no plans to change the current
use of or to renovate any of its remaining properties. 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 outlook for the retail sector of the investment real estate industry is
uncertain for 1997. The retail industry is being simultaneously impacted by a
number of factors which are likely to affect values for quite some time. As
retailers battle to gain market dominance, tenant bankruptcies have grown.
Consolidation among retailers has and is expected to continue to occur. Unlike
other asset classes, new construction of power centers went unabated in the
early 1990's, creating an oversupply of space including "big box" anchor tenant
space. Regional malls, which are not the dominant center in the market, face
continued out-migration of retailers to the power centers. Finally shopping
patterns continue to shift due to the aging baby boomers, high consumer debt,
alternative distribution channels, and the greater emphasis on entertainment.
As a result, the capital requirements necessary to maintain a shopping
center's competitiveness are all significant, but with uncertain returns. The
Registrant believes there is significant risk to holding retail assets for
future upside potential.
During 1996, the Registrant sold the Colony, Del Lago, Palm View, Pelican
Pointe and Regency Club apartment complexes in all cash sales for $7,100,000,
$2,800,000, $6,500,000, $9,000,000 and $5,750,000, respectively. In December
1996, the General Partner sold the Perimeter 400 Center Office Building, in
which the Registrant held a minority joint venture interest. See "Item 7.
Liquidity and Capital Resources" for additional information.
The Registrant owns the remaining properties, Glendale Fashion Center and North
Kent Mall. The Registrant has entered into a contract to sell the Glendale
Fashion Center for a sales price of $10,700,000 which is scheduled to close in
March 1997. Additionally, the Registrant is actively marketing the North Kent
Mall for sale. 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 lawsuit discussed in "Item 3. Legal Proceedings". 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 exists, reserves
may be held by the Registrant for a longer period of time.
During July 1996, the Registrant received repayment of the Stonehaven South
Apartments loan receivable. See "Item 7. Liquidity and Capital Resources" for
additional information.
In October 1996, the Registrant reached a settlement of litigation totaling
$750,000 related to the 240 E. Ontario Office Building, $675,000 of which was
received by the Registrant in 1996 and the remaining $75,000 is due in 1997.
See "Item 7. Liquidity and Capital Resources" for additional information.
The Registrant received notice of an unsolicited offer for the purchase of
Limited Partnership Interests ("tender offer") on January 30, 1997. The tender
offer was made by Everest Investors 4, LLC and stated that their primary motive
in making the offer is to make a profit from the purchase of the interests.
Everest Investors 4, LLC is seeking to acquire up to 4.9% of the total
interests outstanding in the Registrant. The Registrant will incur
administrative costs in responding to the tender offer and may incur additional
costs if additional tender offers are made in the future. The General Partner
cannot predict with any certainty what impact this tender offer or any future
tender offers will have on the operations or management of the Registrant.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure, 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 Mortgage Advisors-III, 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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Perimeter 400 Center
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As previously reported, the general partnership (the "General Partnership_)
consisting of Registrant and three affiliates which owned the Perimeter 400
Center, Fulton County, Georgia, contracted to sell the property for a sale
price of $40,700,000 to an unaffiliated party, Devon Properties, Inc., a New
York corporation. The purchaser assigned its rights under the agreement of sale
to an affiliate, Primrose Properties Associates, L.P., a Delaware limited
partnership, and the sale closed on December 18, 1996. From the proceeds of the
sale, the General Partnership paid $68,765 in closing costs, $814,000 as a
brokerage commission to an affiliate of the third party providing property
management services for the property and received the remaining proceeds of
approximately $39,817,000. Of such proceeds, $1,750,000 will be retained by the
General Partnership and will not be available for use or distribution by the
General Partnership until nine months after the closing. The Registrant's share
of the total proceeds is approximately $6,120,000.
Glendale Fashion Center
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As previously reported, on October 10, 1996, the Registrant contracted to sell
the Glendale Fashion Center, Glendale, California, to an unaffiliated party,
Vestar Development Co., an Arizona corporation, for a sale price of
$11,500,000. The Registrant and the purchaser have agreed to reduce the sale
price of the property to $10,700,000. The purchaser has deposited the
additional $290,000 in earnest money as required under the agreement of sale
for a total of $300,000. The closing of the transaction has been extended from
January 15, 1997 to March 31, 1997.
Item 2. Properties
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As of December 31, 1996, the Registrant, owns the two properties described
below, both of which are owned in fee simple:
Location Description of Property
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Glendale, California Glendale Fashion Center: a shopping center
containing 294,360 square feet located on
approximately 6.7 acres.
Grand Rapids, Michigan North Kent Mall: a shopping center containing
167,401 square feet located on approximately
19 acres.
The average occupancy rates and effective average rent per square foot for each
of the last five years for the two commercial properties owned by the
Registrant at December 31, 1996 are described below. These properties were
acquired by the Registrant through foreclosure in 1994. No tenant occupies 10%
or more of the leasable square feet of either commercial property.
1996 1995 1994 1993 1992
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Glendale Fashion Center
Occupancy rate 3% 6% 25% N/A N/A
Effective rent N/A $4.97 $4.48 N/A N/A
North Kent Mall
Occupancy rate 59% 62% 65% N/A N/A
Effective rent $10.70 $10.76 $10.20 N/A N/A
Each of the properties is held subject to various mortgage loans, as described
in more detail in Note 6 of Notes to the Financial Statements.
Real estate taxes incurred in 1996 for the above properties totaled $288,278.
The Federal tax basis of the Registrant's properties totaled $20,401,603 as of
December 31, 1996. For Federal income tax purposes, the acquisition costs of
the properties are depreciated over a useful life of 40 years, using the
straight-line 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 properties.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al. (Case No.:
90-C-0726, U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates were the
defendants. The complaint alleged violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in the Related Partnerships and alleged breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint sought compensatory and punitive
damages.
A settlement of these proceedings was approved by the District Court on
November 20, 1996 on the terms previously described in the form of settlement
agreement attached as Exhibit 99 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996. Distributions to be paid pursuant to the
settlement were paid in February 1997. All proceedings relating to this matter
are now dismissed.
Proposed Class and Derivative Action Lawsuits
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims again the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the Balcor Defendants' and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs amended their complaint on October 8, 1996,
adding additional claims. The plaintiffs requested certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers. Each of the defendants filed motions to dismiss the complaint.
On January 7, 1997, the Chancery Court denied the plaintiffs' motion for leave
to amend the complaint and dismissed the matter with prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois.
The Balcor 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 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 previous distributions, see Financial Statements, Statements of
Partners' Capital, and "Item 7. Liquidity and Capital Resources," below.
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 28,184.
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 $7,289,579 $3,754,827 $3,546,138 $5,515,124 $2,531,773
Provision for losses
on loans, real
estate and
accrued interest
receivable 4,703,830 1,414,270 None 1,277,805 5,750,000
Income (loss) before
gain on dispositions
of assets and
extraordinary
item 1,315,305 1,339,538 2,241,206 2,761,569 (4,599,843)
Net income (loss) 5,962,109 1,339,538 3,411,752 2,885,608 (4,599,843)
Net income (loss)
per average number
of Limited Part-
nership Interests
outstanding 5.73 3.10 7.84 6.58 (10.44)
Total assets 44,064,474 52,279,629 61,470,589 67,655,261 70,105,484
Mortgage notes
payable 3,883,828 10,419,008 11,316,222 14,410,060 11,975,262
Distributions per
Limited Partner-
ship Interest(A) 17.00 21.13 14.05 16.75 8.25
(A) These amounts include distributions of Original Capital of $13.00, $16.13,
$8.55, and $15.00 per Limited Partnership Interest for the years 1996, 1995,
1994, and 1993, respectively.
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 Pension Investors-IV (the "Partnership") recognized gains related to the
1996 property sales and participation income from the 1996 sale of the property
which the Partnership owned through a joint venture with affiliates. In
addition, the Partnership recognized a recovery of $2,621,805 related to the
Glendale Fashion Center. The combined effect of these events was the primary
reason for the increase in net income during 1996 as compared to 1995. A
provision of $4,703,830 related to the North Kent Mall was recognized in 1996,
which partially offset this increase. A provision of $1,344,000 related to the
Glendale Fashion Center recognized during 1995 was the primary reason for the
decrease in net income during 1995 as compared to 1994. In addition, the
Partnership recognized a gain on the sale of the Republic Park Office Building
during 1994 which further contributed to the decrease in net income during 1995
as compared to 1994. Further discussion of the Partnership's operations is
summarized below.
1996 Compared to 1995
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The Colonial Coach Mobile Home Park and the Stonehaven South Apartments loans
were prepaid in September 1995 and July 1996, respectively, resulting in a
decrease in interest income on loans receivable during 1996 as compared to
1995.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At December 31,
1996, the Partnership was operating two properties. The funds advanced for
these two properties by the Partnership total approximately $11,900,000,
representing approximately 6% of original funds advanced. In 1996, the
Partnership sold the Colony, Del Lago, Palm View, Pelican Pointe and Regency
Club apartment complexes. The Partnership recognized gains totaling $4,085,118
during 1996 related to three of these sales.
Income from real estate held for sale in 1996 decreased by approximately
$731,000 when compared to 1995 primarily due to the 1996 property sales. These
decreases were partially offset by lower repairs, tenant improvements and
leasing costs at the North Kent Mall and Glendale Fashion Center, which
exceeded the decrease in revenue from Glendale due to the vacancy of the
property, resulting in an approximately $150,000 increase in net income
generated by these properties for 1996 as compared to 1995.
Participation in income of joint venture with affiliates represents the
Partnership's 15.37% share of the operations from the Perimeter 400 Center
Office Building. In December 1996, the joint venture sold the property and the
Partnership recognized its share of the gain on sale. As a result,
participation in income of joint venture with affiliates increased in 1996 as
compared to 1995.
The Stonehaven South Apartments loan provided for additional interest in the
form of a share in the increase of the gross income of the property above a
certain level. Participation income was recognized during 1996 and 1995 in
connection with this loan.
Lower average cash balances were available for investment due to the payment of
special distributions to Limited Partners in July and October 1995 and October
1996 from proceeds received in connection with prior loan repayments and
property sales. This resulted in a decrease in interest income on short-term
investments during 1996 as compared to 1995.
In April 1995, the Partnership received insurance proceeds of $710,155 related
to earthquake damage incurred at the Glendale Fashion Center which was
recognized as other income.
In 1996, the Partnership received settlement income of $675,000 related to
litigation with a former tenant of the 240 E. Ontario Office Building, which
was sold in 1993. See Note 13 of Notes to Financial Statements for additional
information.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represent estimations based on many variables
which affect the value of real estate, including economic and demographic
conditions. During 1996, the Partnership recognized no provisions related to
its loans. During 1996 and 1995, respectively, the Partnership recognized
provisions of $4,703,830 and $1,344,000 related to the Partnership's real
estate held for sale to provide for changes in the estimate of the fair value
of certain properties in the Partnership's portfolio. In addition, during 1996,
the Partnership recognized a recovery of $2,621,805 related to the change in
the estimated fair value of the Glendale Fashion Center. During 1996,
allowances of $106,330 and $574,500 related to the Regency Club and Del Lago
apartment complexes were written off in connection with the sales of the
properties. The Partnership recognized a provision of $70,270 in 1995 related
to the Colonial Coach loan and wrote-off allowances of $320,270 in connection
with the prepayment of the loan at a discount.
The Partnership incurred legal, consulting, printing and postage costs in
connection with its response to a tender offer and certain related litigation
during 1996. As a result, administrative expenses increased during 1996 as
compared to 1995.
During 1996, the Partnership recognized a gain of $786,766 in connection with
the prepayment of the Stonehaven South Apartments loan.
In 1996, the Partnership sold the Colony and Palm View apartment complexes. In
connection with the sales, the Partnership paid $123,308 of prepayment
penalties and wrote-off the remaining unamortized deferred expenses in the
amount of $101,772. These amounts were recognized as an extraordinary item and
classified as debt extinguishment expense.
1995 Compared to 1994
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Amounts received from the discounted repayment of a residual note related to
the Independence Green loan prepayment and from the release of the
Partnership's interest in the three remaining Oppenheimer hotels were
recognized as interest income during 1994 and were the primary reason for the
decrease in interest income on loans receivable during 1995 as compared to
1994.
The Partnership had one loan on non-accrual status at December 31, 1995 which
was collateralized by the Stonehaven South Apartments. For non-accrual loans,
income was recorded only as cash payments are received from the borrowers. The
funds advanced by the Partnership for this non-accrual loan were approximately
$2,800,000, representing approximately 1.46% of original funds advanced.
During 1995, the Partnership received cash payments of interest income of
approximately $111,000 on this loan. Under the terms of the original loan
agreement, the Partnership would have received approximately $375,000 of
interest income during 1995.
The Partnership did not recognize any provisions during 1994 related to its
loans or real estate held for sale.
Participation in income of joint venture with affiliates represents the
Partnership's 15.37% share of the operations of the Perimeter 400 Center Office
Building. During 1995, the Partnership also recognized $102,211 as its share of
the recovery of a provision related to the change in the estimate of the fair
value of this property. As a result, participation in income of joint venture
with affiliates increased during 1995 as compared to 1994.
Legal fees incurred in connection with the foreclosures of Glendale Fashion
Center and North Kent Mall during 1994 were the primary reason for the decrease
in administrative expenses in 1995 as compared to 1994.
Liquidity and Capital Resources
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The cash position of the Partnership as of December 31, 1996 increased by
approximately $24,985,000 when compared to December 31, 1995 primarily due to
the net cash proceeds received from the Stonehaven South Apartments loan
prepayment and the 1996 property sales. The Partnership received cash flow of
approximately $440,000 from its operating activities, primarily from interest
income earned on its investment in loans receivable and short-term interest
bearing instruments, and cash flow generated by the Partnership's properties
held for sale, net of administrative expenses. The Partnership also received
cash of approximately $38,020,000 from its investing activities primarily due
to the receipt of proceeds totaling approximately $2,445,000 from the
Stonehaven South Apartments loan prepayment, net proceeds totaling
approximately $29,896,000 from the 1996 property sales and distributions from
joint venture with affiliates of approximately $6,138,000 primarily related to
the proceeds received from the 1996 sale of Perimeter 400 Center Office
Building, in which the Partnership held a minority joint venture interest. The
Partnership used cash in its financing activities, which consisted primarily of
the payment of distributions to the Partners totaling approximately $6,814,000,
the repayment of mortgage notes payable of approximately $6,165,000, the
payment of principal of approximately $406,000 on the mortgage notes payable
and repurchases of Limited Partnership Interests at a cost of approximately
$651,000. In addition, in January 1997, the Partnership made a special
distribution of $21,050,694 to Limited Partners of proceeds from the 1996
property sales.
The Partnership classifies the cash flow performance of its properties as
either positive, a marginal deficit or a significant deficit, each after
consideration of debt service payments unless otherwise indicated. A deficit is
considered to be significant if it exceeds $250,000 annually or 20% of the
property's rental and service income. The Partnership defines cash flow
generated from its properties as an amount equal to the property's revenue
receipts less property related expenditures, which include debt service
payments, if applicable. During 1996 and 1995, North Kent Mall generated
positive cash flow. However, significant leasing costs were incurred at North
Kent Mall in order to lease vacant space and renew existing tenant leases which
were scheduled to expire during 1996. These costs were not included in
classifying the cash flow performance of the mall since they are non-recurring
expenditures. Had these non-recurring expenditures been included, the property
would have generated a marginal cash flow deficit in 1996. During 1996 and
1995, Glendale Fashion Center operated at a significant cash flow deficit. The
Colony, Del Lago, Palm View, Pelican Pointe and Regency Club apartment
complexes, which were sold in 1996, generated positive cash flow prior to their
sale and during 1995. In addition, the Perimeter 400 Center Office Building,
the property in which the Partnership held a minority joint venture interest,
was sold in 1996 and generated a positive cash flow prior to its sale and
during 1995.
The Partnership's remaining assets are two shopping centers, one located in
Glendale, California and one in Grand Rapids, Michigan.
Currently, Glendale Fashion Center has one tenant in occupancy. This tenant's
lease was terminated in order to expedite the redevelopment program. In
addition, the property continues to proceed through the local government
entitlement process as part of the overall sale and redevelopment plan. The
California retail market is firming up and the Glendale market is considered a
desirable retail sub-market. Occupancy in this sub-market exceeds 90%.
North Kent Mall was impacted by a number of tenant bankruptcies in 1996 that
led to the departure of several prominent tenants. Year end occupancy for North
Kent Mall was 59%. The property is faced with significant competition from the
Alphine Road and 28th Street retail markets. Additionally, a new regional mall
is under consideration in an adjoining community.
After reviewing current market conditions, the General Partner determined that
it is in the best interests of the Partnership to sell the North Kent Mall and
therefore, is actively marketing the property for sale. Glendale Fashion Center
is currently under contract for a sale price of $10,700,000 and is scheduled to
close in March 1997.
During 1996, the Partnership sold the Regency Club, Pelican Pointe, Colony, Del
Lago, and Palm View apartment complexes. Additionally, the Perimeter 400 Center
Office Building, in which the Partnership owned a minority joint venture
interest, was also sold in 1996. A majority of the proceeds from the sales were
distributed to Limited Partners in January 1997. The Partnership has two
remaining properties as discussed above. 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 lawsuit discussed
in "Item 3. Legal Proceedings". 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 exists, reserves may be held by the Partnership for a
longer period of time.
In September 1996, the Partnership sold the Regency Club Apartments in an all
cash sale for $5,750,000. From the proceeds of the sale, the Partnership paid
$223,330 in selling costs. Pursuant to the terms of the sale, $250,000 of the
proceeds were retained by the Partnership until January 1997, at which time the
the full balance of the funds was released to the Partnership. A portion of
the proceeds was distributed to the Limited Partners in October 1996 and the
remainder was distributed in January 1997. See Note 11 of Notes to Financial
Statements for additional information.
In October 1996, the Partnership sold the Pelican Pointe Apartments in an all
cash sale for $9,000,000. From the proceeds of the sale, the Partnership paid
$312,315 in selling costs. The remainder of the proceeds were distributed to
the Limited Partners in January 1997. See Note 11 of Notes to Financial
Statements for additional information.
In November 1996, the Partnership sold the Colony Apartments in an all cash
sale for $7,100,000. From the proceeds of the sale, the Partnership paid
$3,383,341 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $254,621 in selling costs and $67,667 of prepayment
penalties. The remainder of the proceeds were distributed to the Limited
Partners in January 1997. See Note 11 of Notes to Financial Statements for
additional information.
In November 1996, the Partnership sold the Del Lago Apartments in an all cash
sale for $2,800,000. From the proceeds of the sale, the Partnership paid
$174,500 in selling costs. The remainder of the proceeds were distributed to
the Limited Partners in January 1997. See Note 11 of Notes to Financial
Statements for additional information.
The Perimeter 400 Center Office Building was owned by a joint venture
consisting of the Partnership and three affiliates. In December 1996, the joint
venture sold the property in an all cash sale for $40,700,000. From the
proceeds of the sale, the joint venture paid $882,765 in selling costs. The net
proceeds of the sale were $39,817,235, of which $6,119,909 was the
Partnership's share. Pursuant to the terms of the sale, $1,750,000 of the
proceeds will be retained by the joint venture until September 1997. The
remainder of the proceeds received by the Partnership were distributed to the
Limited Partners in January 1997. See Note 8 of Notes to Financial Statements
for additional information.
In December 1996, the Partnership sold the Palm View Apartments in an all cash
sale for $6,500,000. From the proceeds of the sale, the Partnership paid
$2,782,063 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $289,386 in selling costs and $55,641 of prepayment
penalties. The remainder of the proceeds was distributed to the Limited
Partners in January 1997. See Note 11 of Notes to Financial Statements for
additional information.
In April 1984, the Partnership funded a second mortgage loan collateralized by
the Stonehaven South Apartments. In June 1990, the borrower of the loan filed
for protection under the U.S. Bankruptcy Code and in June 1991, the Partnership
and the borrower executed a loan modification agreement which was approved by
the Bankruptcy Court in August 1991. Pursuant to the modification,
approximately $2,100,000 of the principal amount of the loan was considered a
secured claim. The remaining portion was considered an unsecured claim and was
payable from the net proceeds received by the borrower, if any, upon the sale
or refinancing of the property. In July 1996, the borrower paid $2,120,289 to
the Partnership in full satisfaction of the secured portion of the loan,
$250,000 in full satisfaction of the unsecured claim and $10,096 in full
satisfaction of the legal fees incurred in connection with the bankruptcy. See
Note 5 of Notes to Financial Statements for additional information.
The Partnership's two remaining properties held for sale are owned through the
use of third-party mortgage loan financing and, therefore, the Partnership is
subject to the financial obligations required by such loans. See Note 7 of
Notes to Financial Statements for information concerning outstanding balances,
maturity dates, interest rates, and other terms related to each of these
mortgage loans. The Partnership has only one loan maturing within the next two
years, a mortgage loan of approximately $1,816,000 collateralized by the North
Kent Mall. The Partnership negotiated an extension of the maturity of the
mortgage loan from July 1996 to December 1996 and made a $100,000 principal
payment on the loan as a condition of the extension. In March 1997, the
Partnership and the lender executed an agreement effective as of January 1,
1997. Pursuant to the agreement, the maturity date of the loan is extended
to September 1, 1997. If the property is sold by the Partnership prior to
September 1, 1997, the Partnership is obligated to pay all amounts due
pursuant to the loan terms plus an additional amount equal to 10% of the net
sale proceeds, as defined by the agreement. In the event the property is not
sold prior to September 1, 1997, on such date, title to the property will be
conveyed to the lender pursuant to a deed in lieu of foreclosure and the
Partnership will have no further obligations under the loan and no further
interest in the property. The Partnership is marketing the property for sale
to satisfy the obligation; however, the Partnership may use Partnership
reserves to repay the loan.
In October 1996, the Partnership reached a settlement totaling $750,000 with a
former tenant at the 240 East Ontario Office Building (which had been sold in
1993) for rental income owed to the Partnership pursuant to the terms of the
tenant's lease. Under the terms of the settlement, the Partnership received
$675,000 in 1996. A final payment of $75,000 is due on June 30, 1997.
The Partnership made four distributions to Limited Partners totaling $17.00,
$21.13 and $14.05 per Interest in 1996, 1995 and 1994, respectively. See
Statement of Partners' Capital for additional information. Distributions were
comprised of $4.00 of Cash Flow and $13.00 of Mortgage Reductions in 1996,
$5.00 of Cash Flow and $16.13 of Mortgage Reductions in 1995, and $5.50 of Cash
Flow and $8.55 of Mortgage Reductions in 1994. The distributions of Mortgage
Reductions in 1996 and 1995 resulted from loan repayments and property sales.
The distributions of Mortgage Reductions in 1994 resulted from the repayment of
the Lantana Cascades loan, the sale of the land related to the University
Office Building and the sale of the Republic Park Office Building. Cash Flow
distributions decreased in 1996 from 1995 and in 1995 from 1994 due to the
reduced cash flow from property operations and sales, as well as loan
repayments.
In January 1997, the Partnership paid a distribution of $21,480,297 ($50.00 per
Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow of $1.00 per Interest for the
fourth quarter of 1996 and a special distribution of $49.00 per Interest from
Mortgage Reductions received from the 1996 property sales. The level of the
regular quarterly distribution is consistent with the amount distributed for
the third quarter of 1996. Including the January 1997 distribution, Limited
Partners have received cash distributions totaling $639.23 per $500 Interest.
Of this amount, $326.10 represents Cash Flow from operations and $313.13
represents a return of Original Capital. In January 1997, the Partnership also
paid $35,801 to the General Partner as its distributive share of Cash Flow
distributed for the fourth quarter of 1996 and made a contribution to the Early
Investment Incentive Fund of $11,934. In addition, in February 1997, the
General Partner made a settlement payment of $32,220 ($.08 per Interest) to
members of the class pursuant to the settlement approved by the court in
November 1996 in the Paul Williams and Beverly Kennedy, et al, v. Balcor
Pension Investors, et al class action lawsuit. Future distributions will be
made from remaining reserves and from future property sales, as to which
there can be no assurances.
During 1996, the General Partner on behalf of the Partnership used amounts
placed in the Early Investment Incentive Fund to repurchase 6,415 Interests
from Limited Partners at a total cost of $651,348. In February 1997, the
Partnership discontinued the repurchase of Interests from Limited Partners. See
Note 4 of Notes to Financial Statements for additional information.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
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.
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 properties 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
- ----------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
On September 14, 1995 the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995. The General Partner
of the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
each of the two fiscal years ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
(a) Neither the Registrant nor Balcor Mortgage Advisors-III, 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
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
administration 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 $7,787 in 1996 with respect to one of the executive
officers and directors of Balcor Mortgage Advisors - III, 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
the 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
- ------------------------------------------------------------------------
The following 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 Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- -------------------------------------------------------------
Limited Walton Street 20,365.07 4.69%
Partnership Capital Limited
Interests Acquisition Partnership
Co II, L.C.C. Interest
Chicago,
Illinois
Limited Beattie 10,965.81 2.53%
Partnership Place Limited
Interests Greenville, Partnership
South Carolina Interest
While Walton Street Capital Acquisition Co. II, L.C.C. and Beattie Place
individually own less than 5% of the Interests, for purposes of this Item 12,
Walton Street Capital Acquisition Co. II, L.C.C. is an affiliate of Beattie
Place and , collectively they own 7.22% of the Interests.
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 profit 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 Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and
Restated Certificate of Limited Partnership, previously filed as Exhibits 3(a)
and 3(b) to Amendment No. 2 to the Registrant's Registration Statement on
Form S-11 dated February 23, 1983 (Registration No. 2-80287) and to the
Registrant's Registration Statement dated April 8, 1983 (Registration No.
2-82952), are incorporated herein by reference.
(4) Form of Confirmation regarding Interests in the Registrant set forth as
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1992 is incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale and attachment thereto relating to the sale of Regency
Club Apartments, Evansville, Indiana, previously filed as Exhibit (2) to the
Partnership's Current Report on Form 8-K dated August 13, 1996, are
incorporated herein by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of Pelican
Pointe Apartments, Pompano Beach, Florida, previously filed as Exhibit (2) to
the Partnership's Current Report on Form 8-K dated August 29, 1996, are
incorporated herein by reference.
(b)(ii) First Amendment dated September 30, 1996 to Agreement of Sale relating
to the sale of Pelican Pointe Apartments, Pompano Beach, Florida, previously
filed as Exhibit (99)(b) to the Partnership's Current Report on Form 8-K dated
September 16, 1996, is incorporated herein by reference.
(c)(i) Agreement of Sale dated October 10, 1996 and attachment thereto relating
to the sale of Glendale Fashion Center, Glendale, California previously filed
as Exhibit (2) to the Partnership's Current Report on Form 8-K dated September
16, 1996, are incorporated herein by reference.
(c)(ii) First Amendment to Agreement of Purchase and Sale dated November 8,
1996 relating to the sale of Glendale Fashion Center, Glendale, California
previously filed as Exhibit (10)(c)(ii) to the Partnership's Report on Form
10-Q for the quarter ended September 30, 1996 is incorporated herein by
reference.
(c)(iii) Second Amendment to Agreement of Purchase and Sale relating to the
sale of Glendale Fashion Center, Glendale, California, is attached hereto.
(c)(iv) Third Amendment to Agreement of Purchase and Sale relating to the sale
of Glendale Fashion Center, Glendale, California, is attached hereto.
(c)(v) Fourth Amendment to Agreement of Purchase and Sale relating to the sale
of Glendale Fashion Center, Glendale, California, is attached hereto.
(c)(vi) Fifth Amendment to Agreement of Purchase and Sale relating to the sale
of Glendale Fashion Center, Glendale, California, is attached hereto.
(c)(vii) Sixth Amendment to Agreement of Purchase and Sale relating to the sale
of Glendale Fashion Center, Glendale, California, is attached hereto.
(c)(viii) Seventh Amendment to Agreement of Purchase and Sale relating to the
sale of Glendale Fashion Center, Glendale, California, is attached hereto.
(d) Agreement of Sale and attachment thereto relating to the sale of Perimeter
400 Center, Fulton County, Georgia, previously filed as Exhibit (2) to the
Registrant's Report on Form 8-K dated December 2, 1996, is incorporated herein
by reference.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 is hereby
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K dated September 16, 1996 reporting the closing
of the sale of Regency Club Apartments, Evansville, Indiana, each of the
contracts to sell the Glendale Fashion Center, Glendale, California; Palm View
Apartments, St. Petersburg, Florida; and Colony Apartments, Chapel Hill, North
Carolina; and the modifications to each of the contracts to sell the Del Lago
Apartments, Tampa, Florida and Pelican Pointe Apartments, Pompano Beach,
Florida.
(ii) A Current Report on Form 8-K dated December 2, 1996 reporting the contract
to sell Perimeter 400 Center, Fulton County, Georgia and the closing of the
sales of Colony Apartments, Chapel Hill, North Carolina, Del Lago Apartments,
Tampa, Florida and Palm View Apartments, St. Petersburg, Florida.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
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 PENSION INVESTORS-IV
By: /s/ Jayne A. Kosik
----------------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal Accounting
Officer) of Balcor Mortgage
Advisors-III, the General Partner
Date: March 28, 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 Mortgage
Advisors-III, the General
/s/ Thomas E. Meador Partner March 28, 1997
- ---------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor
Mortgage Advisors-III,
/s/ Jayne A. Kosik the General Partner March 28, 1997
- ---------------------- --------------
Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, 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 Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
Audited Financial Statements for significant subsidiary investment in joint
venture are omitted since the property was sold and the Partnership is in its
liquidation phase.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Pension Investors-IV
We have audited the accompanying balance sheets of Balcor Pension Investors-IV
(An Illinois Limited Partnership) as of December 31, 1996 and 1995 and the
related statements of partners' capital, income and expenses, and cash flows
for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
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 Pension Investors-IV at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. The Partnership is presently marketing for sale its
remaining real estate assets. Upon disposition of its remaining real estate
assets and resolution of the litigation described in Note 15 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
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-IV
We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Pension Investors-IV (An Illinois Limited
Partnership) for the year ended December 31, 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Balcor
Pension Investors-IV for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 6, 1995
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1996 AND 1995
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 29,204,900 $ 4,220,385
Cash and cash equivalents - Early
Investment Incentive Fund 185,167 148,230
Escrow deposits 838,807
Accounts and accrued interest receivable 1,092,340 230,107
Prepaid expenses 54,692 144,818
Deferred expenses, net of accumulated
amortization of $58,586 in 1995 124,107
-------------- --------------
30,537,099 5,706,454
-------------- --------------
Investment in loan receivable 1,657,786
Real estate held for sale (net of allowance
of $4,023,000 in 1996 and $2,621,805
in 1995) 13,258,400 40,692,114
Investment in joint venture with affiliates 268,975 4,223,275
-------------- --------------
13,527,375 46,573,175
-------------- --------------
$ 44,064,474 $ 52,279,629
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued real estate taxes
payable $ 533,906 $ 535,761
Due to affiliates 145,771 44,376
Other liabilities (principally security
deposits) 12,489 288,363
Mortgage notes payable 3,883,828 10,419,008
-------------- --------------
Total liabilities 4,575,994 11,287,508
-------------- --------------
Commitments and contingencies
Limited Partners' capital (429,606
Interests issued and outstanding) 48,752,958 53,167,282
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1996 AND 1995
(Continued)
Less Interests held by Early Investment
Incentive Fund (41,330 in 1996 and
34,915 in 1995) (9,264,478) (8,613,130)
-------------- --------------
39,488,480 44,554,152
General Partner's deficit (3,562,031)
-------------- --------------
Total partners' capital 39,488,480 40,992,121
-------------- --------------
$ 44,064,474 $ 52,279,629
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995, and 1994
Partners' Capital (Deficit) Accounts
-------------- ------------- -------------
General Limited
Total Partner Partners
-------------- ------------- -------------
Balance at December 31, 1993 $ 51,885,905 $ (3,542,469) $ 55,428,374
Repurchase of 3,206 Limited
Partnership Interests (439,439) (439,439)
Cash distributions (A) (5,864,361) (196,904) (5,667,457)
Net income for the year
ended December 31, 1994 3,411,752 255,881 3,155,871
-------------- ------------- -------------
Balance at December 31, 1994 48,993,857 (3,483,492) 52,477,349
Repurchase of 5,932 Limited
Partnership Interests (731,709) (731,709)
Cash distributions (A) (8,609,565) (179,004) (8,430,561)
Net income for the year
ended December 31, 1995 1,339,538 100,465 1,239,073
-------------- ------------- -------------
Balance at December 31, 1995 40,992,121 (3,562,031) 44,554,152
Repurchase of 6,415 Limited
Partnership Interests (651,348) (651,348)
Cash distributions (A) (6,814,402) (143,204) (6,671,198)
Net income for the year
ended December 31, 1996 5,962,109 3,705,235 2,256,874
-------------- ------------- -------------
Balance at December 31, 1996 $ 39,488,480 $ None $ 39,488,480
============== ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994
-------------- ------------- -------------
First Quarter $ 1.00 $ 1.50 $ 5.00
Second Quarter 1.00 1.50 6.05
Third Quarter 1.00 13.24 1.50
Fourth Quarter 14.00 4.89 1.50
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
-------------- ------------- -------------
Income:
Interest on loans
receivable $ 119,018 $ 195,982 $ 756,808
Income from operations of
real estate held for sale 1,271,133 1,852,555 1,885,863
Participation in income of
joint ventures with
affiliate 2,184,244 425,111 324,624
Participation income 10,283 6,636
Interest on short-term
investments 408,096 564,388 578,843
Recovery of losses on real
estate held for sale 2,621,805
Other income 710,155
Settlement income 675,000
-------------- ------------- -------------
Total income 7,289,579 3,754,827 3,546,138
-------------- ------------- -------------
Expenses:
Provision for potential
losses on loans, real
estate and accrued interest
receivable 4,703,830 1,414,270
Administrative 1,270,444 1,001,019 1,304,932
-------------- ------------- -------------
Total expenses 5,974,274 2,415,289 1,304,932
-------------- ------------- -------------
Income before gain on
prepayment of loan receivable,
gain on sales of real estate
and extraordinary item 1,315,305 1,339,538 2,241,206
Gain on prepayment of loan
receivable 786,766
Gain on sales of real
estate 4,085,118 1,170,546
-------------- ------------- -------------
Income before extraordinary
item 6,187,189 1,339,538 3,411,752
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
(Continued)
Extraordinary item:
Debt extinguishment expense (225,080)
-------------- ------------- -------------
Net income $ 5,962,109 $ 1,339,538 $ 3,411,752
============== ============= =============
Income before extraordinary
item allocated to General
Partner $ 3,722,116 $ 100,465 $ 255,881
============== ============= =============
Income before extraordinary
item allocated to Limited
Partners $ 2,465,073 $ 1,239,073 $ 3,155,871
============== ============= =============
Income before extraordinary
item per average number of
Limited Partnership Interests
outstanding (393,690, 399,267
and 402,745 for the years
ended December 31, 1996, 1995
and 1994, respectively) $ 6.26 $ 3.10 $ 7.84
============== ============= =============
Extraordinary item allocated
to General Partner $ (16,881) None None
============== ============= =============
Extraordinary item allocated
to Limited Partners $ (208,199) None None
============== ============= =============
Extraordinary item per average
number of Limited Partnership
Interests outstanding (393,690,
399,267 and 402,745 for the
years ended December 31, 1996,
1995, and 1994, respectively) $ (0.53) None None
============== ============= =============
Net income allocated to
General Partner $ 3,705,235 $ 100,465 $ 255,881
============== ============= =============
Net income allocated to
Limited Partners $ 2,256,874 $ 1,239,073 $ 3,155,871
============== ============= =============
Net income per average number
of Limited Partnership
interests outstanding (393,690,
399,267 and 402,745 for the
years ended December 31, 1996,
1995, and 1994, respectively) $ 5.73 $ 3.10 $ 7.84
============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(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 $ 5,962,109 $ 1,339,538 $ 3,411,752
Adjustments to reconcile net
income to net cash provided
by operating activites:
Debt extinguishment
expense 101,772
Gain on prepayment of
loan receivable (786,766)
Gain on sales of real
estate (4,085,118) (1,170,546)
Participation in income of
joint venture with
affiliates (2,184,244) (425,111) (324,624)
Recovery of losses on real
estate owned (2,621,805)
Provision for potential
losses on loans, real
estate and accrued
interest receivable 4,703,830 1,414,270
Amortization of deferred
expenses 22,335 22,528 22,528
Accrued expenses due at
maturity 35,750
Net change in:
Escrow deposits 240,948 (89,988) 107,671
Escrow deposits -
restricted 232,452
Accounts and accrued
interest receivable (862,233) (130,992) 414,510
Prepaid expenses 90,126 (124,917)
Other assets 78,538
Accounts and accrued real
estate taxes payable (1,855) (211,352) 19,696
Due to affiliates 101,395 (79,772) 37,403
Other liabilities (275,874) (886) (255,976)
-------------- ------------ ------------
Net cash provided by
operating activities 440,370 1,713,318 2,573,404
-------------- ------------ ------------
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
(Continued)
Investing activities:
Capital contributions to joint
venture with an affiliate (19,473)
Distributions from joint
venture with affiliates 6,138,544 311,731 324,937
Collection of principal
payment on loan receivable 2,444,552 1,059,040 107,207
Additions to real estate (459,041) (143,008) (150,000)
Proceeds from sales of
real estate 31,150,000 3,250,000
Costs incurred in connection
with sales of real estate (1,254,152) (244,360)
Costs incurred in
connection with real
estate acquired through
foreclosure (375,000) (350,174)
-------------- ------------- -------------
Net cash provided by
investing activities 38,019,903 852,763 2,918,137
-------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(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 $ (6,671,198) $ (8,430,561) $ (5,667,457)
Distributions to General
Partner (143,204) (179,004) (196,904)
Change in cash and cash
equivalents - Early
Investment Incentive
Fund (36,937) 9,317 121,431
Repurchase of Limited
Partnership Interests (651,348) (731,709) (439,439)
Principal payments on
mortgage notes payable (405,526) (278,530) (255,365)
Repayment of mortgage
notes payable (6,165,404) (618,684) (2,838,473)
Release of capital
improvement escrows 597,859 23,060 727,995
-------------- ------------- -------------
Net cash used in financing
activities (13,475,758) (10,206,111) (8,548,212)
-------------- ------------- -------------
Net change in cash and cash
equivalents 24,984,515 (7,640,030) (3,056,671)
Cash and cash equivalents at
beginning of year 4,220,385 11,860,415 14,917,086
-------------- ------------- -------------
Cash and cash equivalents
at end of year $ 29,204,900 $ 4,220,385 11,860,415
============== ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Pension Investors-IV (the "Partnership") is engaged principally in the
operation of retail real estate, which the Partnership acquired through
foreclosure, in the Grand Rapids, Michigan and Glendale, California markets.
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 Regency Club, Pelican
Pointe, Colony, Del Lago, and Palm View apartment complexes. Additionally, the
Perimeter 400 Center Office Building, in which the Partnership owned a minority
joint venture interest, was also sold in 1996. A majority of the proceeds from
the sales were distributed to Limited Partners in January 1997. The Partnership
has two remaining properties. The Partnership has entered into a contract to
sell the Glendale Fashion Center and is actively marketing the North Kent Mall
for sale. 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 lawsuit discussed in Note 15 of Notes to Financial
Statements. 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 exists, 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) Income on loans was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the Partnership's management, an impairment had occurred in the value of the
collateral property securing the loan. Income on nonaccrual loans or loans
which were otherwise not performing in accordance with their terms was recorded
on a cash basis.
Various loan agreements provided for participation by the Partnership in
increases in value of the collateral property when the loan was repaid or
refinanced. In addition, certain loan agreements allowed the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income was reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate owned and held for sale is reflected in
the accompanying Statements of Income and Expenses net of related direct
operating expenses.
(c) Loan losses on mortgage notes receivable were charged to income and an
allowance account was established when the General Partner believed the loan
balance would not be recovered. The General Partner assessed the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance was transferred to real estate
held for sale after the fair value of the property, less costs of disposal, is
assessed. Upon the transfer to real estate held for sale, a new basis in the
property was established.
(d) 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 General Partner periodically assesses, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimates the fair value of its properties based on the current sales
price less estimated closing costs. Changes in the property's fair value are
recorded by an adjustment to the property allowance account and is recognized
in the income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value is determined. The
General Partner considers the methods 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.
(e) Investment in joint venture with affiliates represents the Partnership's
15.37% interest, under the equity method of accounting, in a joint venture with
affiliated partnerships. Under the equity method of accounting, the Partnership
records its initial investment at cost and adjusts its investment account for
additional capital contributions, distributions and its share of joint venture
income or loss.
(f) Deferred expenses consisted of financing fees which were amortized over the
terms of the respective agreement. Upon sale, any remaining balance is
recognized as debt extinguishment expense and classified as an extraordinary
item.
(g) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the respective lease term. Service income includes reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
is recognized as revenue in the period the applicable costs are incurred.
(h) 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.
(i) The Partnership records repurchases of Interests by the Early Investment
Incentive Fund as a reduction of Partners' Capital (see Note 4 of Notes to
Financial Statements). Cash and cash equivalents not yet utilized to
repurchase Interests, but which are part of the Early Investment Incentive
Fund, are classified as restricted assets of the Partnership.
(j) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(k) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the General
Partner was allocated additional income in 1996 for financial statement
purposes.
(l) 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.
4. Partnership Agreement:
The Partnership was organized on October 21, 1982; however, operations did not
commence until 1983. The Partnership Agreement provides for Balcor Mortgage
Advisors-III to be the General Partner and for the admission of Limited
Partners through the sale of up to 450,000 Limited Partnership Interests at
$500 per Interest, 429,606 of which were sold on or prior to June 2, 1983, the
termination date of the offering. For financial statements purposes, profits
and losses are allocated 92.5% to the Limited Partners, of which 2.5% relates
to the Early Investment Incentive Fund, and 7.5% to the General Partner.
To the extent that Cash Flow is distributed, distributions will be made as
follows: (i) 90% of such Cash Flow will be distributed to the Limited Partners,
(ii) 7.5% of such Cash Flow will be distributed to the General Partner, and
(iii) 2.5% of such Cash Flow will be set aside in the Early Investment
Incentive Fund (the "Fund") for payment on dissolution of the Partnership to
those investors who subscribed prior to August 31, 1983 ("Early Investors") if
necessary for them to receive a return of their Original Capital plus a
specified Cumulative Return based on the date of investment. Amounts, if any,
remaining in the Fund after Early Investors have received such returns will be
distributed 90% to all Limited Partners and 10% to the General Partner.
Amounts placed in the Fund may, at the sole discretion of the General Partner
and subject to certain limitations as set forth in the Partnership Agreement,
be used to repurchase Interests from existing Limited Partners. During 1996,
the Fund repurchased 6,415 Interests at a cost of $651,348. In February 1997,
the Partnership discontinued the repurchase of Interests from Limited Partners.
All repurchases of Interests have been made at 90% of the then current
valuation of such Limited Partnership Interests at the previous quarter end
less any distributions made after the previous quarter end. Distributions of
Cash Flow and Mortgage Reductions pertaining to such repurchased Interests are
paid to the Fund. To the extent that amounts in the Fund were not utilized to
repurchase Interests, such amounts were invested in short-term interest-bearing
instruments with interest thereon being earned by the Fund.
5. Investment in Loans Receivable:
At December 31,1995, the Stonehaven South Apartments loan receivable had a
balance of $1,657,786 and had been classified as nonaccrual due to the
borrower's noncompliance with the original terms of the loan agreement. This
loan was scheduled to mature in 1997. However, in July 1996, the borrower paid
$2,380,685 in full satisfaction of the loan. For financial statement purposes,
the loan balance at the date of prepayment was $1,588,691, and the Partnership
recognized a gain of $786,766 from the prepayment.
The Colonial Coach Mobile Home Park loan receivable which was funded by the
Partnership and an affiliate (together, the "Participants"). The Partnership
participated ratably in approximately 12% of the loan amount and interest
income. The loan was scheduled to mature in July 1998; however, in September
1995, the borrower prepaid this $1,247,350 loan at a discount due to the
diminished value of the property. The Partnership received $927,080 as its
share of the proceeds which represented a portion of the funds advanced on the
loan. The Partnership wrote-off the remaining balance of $320,270 against the
previously established allowance for potential loan losses.
Loans which have been classified as nonaccrual as a result of delinquency or
other noncompliance with the terms of the loan agreements are hereinafter
referred to as impaired loans. The impaired loan at December 31, 1995 totaled
$1,657,786 and had no related allowances for losses. The average recorded
investments in impaired loans in 1996 and 1995 were approximately $828,893 and
$2,347,441, respectively.
Interest income relating to impaired loans would have been approximately
$218,000 in 1996, $461,000 in 1995 and $505,000 in 1994. Net interest income
from impaired loans included in the accompanying Statements of Income and
Expenses amounted to approximately $94,000 in 1996 ($163,000 cash basis),
$164,000 in 1995 ($176,000 cash basis), and $203,000 (cash basis and accrual
basis) in 1994.
6. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1996 is described in the
table below:
1996 1995 1994
------------ ----------- -----------
Loans:
Balance at beginning of
year None $ 250,000 $ 250,000
Provision charged to
income None 70,270 None
Direct write-off of loans
against allowance None (320,270) None
------------ ----------- -----------
Balance at the end of
the year None None $ 250,000
============ =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year $ 2,621,805 $1,277,805 $ 1,277,805
Provision charged to
income 4,703,830 1,344,000 None
Recovery of provision
previously charged to income (2,621,805) None None
Direct write-off of real
estate held for sale
against allowance (680,830) None None
------------ ----------- -----------
Balance at the end of
the year $ 4,023,000 $2,621,805 $ 1,277,805
============ =========== ============
7. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1996 and 1995 consisted of the
following:
Carrying Carrying
Amount of Amount of Current Current Final Estimated
Notes at Notes at Monthly Interest Maturity Balloon
Property 12/31/96 12/31/95 Payments Rate Date Payment
- ---------------- -------- -------- -------- -------- ------- -------
Apartment Complexes:
Colony (A) None $3,404,765
Palm View (B) None 2,806,520
Shopping Centers:
North Kent Mall (C)$1,815,571 2,149,142 $35,126 9.50 (C) $1,800,000
797,692 823,767 9,617 11.00 2010 None
Glendale Fashion
Center 1,270,565 1,234,815 9,529 9.00 1999 1,271,000
---------- ----------
Total $ 3,883,828 $10,419,008
=========== ===========
(A) In November 1996, this property was sold. See Note 11 of Notes to Financial
Statements for additional information.
(B) In December 1996, this property was sold. See Note 11 of Notes to Financial
Statements for additional information.
(C) In May 1996, this loan was modified. The maturity date was extended from
July 1996 to December 1996 subject to a $100,000 payment by the Partnership,
which was applied to the outstanding principal balance of the loan. In March
1997, the Partnership and the lender executed an agreement effective as of
January 1, 1997. Pursuant to the agreement, the maturity date of the loan is
extended to September 1, 1997. If the property is sold by the Partnership
prior to September 1, 1997, the Partnership is obligated to pay all amounts
due pursuant to the loan terms plus an additional amount equal to 10% of the
net sale proceeds, as defined by the agreement. In the event the property is
not sold prior to September 1, 1997, on such date, title to the property will
be conveyed to the lender pursuant to a deed in lieu of foreclosure and the
Partnership will have no further obligations under the loan and no further
interest in the property.
Real estate held for sale with an aggregate carrying value of $13,258,400 at
December 31, 1996 was pledged as collateral for repayment of mortgage loans.
Future annual maturities of the above mortgage loans payable during each of the
next five years are approximately as follows:
1997 $ 1,845,000
1998 33,000
1999 1,307,000
2000 40,000
2001 45,000
The amount for 1997 includes a balloon payment for the North Kent Mall first
mortgage since the loan has matured. The Partnership is currently negotiating
with the lender to extend the maturity date of the loan.
During the years ended December 31, 1996, 1995 and 1994, the Partnership
incurred interest expense on the mortgage loans payable of $902,936, $1,093,543
and $1,038,164, respectively, and paid interest of $903,851, $1,087,644 and
$1,046,137, respectively.
8. Investment in Joint Venture with Affiliates:
The Perimeter 400 Center Office Building was owned by a joint venture
consisting of the Partnership and three affiliates. The Partnership's sharing
percentage is 15.37%. In December 1996, the joint venture sold the property in
all cash sale for $40,700,000. From the proceeds of the sale, the joint venture
paid $882,765 in selling costs. The joint venture recognized a gain of
$12,420,982 from the sale of this property, of which $1,910,549 is the
Partnership's share. For financial statement purposes, the Partnership's share
of the gain is included in participation in income of joint venture with
affiliates in 1996. During 1995, the Partnership recognized $102,211 as its
share of the recovery of a provision related to the change in the estimate of
the fair value of this property. The recovery is included in the Partnership's
participation in income of joint venture with affiliates in 1995. In addition,
during 1996, 1995 and 1994, the Partnership received distributions from the
joint venture totaling $6,138,544, $311,731 and $324,937, respectively. The
Partnership also made a contribution of $19,473 to this joint venture during
1994.
The following combined information has been summarized from the financial
statements of the joint venture:
1996 1995
----------- -----------
Net investment in
real estate as
of December 31 None $26,541,734
Total liabilities
as of December 31 None 151,526
Total income before
gain on sale $4,891,231 5,210,146
Gain on sale 12,420,982 None
Net income before
recovery 6,567,998 2,100,844
Recovery for
potential loss None 665,000
Net income 6,567,998 2,765,844
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
------ ------- ------ ------- ------ -------
Mortgage servicing fees $ 4,666 None $ 9,339 $ 583 $ 16,438 $ 843
Property management fees None None None None 317,614 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 28,774 21,248 75,855 7,116 86,815 34,741
Data processing 8,080 2,906 42,577 3,774 79,203 18,189
Investor communica-
tion None None 10,492 None 36,365 14,990
Legal 15,887 11,360 28,085 3,408 10,532 4,341
Portfolio management 161,226 110,257 178,478 29,495 100,282 39,124
Other None None 18,426 None 28,919 11,920
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 $12,743, $62,243 and $115,474 for 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed six
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
10. Management Agreements:
As of December 31, 1996, the properties owned by the Partnership are managed by
third-party management companies. These management agreements provide for
annual fees of 3% to 6% of gross operating receipts.
11. Sales of Real Estate:
(a) In February 1994, the Partnership sold the Republic Park Office Building in
an all cash sale for $3,250,000. From the proceeds of the sale, the Partnership
paid $244,360 in selling costs. The basis of the property was $1,835,094. For
financial statement purposes, the Partnership recognized a gain of $1,170,546
from the sale of this property.
(b) In September 1996, the Partnership sold the Regency Club Apartments in an
all cash sale of $5,750,000. From the proceeds of the sale, the Partnership
paid $223,330 in selling costs. The basis of the property was $5,633,000. For
financial statement purposes, the Partnership recognized no gain or loss on the
sale of this property. However, the Partnership had previously established an
allowance for potential losses related to this property against which its
remaining net investment of $106,330 was written off.
(c) In October 1996, the Partnership sold the Pelican Pointe Apartments in an
all cash sale for $9,000,000. From the proceeds of the sale, the Partnership
paid $312,315 in selling costs. The basis of the property was $7,423,577. For
financial statement purposes, the Partnership recognized a gain of $1,264,108
from the sale of this property.
(d) In November 1996, the Partnership sold the Colony Apartments in an all cash
sale for $7,100,000. From the proceeds of the sale, the Partnership paid
$3,383,341 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $254,621 in selling costs and $67,667 of prepayment
penalties. The basis of the property was $4,507,984. For financial statement
purposes, the Partnership recognized a gain of $2,337,395 from the sale of this
property.
(e) In November 1996, the Partnership sold the Del Lago Apartments in an all
cash sale of $2,800,000. From the proceeds of the sale, the Partnership paid
$174,500 in selling costs. The basis of the property was $3,200,000. For
financial statement purposes, the Partnership recognized no gain or loss on the
sale of this property. However, the Partnership had previously established an
allowance for potential losses related to this property against which its
remaining net investment of $574,500 was written off.
(f) In December 1996, the Partnership sold the Palm View Apartments in an all
cash sale for $6,500,000. From the proceeds of the sale, the Partnership paid
$2,782,063 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $289,386 in selling costs and $55,641 of prepayment
penalties. The basis of the property was $5,726,999. For financial statement
purposes, the Partnership recognized a gain of $483,615 from the sale of this
property.
12. Extraordinary Item:
In 1996, the Partnership sold the Colony and Palm View apartment complexes. In
connection with the sales, the Partnership paid $123,308 of prepayment
penalties and wrote-off the remaining unamortized deferred expenses in the
amount of $101,772. These amounts were recognized as an extraordinary item and
classified as debt extinguishment expense.
13. Settlement of Litigation:
(a) A settlement has received final approval by the court in November 1996 in
the class action, Paul Williams and Beverly Kennedy, et al v. Balcor Pension
Investors, et al. upon the terms described in the notice to class members in
September 1996. The settlement had no material impact on the Partnership.
(b) In October 1996, the Partnership reached a settlement totaling $750,000
with a former tenant at the 240 East Ontario Office Building (which was sold in
1993) for rental income owed to the Partnership pursuant to the terms of the
tenant's lease. Under the terms of the settlement, the Partnership received
$675,000 in 1996, which was recognized as settlement income during 1996 for
financial statement purposes. A final payment of $75,000 is due on June 30,
1997.
14. 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 and accrued interest payable approximates fair value.
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.
The fair value of the Partnership's investment in loan receivable was estimated
using discounted cash flow analyses. The discount rates were based upon rates
at the end of 1995 comparable to those the Partnership could have received or
charged in the commercial real estate lending market with terms and maturities
comparable to the Partnership's loan receivable held.
15. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal. It is not
determinable at this time whether or not an unfavorable decision in this 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.
16. Subsequent Events:
(a) In January 1997, the Partnership made a distribution of $21,480,297 to the
holders of Limited Partnership Interests which represents a regular quarterly
distribution of available Cash Flow of $1.00 per Interest for the fourth
quarter of 1996, and a special distribution of Net Cash Proceeds of $49.00 per
Interest from Mortgage Reductions related to the 1996 property sales.
(b) In February 1997, the General Partner made a settlement payment of $32,220
($.08 per Interest) to members of the class pursuant to the settlement approved
by the court in November 1996 in the Paul Williams and Beverly Kennedy, et al,
v. Balcor Pension Investors, et al class action lawsuit.