Exhibit (a)(2)
Equity Resource Lexington Fund
44 Brattle Street
Cambridge, MA 02138
May 17, 2002
Offer To Purchase Units in
Capital Realty Investors III Ltd. Partnership
for $100 Per Unit
Dear Limited Partner:
Enclosed with this letter is an offer to purchase limited partnership units in
Capital Realty Investors III Ltd. Partnership (the "Partnership") for $100 per
unit [See "THE OFFER--Introduction"]. This offer expires on June 17, 2002. If
you are interested in selling your units, please read the enclosed offer
carefully.
The Partnership currently holds limited partnership interests in twenty-two
limited partnerships (the "Local Partnerships"). The majority of these Local
Partnerships own low-income housing projects that are subject to government
regulations limiting the amount of money that the Local Partnerships can
distribute to the Partnership. Government regulations also limit the properties'
rent levels and may limit the Local Partnerships' ability to refinance or sell
these properties. [See "THE OFFER--Section 10--Certain Information Concerning
the Partnership "].
FACTORS TO CONSIDER IN EVALUATING THIS OFFER
o Eliminate Future Taxable Income
Over the past two years, the Partnership generated taxable income that was
significantly higher than the amount of income distributed to the limited
partners of the Partnership. While the Purchaser has no information
regarding the Partnership's future year-end income and distribution levels,
it is possible that future years will be similar to the previous two years.
Limited partners who sell their units will terminate their investment in
the Partnership and eliminate future tax liability associated with the
ownership of their units. Please see "THE OFFER--Section 6--Certain Tax
Consequences" for further information regarding the tax consequences of a
sale of your units.
o Purchase Money Notes
A significant number of the Local Partnerships are encumbered by purchase
money notes ("PMNs") that are secured by the Partnership's ownership
interests in the Local Partnerships. These PMNs had combined outstanding
principal and accrued interest of $33.3 million as of December 31, 2001.
This amount is in excess of the Partnership's current cash position.
Several of the PMNs have reached maturity and the Partnership is exploring
strategies to avoid the foreclosure of the encumbered properties. These
strategies include extending the terms of the PMNs and negotiating reduced
payoff amounts to eliminate the PMNs. Reduced payoffs would benefit limited
partners by reducing the Partnership's debt, but it will also create a
taxable event based on the forgiveness of debt. A property foreclosure
would also result in a taxable event that could result in significant
taxable income for limited partners.
o Opportunity for Liquidity The Lexington Fund's offer provides liquidity to
limited partners and will give them an opportunity to liquidate this
investment. The Partnership has been in existence for 19 years. Given the
government restrictions and the long-term nature of the leases encumbering
the Partnership's properties, the Purchaser anticipates that the
Partnership will continue to operate for the foreseeable future. By selling
your limited partnership units, you give yourself the opportunity to place
the proceeds from a sale into other, potentially better performing,
investments. You may also simplify your tax returns by eliminating future
K-1 reporting for this Partnership.
o Offer Price May Not Represent the Full Value of Your Units No independent
party has been retained by the Purchaser or any other person to evaluate or
render any opinion to limited partners with respect to the fairness of the
offer price, and no representation is made as to any fairness or other
measures of value that may be relevant to limited partners. Because of the
two-tiered nature of the Partnership, the government-regulated income
restrictions and the potential inability to sell or refinance a portion of
the Partnership's assets, the Purchaser was unable to calculate a net asset
value (NAV) for units and the Purchaser's offer price may be viewed as
speculative in nature. As a result, it is uncertain whether the offer price
reflects the value that would be realized upon the sale of units by a
limited partner to a third party. [See "THE OFFER-Introduction-Market Value
of Units"]
o Conflict of Interest The Purchaser is making the Offer with a view toward
making a profit. Accordingly, there is a conflict between the Purchaser's
desire to acquire your units at a low price and your desire to sell your
units at a high price. The Purchaser's intent is to acquire the units at a
discount to the value it might ultimately realize from owning the units.
o Effects of a Sale of Your Units Limited partners who sell their units will
be giving up the opportunity to participate in any future potential
benefits associated with ownership of units, including the right to
participate in any future distribution of cash or property.
The Purchaser
The Lexington Fund is in the business of acquiring fractional investment
interests for long-term retention and seeks to purchase units in the Partnership
in advancement of that strategy. The units acquired as a result of this offer
will be held as long-term investments and not with a view to a resale. The
Lexington Fund does not acquire general partner positions and is not engaged in
property management.
Please read the enclosed offer carefully. It contains important information
concerning this offer, the Partnership and the Purchaser. If you wish to sell
your units, complete the enclosed Agreement of Sale according to the directions
on the agreement, sign where indicated and return it in the pre-addressed return
envelope.
If you have any questions, please call D.F. King & Company, the information
agent for this offer, toll-free at (800) 207-3158 or call them collect at (212)
493-6952.
Sincerely,
Equity Resource Lexington Fund LP