Item 1. Business - ----------------
Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership (the "Registrant") is a limited partnership formed in 1983 and governed by the laws of the State of Maryland. The Registrant raised $87,037,000 from sales of Limited Partnership Interests. The Registrant's operations consist exclusively of investment in and operation of income-producing real properties, and all financial information included in this report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire fourteen real property investments. The Registrant has since disposed of twelve of these properties. As of December 31, 1996, the Registrant owned the two properties described under "Item 2.
Item 2. Properties - ------------------ 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 - -------- ----------------------- Gwinnett County, Georgia Park Colony Apartments: a 352-unit apartment complex located on approximately 29 acres.
Columbus, Ohio Spring Creek Apartments: a 288-unit apartment complex located on approximately 19 acres.
Each of the above properties is held subject to various mortgage loans and other forms of financing, as described in more detail in Note 5 of Notes to Financial Statements.
The average occupancy rates and effective average rent per unit for each of the last five years for the two properties owned by the Registrant at December 31, 1996, are described below:
1996 1995 1994 1993 1992 ------------ ----------- ---------- ----------- -----------
Park Colony Occupancy rate 96% 97% 96% 97% 98% Effective rent $631 $618 $586 $540 $497
Spring Creek Occupancy rate 97% 93% 96% 96% 97% Effective rent $539 $500 $510 $517 $493
Apartment units in the above properties are rented with leases of one year or less, with no tenant occupying greater than ten percent of the property. Real estate taxes incurred in 1996 for the above properties totaled $330,482.
The Federal tax basis of the Registrant's properties totaled $18,846,756 as of December 31, 1996. For Federal income tax purposes, the acquisition costs of the properties are depreciated over useful lives of 15 years, using the ACRS method. Other minor assets are depreciated over their applicable recovery periods.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its real estate investment properties.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.
Item 3. Legal Proceedings - -------------------------
Proposed Class Action - ---------------------
On February 29, 1996, a proposed class action complaint was filed, Raymond Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of the State of New York, County of New York). The Registrant, additional limited partnerships which were sponsored by The Balcor Company, three limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Registrant and the affiliated partnerships, the "Defendant Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are defendants. The complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation and breach of fiduciary duty relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest accrued thereon; general damages for injuries arising from the defendants' alleged actions; recovery from the defendants of all profits received by them as a result of their alleged actions relating to the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. The Registrant believes it has meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
Proposed Class Action - ---------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division, Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited partnerships which were sponsored by The Balcor Company (together with the Partnership, the "Affiliated Partnerships"), American Express Company, Lehman Brothers, Inc., additional limited partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together with the Registrant and the Affiliated Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are the named defendants in the action. The complaint was amended on October 18, 1996 to add additional plaintiffs. The amended complaint alleges, among other things, common law fraud and deceit, negligent misrepresentation, breach of contract, breach of fiduciary duty and violation of certain New Jersey statutes relating to the disclosure of information in the offering of limited partnership interests in the Defendant Partnerships. The amended complaint seeks judgment for compensatory damages equal to the amount invested in the Defendant Partnerships by the proposed class plus interest; general damages for injuries arising from the defendants' alleged actions; equitable relief, including rescission, on certain counts; punitive damages; treble damages on certain counts; recovery from the defendants of all profits received by them as a result of their alleged actions relating to the Defendant Partnerships; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been certified as of this date. The Registrant believes it has meritorious defenses to contest the claims. It is not determinable at this time whether or not an unfavorable decision in this action would have a material adverse impact on the Registrant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant during 1996.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------------------------------------------------------------------------- Matters - -------
There has not been an established public market for Limited Partnership Interests and it is not anticipated that one will develop. For information regarding distributions, see "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources."
As of December 31, 1996, the number of record holders of Limited Partnership Interests of the Registrant was 8,444.
Item 6.
Item 6. Selected Financial Data - -------------------------------
Year ended December 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 ------------ ----------- ---------- ----------- -----------
Total income $9,561,969 $15,677,369 $17,020,543 $17,984,872 $21,928,782 Loss before gains on sales of assets and extraordinary items (4,663,565) (1,414,559) (3,313,544) (3,371,970) (5,099,275) Net income (loss) 22,488,661 (1,414,559) 2,454,938 9,901,817 (5,099,275) Net income (loss) per Limited Part- nership Interest 255.80 (16.09) 27.92 112.63 (58.00) Total assets 15,614,734 54,412,115 56,636,602 73,333,165 100,416,387 Mortgage notes payable 17,211,741 65,239,773 65,971,823 84,130,907 120,086,011 Distributions per Limited Partner- ship Interest (A) 58.00 None None None None
(A) This amount represents a distribution of original capital of $58.00 per Limited Partnership Interest.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Operations - ----------
Summary of Operations - ---------------------
Balcor Realty Investors 84 - Series II, A Real Estate Limited Partnership (the "Partnership") sold six properties during 1996. As a result of the gains recognized on these sales, the Partnership generated net income during 1996 as compared to a net loss during 1995. During 1994, the Partnership sold two properties and recognized an extraordinary gain on forgiveness of debt relating to the repayment of the mortgage notes in connection with the sales. The gains related to these events resulted in the Partnership recognizing net income during 1994 as compared to a net loss during 1995. Further discussion of the Partnership's operations are summarized below.
1996 Compared to 1995 - ---------------------
The Partnership sold the La Contenta, Meadow Creek, Ridgetree - Phase II, Rosehill Pointe, Seabrook and Westwood Village apartment complexes during 1996. As a result, rental and service income decreased by approximately $6,480,000 during 1996 as compared to 1995. This decrease was partially offset by increases of approximately $298,000 in rental and service income due to increased rental rates at the Partnership's two remaining properties.
Proceeds received in connection with the property sales were invested in short-term investments prior to their distribution to Limited Partners in July and October 1996. As a result, interest income on short-term investments increased during 1996 as compared to 1995.
As a result of the six sales in 1996, interest expense on mortgage notes payable decreased during 1996 as compared to 1995.
Due to the repayment in full of the short-term loan from an affiliate during June 1996 with proceeds from the sales of the Seabrook, La Contenta and Meadow Creek apartment complexes, interest expense on short-term loans from an affiliate decreased during 1996 as compared to 1995.
Depreciation expense decreased during 1996 as compared to 1995 due to the 1996 property sales.
Amortization expense decreased during 1996 as compared to 1995 due to the 1996 property sales.
As a result of the 1996 property sales, property operating expense decreased by approximately $1,913,000 during 1996 as compared to 1995. This decrease was partially offset by an increase of approximately $277,000 related to painting and structural repairs at Westwood Village Apartments, prior to its sale in November 1996.
Real estate tax expense decreased during 1996 as compared to 1995 due to the 1996 property sales.
Property management fees decreased during 1996 compared to 1995 due to the property sales during 1996.
Administrative expense increased during 1996 as compared to 1995 primarily due to higher consulting fees of approximately $122,000. This increase was partially offset by lower legal fees of approximately $54,000.
For financial statement purposes, the Partnership recognized gains of $27,237,296 during 1996 in connection with the six property sales.
The gains recognized in connection with the sales of the Rosehill Pointe and Seabrook apartment complexes resulted in the recognition of affiliates' participation in income from joint ventures during 1996 as compared to affiliates' participation in loss from joint ventures during 1995.
As a result of the sale of the Westwood Village Apartments, the Partnership recognized an extraordinary gain on forgiveness of debt of $182,585.
In connection with the sales during 1996, the Partnership wrote off the remaining unamortized deferred financing fees in the amount of $232,868. In addition, the Partnership paid prepayment penalties relating to the La Contenta and Meadow Creek apartment complexes mortgage loan repayments of $171,661. Together, these amounts were recognized as an extraordinary item and classified as debt extinguishment expense of $404,529, of which $20,945 represents the Rosehill Pointe Apartments affiliate's share.
1995 Compared to 1994 - ---------------------
The Partnership sold the Ridgepoint Green and Ridgepoint Way apartment complexes in August 1994 which resulted in a decrease in rental and service income of approximately $2,199,000 during 1995 as compared to 1994. Increased rental and service income at seven of the Partnership's eight remaining properties during 1995 partially offset the decrease in rental and service income by approximately $895,000.
As a result of higher average interest rates earned on short-term investments, interest income on short-term investments increased during 1995 as compared to 1994.
As a result of the two property sales during 1994, interest on mortgage notes payable decreased during 1995 as compared to 1994.
Due to higher average short-term loan balances payable to an affiliate and higher average interest rates in 1995, interest expense on short-term loans from an affiliate increased during 1995 as compared to 1994.
Depreciation expense decreased during 1995 as compared to 1994 due to the sales of the Ridgepoint Green and Ridgepoint Way apartment complexes.
Amortization expense decreased during 1995 compared to 1994 primarily due to the sales during 1994.
Property operating expenses decreased in 1995 as compared to 1994 primarily due to the 1994 property sales discussed above. Also contributing to the decrease was the high level of maintenance and repair expense incurred during 1994, which included exterior painting, wood siding replacement and the replacement of floor coverings at the Meadow Creek and Seabrook apartment complexes.
Real estate tax expense decreased during 1995 when compared to 1994 due to the 1994 property sales.
Legal and professional fees were incurred in 1994 in connection with the reorganization proceedings related to the Ridgepoint Green and Ridgepoint Way apartment complexes prior to their sale. This was the primary reason for the decrease in administrative expense during 1995 as compared to 1994. Lower data processing costs, portfolio management and accounting fees in 1995 also contributed to the decrease.
During 1994, the Partnership recognized a gain of $4,257,709 on the sale of the Ridgepoint Green and Ridgepoint Way apartment complexes.
During 1995, rental and service income increased at the Rosehill Pointe Apartments due to increased rental rates and higher average occupancy and resulted in a decrease in the affiliates' participation in losses from joint ventures during 1995 as compared to 1994.
During 1994, the Partnership recognized an extraordinary gain on forgiveness of debt of $1,510,773 in connection with the 1994 sale of the Ridgepoint Green and Ridgepoint Way apartment complexes. This gain is net of the debt restructuring expense and full amortization of deferred expenses recognized by the Partnership during the first and second quarters of 1994 in connection with the approved plans of reorganization related to the Ridgepoint Green and Ridgepoint Way mortgage notes. The debt restructuring expense was subsequently forgiven in connection with the sale.
Liquidity and Capital Resources - -------------------------------
The cash position of the Partnership as of December 31, 1996, increased by approximately $1,607,000 when compared to December 31, 1995. The Partnership used cash of approximately $826,000 to fund its operating activities. The revenue generated by the Partnership's properties was offset by the payment of administrative expenses, short-term interest expense, loan prepayment penalties and expenditures relating to damage caused by a hail storm at the Westwood Village Apartments and fire damage incurred at the Spring Creek Apartments. The Partnership expects to be reimbursed by its insurance carrier for the cost of the damage to these properties, less deductibles. The Partnership received cash of approximately $65,839,000 from its investing activities relating to proceeds received, net of closing costs, from the sales of the La Contenta, Meadow Creek, Ridgetree - Phase II, Rosehill Pointe, Seabrook and Westwood Village apartment complexes. The Partnership used cash to fund its financing activities
which consisted of the payment of distributions totaling approximately $5,048,000 to the Limited Partners, the repayment of the $8,385,555 loan from the General Partner, the repayment of mortgage notes payable of approximately $47,408,000, principal payments on mortgage notes payable of approximately $620,000 and distributions to joint venture partners of approximately $1,945,000. The Partnership made a special distribution to the Limited Partners in January 1997 from the proceeds received in connection with the Westwood Village Apartments sale.
In 1996, the Partnership repaid the General Partner loan, which had an outstanding balance of $8,385,555 at December 31, 1995, primarily with proceeds from the sale of the La Contenta, Meadow Creek, and Seabrook apartment complexes.
The Partnership classifies the cash flow performance of its properties as either positive, a marginal deficit or a significant deficit, each after consideration of debt service payments unless otherwise indicated. A deficit is considered to be significant if it exceeds $250,000 annually or 20% of the property's rental and service income. The Partnership defines cash flow generated from its properties as an amount equal to the property's revenue receipts less property related expenditures, which include debt service payments. During 1996 and 1995, the Partnership's two remaining properties generated positive cash flow. The La Contenta, Ridgetree - Phase II and Westwood Village apartment complexes, which were sold in April, June and November 1996, respectively, generated positive cash flow during 1995, and marginal cash flow deficits prior to their sales in 1996. In addition, the Meadow Creek and Rosehill Pointe apartment complexes, which were sold in May and June 1996, respectively, generated positive cash flow in 1995 and prior to their sales in 1996. The Seabrook Apartments, which was sold in February 1996, generated a marginal cash flow deficit during 1995 and prior to its sale in 1996. As of December 31, 1996, the occupancy rates of Park Colony and Spring Creek apartment complexes were 97% and 96%, respectively.
Park Colony Apartments is located in Norcross, Georgia, a northeast (Gwinnett County) suburb of Atlanta. Norcross has a diverse apartment market, catering to a wide range of apartment dwellers. Park Colony Apartments falls in the middle of this range. Average occupancy in 1996 was 96%; sub-market occupancy for similar product type was 95%. Approximately 25,000 new multi-family units were added to Atlanta's apartment inventory during 1995 and 1996. While this heavy supply of new product is being absorbed by apartment dwellers due to Atlanta's continued rapid growth in population and employment, growth in rental rates has slowed significantly.
Spring Creek Apartments is located in Columbus, Ohio, in the northeast sub-market. This area has a diverse apartment market, catering to a wide range of apartment dwellers. Spring Creek Apartments' pricing positions it toward the upper end of the market, falling below new construction only. Approximately 800 new units were completed in the vicinity of Spring Creek Apartments in 1996. The new multi-family construction has not had a negative impact on Spring Creek Apartments' occupancy or rental rates. In 1996, the property's average occupancy was 97%; the northeast sub-market's occupancy was 94%.
During 1996, the Partnership sold the La Contenta, Meadow Creek, Ridgetree - Phase II, Rosehill Pointe, Seabrook and Westwood Village apartment complexes. Additionally, the Partnership is actively marketing the two remaining properties for sale. The Partnership expects to sell the remaining two properties during 1997. 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. The Partnership has retained a portion of the cash to satisfy obligations of the Partnership as well as establish a reserve for contingencies. Such contingencies may include legal and other fees stemming from litigation involving the Partnership including, but not limited to, the lawsuits discussed in "Item 3. Legal Proceedings." In the absence of any 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.
The Seabrook Apartments was owned by a joint venture consisting of the Partnership and two affiliates. In February 1996, the joint venture sold the property in an all cash sale for $5,915,000. From the proceeds of the sale, the joint venture paid $5,081,898 to the third party mortgage holder in full satisfaction of the first mortgage loan, and paid $190,517 in selling costs. The net proceeds of the sale were $642,585, of which $538,815 was the Partnership's share. Pursuant to the terms of the sale, the joint venture was required to retain $250,000 of the proceeds until August 1996. The full amount of the holdback was released in August 1996. The proceeds received by the Partnership were used to repay a portion of the General Partner loan. See Note 11 of Notes to Financial Statements for additional information.
In April 1996, the Partnership sold the La Contenta Apartments in an all cash sale for $11,300,000. From the proceeds of the sale, the Partnership paid $6,970,559 to the third party mortgage holder in full satisfaction of the first mortgage loan, paid $236,400 in selling costs and paid $69,765 of prepayment penalties. The remainder of the proceeds were used to repay a portion of the General Partner loan. See Note 11 of Notes to Financial Statements for additional information.
In May 1996, the Partnership sold the Meadow Creek Apartments in an all cash sale for $11,100,000. From the proceeds of the sale, the Partnership paid $5,076,321 to the third party mortgage holder in full satisfaction of the first mortgage loan, paid $365,650 in selling costs and paid $101,896 of prepayment penalties. The remainder of the proceeds were used to repay the remaining balance of the General Partner loan and to make a special distribution to the Limited Partners in July 1996. See Note 11 of Notes to Financial Statements for additional information.
In June 1996, the Partnership sold the Ridgetree Apartments - Phase II in an all cash sale for $9,200,000. From the proceeds of the sale, the Partnership paid $7,798,124 to the third party mortgage holder in full satisfaction of the first and second mortgage loans, and paid $107,000 in selling costs. Pursuant to the terms of the sale, the Partnership was required to retain $500,000 of the proceeds until October 1996. The full amount of the holdback was released in October 1996. The remainder of the proceeds were distributed as special distributions to the Limited Partners in July and October 1996. See Note 11 of Notes to Financial Statements for additional information.
The Rosehill Pointe Apartments was owned by a joint venture consisting of the Partnership and an affiliate. In June 1996, the joint venture sold the property in an all cash sale for $20,700,000. From the proceeds of the sale, the joint venture paid $15,537,677 to the third party mortgage holders in full satisfaction of the first and second mortgage loans, and paid $170,250 in selling costs. The net proceeds of the sale were $4,992,073, of which $3,076,115 was the Partnership's share. Pursuant to the terms of the sale, the joint venture was required to retain $500,000 of the proceeds until October 1996. The full amount of the holdback was released in October 1996. The remaining proceeds received by the Partnership were distributed as special distributions to the Limited Partners in July and October 1996. See Note 11 of Notes to Financial Statements for additional information.
In November 1996, the Partnership sold the Westwood Village Apartments in an all cash sale for $9,000,000. From the proceeds of the sale, the Partnership repaid the outstanding balances of the first and second mortgage loans of $6,792,853 and $150,996, respectively, and paid $306,095 in selling costs. A portion of the available proceeds received by the Partnership were distributed as a special distribution to the Limited Partners in January 1997, while the remainder has been retained for working capital purposes. See Note 11 of Notes to Financial Statements for additional information.
Both of the Partnership's two remaining properties 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. As a result of the General Partner's efforts to refinance certain of the existing loans with new lenders, the Partnership has no third-party, first mortgage financing which matures prior to January 1999.
In January 1997, the Partnership paid $870,370 ($10 per Interest) to Limited Partners representing a special distribution comprised primarily of Net Cash Proceeds received in connection with the sale of the Westwood Village Apartments. The Partnership commenced distributions in July of 1996. The General Partner made two distributions totaling $58 per Interest during 1996 from Net Cash Proceeds. Including the January 1997 distribution, Limited Partners have received distributions of Net Cash Proceeds totaling $68 per $1,000 Interest, as well as certain tax benefits. The Partnership expects to make distributions from available proceeds received from the remaining two properties being marketed for sale, although there can be no assurance in this regard. In light of results to date, the General Partner does not anticipate that investors will recover a substantial portion of their original investment.
Inflation has several types of potentially conflicting impacts on real estate investments. Short-term inflation can increase real estate operating costs which may or may not be recovered through increased rents and/or sales prices depending on general or local economic conditions. In the long-term, inflation will increase operating costs and replacement costs and may lead to increased rental revenues and real estate values.
Certain statements in this Form 10-K constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include projections of revenues, income or losses, capital expenditures, plans for future operations, financing plans or requirements, and plans relating to 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.
Item 8. Financial Statements and Supplementary Data - --------------------------------------------------- See Index to Financial Statements and Schedule in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
The net effect of the differences between the financial statements and the tax returns is summarized as follows:
December 31, 1996 December 31, 1995 ------------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- ---------
Total assets $15,614,734 $19,655,348 $54,412,115 $38,289,522 Partners' capital (deficit) accounts: General Partner (727,234) (7,112,470) (952,121) (11,388,533) Limited Partners (1,343,455) 4,278,421 (18,559,083) (20,172,629) Net income (loss): General Partner 224,887 4,276,063 (14,146) (205,356) Limited Partners 22,263,774 29,499,196 (1,400,413) (2,020,683) Per Limited Part- nership Interest 255.80 338.93 (16.09) (23.22)
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - --------------------
There have been no changes in or disagreements with accountants on any matter of accounting principles, practices or financial statement disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
(a) The Registrant does not have a Board of Directors; however, Balcor Partners-84 II, Inc., the General Partner, does have a Board of Directors which consists of Thomas E. Meador and James E. Mendelson. The term of office as a director of the General Partner is one year. Directors are elected at the annual meeting of shareholders.
The directors of Balcor Partners-84 II, Inc., the General Partner of the Registrant, are not directors in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Act") or subject to the requirements of Section 15 (b) of the Act or any company registered as an investment company under the Investment Company Act of 1940.
(b, c & e) The names, ages and business experiences of the executive officers, directors 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 or directors.
(f) None of the foregoing officers, directors or employees are currently involved in any material legal proceedings nor were any such proceedings terminated during the fourth quarter of 1996.
Item 11.
Item 11. Executive Compensation - -------------------------------
The Registrant paid $1,698 in 1996 with respect to one of the executive officers and directors of Balcor Partners-84 II, Inc., 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 10 of Notes to Financial Statements for the information relating to transactions with affiliates.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially more than 5% of the outstanding Limited Partnership Interests of the Registrant.
(b) Balcor Partners-84 II, Inc. and its shareholders, directors, and officers own as a group the following Limited Partnership Interests of the Registrant.
Amount Beneficially Title of Class Owned Percent of Class -------------- ------------- ---------------- Limited Partnership Interests 95 Interests Less than 1%
Relatives and affiliates of the partners and officers of the General Partner own 41 additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may result in a change of control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
See Note 10 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.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership is set forth as Exhibit 3 to Amendment No. 2 to Registrant's Registration Statement on Form S-11 dated July 6, 1984 (Registration No. 2-89319), and said Agreement and Certificate is incorporated herein by reference.
(4) Form of Subscription Agreement and Power of Attorney set forth as Exhibit 4.1 to Amendment No. 2 of the Registrant's Registration Statement on Form S-11 dated July 6, 1984 (Registration No. 2-89319), and Form of Confirmation regarding Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 are incorporated herein by reference.
(10) Material Contracts:
(10)(a)(i) Agreement of Sale and attachment thereto relating to the sale of Ridgetree Apartments, Phase II, previously filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated April 23, 1996, are incorporated herein by reference.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of Ridgetree Apartments, Phase II and Rosehill Pointe Apartments, previously filed as Exhibit 2(a)(i) to the Registrant's Current Report on Form 8-K dated May 31, 1996, is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale of Ridgetree Apartments, Phase II and Rosehill Pointe Apartments, previously filed as Exhibit 2(a)(ii) to the Registrant's Current Report on Form 8-K dated May 31, 1996, is incorporated herein by reference.
(b) Agreement of Sale and attachment thereto relating to the sale of Rosehill Pointe Apartments, previously filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated April 23, 1996, are incorporated herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Westwood Village Apartments, previously filed as Exhibit (2) to the Registrant's Current Report on Form 8-K dated September 4, 1996, are incorporated herein by reference.
(ii) Modification Agreement relating to the sale of Westwood Village Apartments, previously filed as Exhibit (10)(c)(ii) to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996 is incorporated herein by reference.
(iii) Letter Agreement relating to the sale of Westwood Village Apartments, previously filed as Exhibit (10)(c)(iii) to the Registrant's Report on Form 10-Q for the quarter ended September 30, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP
By: /s/ Jayne A. Kosik ------------------------ Jayne A. Kosik Managing Director and Chief Financial Officer (Principal Accounting Officer) of Balcor Partners-84 II, Inc., 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, Chief Executive Officer (Principal Executive Officer) and Director of Balcor Partners-84 II, /s/ Thomas E. Meador Inc., the General Partner March 28, 1997 - ---------------------- -------------- Thomas E. Meador
Senior Vice President and Director /s/ James E. Mendelson of Balcor Partners-84 II, Inc. March 28, 1997 - ---------------------- -------------- James E. Mendelson
Managing Director and Chief Financial Officer (Principal Accounting Officer) of Balcor Partners-84 II, Inc., /s/ Jayne A. Kosik the General Partner March 28, 1997 - ---------------------- -------------- Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Deficit, for the years ended December 31, 1996, 1995 and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1996
Financial Statement Schedules, other than that listed, are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership
We have audited the financial statements and the financial statement schedule of Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership (A Maryland Limited Partnership) as listed in the index of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
As described in Note 2 to the financial statements, the Partnership Agreement provides for the dissolution of the Partnership upon 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 14 to the financial statements, the Partnership intends to cease operations and dissolve.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois March 26, 1997
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
BALANCE SHEETS December 31, 1996 and 1995
ASSETS
1996 1995 -------------- -------------- Cash and cash equivalents $ 2,025,727 $ 419,227 Escrow deposits 634,200 1,158,746 Accounts and accrued interest receivable 648,039 189,252 Prepaid expenses 44,776 159,160 Deferred expenses, net of accumulated amortization of $187,891 in 1996 and $763,343 in 1995 200,423 565,727 -------------- -------------- 3,553,165 2,492,112 -------------- -------------- Investment in real estate: Land 2,714,509 11,076,389 Buildings and improvements 17,638,625 71,945,955 -------------- -------------- 20,353,134 83,022,344 Less accumulated depreciation 8,291,565 31,102,341 -------------- -------------- Investment in real estate, net of accumulated depreciation 12,061,569 51,920,003 -------------- -------------- $ 15,614,734 $ 54,412,115 ============== ==============
LIABILITIES AND PARTNERS' DEFICIT
Loans payable - affiliate $ 8,385,555 Accounts payable $ 66,808 141,388 Due to affiliates 134,062 126,650 Accrued liabilities, principally interest and real estate taxes 147,601 1,078,917 Security deposits 125,211 273,669 Mortgage notes payable 17,211,741 65,239,773 -------------- -------------- Total liabilities 17,685,423 75,245,952 -------------- -------------- Affiliates participation in joint ventures (1,322,633) --------------
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
BALANCE SHEETS December 31, 1996 and 1995 (Continued)
Commitments and contingencies
Limited Partners' deficit (87,037 Interests issued and outstanding) (1,343,455) (18,559,083)
General Partner's deficit (727,234) (952,121) -------------- -------------- Total partners' deficit (2,070,689) (19,511,204) -------------- -------------- $ 15,614,734 $ 54,412,115 ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT for the years ended December 31, 1996, 1995 and 1994
Partners' Deficit Accounts ----------------------------------------- General Limited Total Partner Partners (A) ------------- ------------- -------------
Balance at December 31, 1993 $(20,551,583) $ (962,524) $(19,589,059)
Net income for the year ended December 31, 1994 2,454,938 24,549 2,430,389 ------------- ------------- ------------- Balance at December 31, 1994 (18,096,645) (937,975) (17,158,670)
Net loss for the year ended December 31, 1995 (1,414,559) (14,146) (1,400,413) ------------- ------------- ------------- Balance at December 31, 1995 (19,511,204) (952,121) (18,559,083)
Cash distributions to Limited Partners (B) (5,048,146) (5,048,146)
Net income for the year ended December 31, 1996 22,488,661 224,887 22,263,774 ------------- ------------- ------------- Balance at December 31, 1996 $ (2,070,689) $ (727,234) $ (1,343,455) ============= ============= =============
(A) Includes a $95,000 investment by the General Partner.
(B) Represents distributions paid in the third and fourth quarter of 1996 of $48.00 and $10.00, respectively, per Limited Partnership Interest.
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------- ------------- ------------- Income: Rental and service $ 9,440,232 $ 15,621,758 $ 16,985,963 Interest on short-term investments 121,737 55,611 34,580 ------------- ------------- ------------- Total income 9,561,969 15,677,369 17,020,543 ------------- ------------- -------------
Expenses: Interest on mortgage notes payable 3,034,761 5,762,150 6,514,973 Interest on short-term loans from an affiliate 189,838 544,980 399,006 Depreciation 1,256,642 2,188,762 2,492,641 Amortization of deferred expenses 132,436 178,088 211,246 Property operating 4,346,155 5,906,395 7,431,340 Real estate taxes 803,569 1,255,631 1,639,635 Property management fees 449,136 768,357 850,097 Administrative 608,540 526,207 870,872 ------------- ------------- ------------- Total expenses 10,821,077 17,130,570 20,409,810 ------------- ------------- ------------- Loss before gain on sale of properties, participation in joint ventures and extraordinary items (1,259,108) (1,453,201) (3,389,267)
Gain on sales of properties 27,237,296 4,257,709
Affiliates' participation in (income) loss from joint ventures (3,288,528) 38,642 75,723 ------------- ------------- ------------- Income (loss) before extraordinary items 22,689,660 (1,414,559) 944,165 ------------- ------------- -------------
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES for the years ended December 31, 1996, 1995 and 1994 (Continued)
Extraordinary items: Gain on forgiveness of debt 182,585 1,510,773 Debt extinguishment expense (404,529) Affiliate's participation in debt extinguishment expense 20,945 ------------- ------------ Total extraordinary items (200,999) 1,510,773 ------------- ------------- ------------- Net income (loss) $ 22,488,661 $ (1,414,559) $ 2,454,938 ============= ============= ============= Income (loss) before extraordinary items allocated to General Partner $ 226,898 $ (14,146) $ 9,441 ============= ============= ============= Income (loss) before extraordinary items allocated to Limited Partners $ 22,462,762 $ (1,400,413) $ 934,724 ============= ============= ============= Income (loss) before extraordinary items per Limited Partnership Interest (87,037 issued and outstanding) $ 258.09 $ (16.09) $ 10.74 ============= ============= ============= Extraordinary items allocated to General Partner $ (2,010) None $ 15,108 ============= ============= ============= Extraordinary items allocated to Limited Partners $ (198,989) None $ 1,495,665 ============= ============= ============= Extraordinary items per Limited Partnership Interest (87,037 issued and outstanding) $ (2.29) None $ 17.18 ============= ============= ============= Net income (loss) allocated to General Partner $ 224,887 $ (14,146) $ 24,549 ============= ============= ============= Net income (loss) allocated to Limited Partners $ 22,263,774 $ (1,400,413) $ 2,430,389 ============= ============= ============= Net income (loss) per Limited Partnership Interest (87,037 issued and outstanding) $ 255.80 $ (16.09) $ 27.92 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------- ------------- ------------- Operating activities: Net income (loss) $ 22,488,661 $ (1,414,559) $ 2,454,938 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Gain on forgiveness of debt (182,585) (1,510,773) Debt extinguishment expense 232,868 Affiliate's participation in debt extinguishment expense (20,945) Gain on sale of properties (27,237,296) (4,257,709) Affiliates' participation in income (loss) from joint ventures 3,288,528 (38,642) (75,723) Depreciation of properties 1,256,642 2,188,762 2,492,641 Amortization of deferred expenses 132,436 178,088 211,246 Net change in: Escrow deposits 524,546 (64,188) 55,113 Accounts and accrued interest receivable (458,787) 174,800 (298,776) Prepaid expenses 114,384 (159,160) Accounts payable (74,580) (29,005) 54,900 Due to affiliates 7,412 (132,007) (9,775) Accrued liabilities (748,731) (52,148) (615,274) Security deposits (148,458) (20,253) (78,933) ------------- ------------- ------------- Net cash (used in) provided by operating activities (825,905) 631,688 (1,578,125) ------------- ------------- ------------- Investing activities: Proceeds from sales of properties 67,215,000 17,790,715 Costs incurred in connection with sales of properties (1,375,912) (241,511) ------------- ------------- Net cash provided by investing activities 65,839,088 17,549,204 ------------- -------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland 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 $ (5,048,146) Capital contributions by joint venture partners- affiliate $ 42,706 $ 17,320 Distributions to joint venture partners- affiliate (1,944,950) (125,529) (89,383) Proceeds from loans payable- affiliate 677,000 866,905 Repayment of loans payable- affiliate (8,385,555) (400,000) (534,073) Proceeds from issuance of mortgage notes payable 7,448,362 Principal payments on mortgage notes payable (619,604) (732,050) (576,339) Repayment of mortgage notes payable (47,408,428) (23,693,178) Payment of deferred expenses (245,985) ------------- ------------- ------------- Net cash used in financing activities (63,406,683) (537,873) (16,806,371) ------------- ------------- ------------- Net change in cash and cash equivalents 1,606,500 93,815 (835,292) Cash and cash equivalents at beginning of year 419,227 325,412 1,160,704 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 2,025,727 $ 419,227 $ 325,412 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership (the "Partnership") is engaged principally in the operation of residential real estate located in the Gwinnett County, Georgia and Columbus, Ohio 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. The Partnership sold the La Contenta, Meadow Creek, Ridgetree - Phase II, Rosehill Pointe, Seabrook and Westwood Village apartment complexes during 1996. Currently, the Partnership is actively marketing the remaining two properties in its portfolio. The timing of the termination of the Partnership and final distribution of cash will depend upon the nature and extent of liabilities and contingencies which exist or may arise. The Partnership retained a portion of the cash to satisfy obligations of the Partnership as well as establish a reserve for contingencies. Such contingencies may include legal and other fees stemming from litigation involving the Partnership including, but not limited to, the lawsuits discussed in Note 14 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) Depreciation expense is computed using the straight-line and accelerated methods. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Buildings and land improvements 30 years Furniture and fixtures 5 years
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
Interest incurred while properties were under construction was capitalized.
As properties are sold, the related costs and accumulated depreciation are removed from the respective accounts. Any gain or loss on disposition is recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial Accounting Standards, No. 121 (SFAS 121), ("Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of"). Under SFAS 121, the Partnership records its investments in real estate at the lower of cost or fair value, and periodically assesses, but not less than on an annual basis, possible impairment to the value of its properties. The General Partner estimates the fair value of its properties based on the current sales price less estimated closing costs. In the event the General Partner determines an impairment in value has occurred, and the carrying amount of the real estate asset will not be recovered, a provision is recorded to reduce the carrying basis of the property to its estimated fair value. The General Partner considers the method referred to above to result in a reasonable measurement of a property's fair value, unless other factors affecting the property's value indicate otherwise.
(d) Deferred expenses consist of loan modification and financing fees which are amortized over the terms of the respective loan agreements. Upon sale, any remaining balance is recognized as debt extinguishment expense and classified as an extraordinary item.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. Since quoted market prices are not available for the Partnership's financial instruments, fair values have been based on estimates using present value techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. Statement No. 107 does not apply to all balance sheet items and excludes certain financial instruments and all non-financial instruments such as real estate from its disclosure requirements.
(f) Cash and cash equivalents include all unrestricted, highly liquid investments with an original maturity of three months or less. Cash is held or invested primarily in one financial institution.
(g) The Partnership is not liable for Federal income taxes and each partner recognizes his proportionate share of the Partnership income or loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(h) Revenue is recognized on an accrual basis in accordance with generally accepted accounting principles.
4. Partnership Agreement:
The Partnership was organized in February 1983. The Partnership Agreement provides for Balcor Partners-84 II, Inc. to be the General Partner and for the admission of Limited Partners through the sale of up to 110,000 Limited Partnership Interests at $1,000 per Interest, 87,037 of which were sold on or prior to September 28, 1984, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated 1% of the profits and losses and the Limited Partners will be allocated 99% of the profits and losses. One hundred percent of Net Cash Receipts available for distribution shall be distributed to the holders of Interests in proportion to their participating percentages as of the record date for such distributions. However, there shall be accrued for the benefit of the General Partner as its distributive share from operations, an amount equivalent to approximately 1% of the total Net Cash Receipts being distributed, which will be paid only out of Net Cash Proceeds. Under certain circumstances, the General Partner may participate in the Net Cash Proceeds of the sale or refinancing of Partnership properties. The General Partner's participation is limited to 15% of Net Cash Proceeds, including its share of accrued Net Cash Receipts, and is subordinated to the return of Original Capital plus any deficiency in a Cumulative Distribution of 6% on Adjusted Original Capital to the holders of Interests, as defined in the Partnership Agreement.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1996 and 1995 consisted of the following:
(A) In April 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
(B) In May 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
(C) In June 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
(D) In June 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
(E) In February 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
(F) In November 1996, this property was sold. See Note 11 of Notes to Financial Statements for additional information.
The Partnership's loans described above require current monthly payments of principal and interest. The Park Colony mortgage loan required monthly interest-only payments through December 31, 1995. Effective January 1996, the monthly payments were changed to include principal and interest.
Real estate with an aggregate carrying value of $12,061,569 at December 31, 1996 was pledged as collateral for repayment of mortgage loans.
Future annual maturities of the above mortgage notes payable during each of the next four years are approximately as follows:
1997 $ 146,000 1998 152,000 1999 9,826,000 2000 7,122,000
During 1996, 1995 and 1994, the Partnership incurred interest expense on mortgage notes payable of $3,192,587, $5,762,150 and $6,514,973 and paid interest expense of $3,362,444, $5,829,192 and $6,863,768, respectively.
6. Management Agreements:
As of December 31, 1996, both of the properties owned by the Partnership are under management agreements with a third party management company. These management agreements provide for annual fees of 5% of gross operating receipts.
7. Seller's Participation in Joint Venture:
Meadow Creek Apartments was owned by a joint venture between the Partnership and the seller. Consequently, the seller retained an interest in the property through an interest in the joint venture. All assets, liabilities, income and expenses of the joint venture were included in the financial statements of the Partnership with the appropriate deduction from income, if any, for the seller's participation in the joint venture. The property was sold in May 1996. The seller did not receive any proceeds from the sale of the property.
8. Affiliates' Participation in Joint Ventures:
Rosehill Pointe Apartments was owned by the Partnership and an affiliate (Balcor Realty Investors 85 - Series II) prior to its sale in June 1996. Profits and losses were allocated 61.62% to the Partnership and 38.38% to the affiliate. In addition, Seabrook Apartments was owned by the Partnership and two affiliates (Balcor Realty Investors 85 - Series I and Balcor Realty Associates) prior to its sale in February 1996. Profits and losses were allocated 83.72% to the Partnership and 16.28% to the affiliates. All assets, liabilities, income and expenses of the joint ventures are included in the financial statements of the Partnership with the appropriate adjustment for profit or loss for each affiliate's participation. Net distributions of $1,944,950, $82,823 and $72,063 were made to joint venture partners during 1996, 1995 and 1994, respectively. In addition, joint venture partners were allocated their pro rata share of the gains on the sales of the Rosehill and Seabrook apartment complexes of $3,055,484 and $228,084, respectively.
9. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder, and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax returns due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net income for 1996 in the financial statements is $11,286,598 less than the taxable income for the same period.
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/96 12/31/95 12/31/94 ----------------- --------------------- -------------------- Paid Payable Paid Payable Paid Payable --------- ------- ---------- --------- --------- --------- Property manage- ment fees None None None None $827,716 None Reimbursement of expenses to General Partner at cost: Accounting $13,048 $14,548 $53,668 $4,094 80,957 $31,333 Data processing 5,764 3,057 35,823 3,392 64,251 14,023 Investment processing None None None None 7,068 571 Investor com- munications None None 6,701 None 12,403 5,388 Legal 14,075 15,692 30,858 4,769 15,160 9,948 Other None None 5,790 None 25,194 4,658 Portfolio management 81,240 90,576 117,173 18,971 65,385 32,097
Property sales admini- stration 29,942 10,189 9,056 7,938 11,274 None
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 (The Balcor Company) 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 $17,353, $122,696 and $186,498 in 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed the Partnership's properties until the affiliate was sold to a third party in November 1994.
During the first six months of 1996, the Partnership repaid the General Partner loan, which had an outstanding balance of $8,385,555 at December 31, 1995, primarily with proceeds from the sales of the Seabrook, La Contenta and Meadow Creek apartment complexes. See Note 10 of Notes to Financial Statements for additional information. During 1996, 1995 and 1994, the Partnership incurred interest expense of $189,838, $544,980 and $399,006 and paid interest expense of $277,324, 618,133 and $378,243 on these loans, respectively. Interest expense was computed at the American Express Company cost of funds rate plus a spread to cover administrative expenses. The interest rate was 5.911% at the date of the loan repayment.
11. Property Sales:
(a) The Seabrook Apartments was owned by a joint venture consisting of the Partnership and two affiliates. The Partnership and the affiliates held participating percentages in the joint venture of 83.72% and 16.28%, respectively. In February 1996, the joint venture sold the property in an all cash sale for $5,915,000. From the proceeds of the sale, the joint venture paid $5,081,898 to the third party mortgage holder in full satisfaction of the first mortgage loan, and paid $190,517 in selling costs. The basis of the property was $4,361,052, which is net of accumulated depreciation of $2,625,226. For financial statement purposes, the Partnership recognized a gain of $1,363,431 from the sale of this property, of which $228,084 is the minority joint venture partners' share.
(b) In April 1996, the Partnership sold the La Contenta Apartments in an all cash sale for $11,300,000. From the proceeds of the sale, the Partnership paid $6,970,559 to the third party mortgage holder in full satisfaction of the first mortgage loan, and paid $236,400 in selling costs and $69,765 in prepayment penalties. The basis of the property was $4,737,918, which is net of accumulated depreciation of $3,049,224. For financial statement purposes, the Partnership recognized a gain of $6,325,682 from the sale of this property.
(c) In May 1996, the Partnership sold the Meadow Creek Apartments in an all cash sale for $11,100,000. From the proceeds of the sale, the Partnership paid $5,076,321 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $365,650 in selling costs and $101,896 in prepayment penalties. The basis of the property was $4,195,785, which is net of accumulated depreciation of $2,861,903. For financial statement purposes, the Partnership recognized a gain of $6,538,565 from the sale of this property.
(d) In June 1996, the Partnership sold the Ridgetree Apartments - Phase II in an all cash sale for $9,200,000. From the proceeds of the sale, the Partnership paid $7,798,124 to the third party mortgage holder in full satisfaction of the first and second mortgage loans, and paid $107,000 in selling costs. The basis of the property was $6,909,090, which is net of accumulated depreciation of $4,455,600. For financial statement purposes, the Partnership recognized a gain of $2,183,910 from the sale of this property.
(e) The Rosehill Pointe Apartments was owned by a joint venture consisting of the Partnership and an affiliate. The Partnership and the affiliate hold participating percentages in the joint venture of 61.62% and 38.38%, respectively. In June 1996, the joint venture sold the property in an all cash sale for $20,700,000. From the proceeds of the sale, the joint venture paid $15,537,677 to the third party mortgage holders in full satisfaction of the first and second mortgage loans, and paid $170,250 in selling costs. The basis of the property was $12,609,551, which is net of accumulated depreciation of $7,424,419. For financial statement purposes, the Partnership recognized a gain of $7,920,199 from the sale of this property, of which $3,055,484 is the minority joint venture partner's share.
(f) In November 1996, the Partnership sold the Westwood Village Apartments in an all cash sale for $9,000,000. From the proceeds of the sale, the Partnership repaid the outstanding balances of the first and second mortgage loans of $6,792,853 and $150,996, respectively, and paid $306,095 in selling costs. The basis of the property was $5,788,396, which is net of accumulated depreciation of $3,651,046. For financial statement purposes, the Partnership recognized a gain of $2,905,509 from the sale of this property.
12. Extraordinary Items:
(a) During 1996, the Partnership recognized an extraordinary gain on forgiveness of debt of $182,585 as a result of the sale of the Westwood Village Apartments.
(b) In connection with the sales of the La Contenta and Meadow Creek apartment complexes during 1996, the Partnership paid $171,661 of prepayment penalties. In addition, the Partnership wrote off the remaining unamortized deferred financing fees in the amount of $232,868 as a result of the sales of the La Contenta, Meadow Creek, Ridgetree - Phase II, Rosehill Pointe and Westwood Village apartment complexes during 1996. These amounts were recognized as an extraordinary item and classified as debt extinguishment expense of $404,529, of which $20,945 represents the Rosehill Pointe Apartments affiliate's share.
(c) During 1994, the Ridgepoint Green and Ridgepoint Way apartment complexes were sold. In connection with the sale, the mortgage notes which had outstanding balances of $18,459,448, including accrued interest were repaid for $16,593,178. The Partnership also wrote off the remaining $355,537 of unamortized loan modification fees related to the 1989 modifications of these mortgage notes. As a result, the Partnership recognized an extraordinary gain on forgiveness of debt totaling $1,510,773 in 1994.
13. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest receivable, accounts and accrued interest payable approximates fair value.
Mortgage notes payable: Based on borrowing rates available to the Partnership at the end of 1996 and 1995 for mortgage loans with similar terms and maturities, the fair value of the mortgage notes payable approximates the carrying value.
14. Contingency:
The Partnership is currently involved in two lawsuits whereby the Partnership and certain affiliates have been named as defendants alleging substantially similar claims involving certain federal securities law violations with regard to the adequacy and accuracy of disclosures of information concerning, as well as marketing efforts related to, the offering of the Limited Partnership Interests of the Partnership. The defendants continue to vigorously contest these actions. A plaintiff class has not been certified in either action and, no determinations of the merits have been made. It is not determinable at this time whether or not an unfavorable decision in either action would have a material adverse impact on the financial position, operations and liquidity of the Partnership. The Partnership believes it has meritorious defenses to contest the claims.
15. Subsequent Event:
In January 1997, the Partnership paid $870,370 ($10 per Interest) to Limited Partners, representing a special distribution comprised primarily of Net Cash Proceeds received in connection with the sale of the Westwood Village Apartments.
BALCOR REALTY INVESTORS 84-SERIES II A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
See Notes (a) through (f).
BALCOR REALTY INVESTORS 84-SERIES II A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
See Notes (a) through (f).
BALCOR REALTY INVESTORS 84-SERIES II, A REAL ESTATE LIMITED PARTNERSHIP (A Maryland Limited Partnership)
NOTES TO SCHEDULE III
(a) Consists of legal fees, appraisal fees, title costs, other related professional fees and capitalized construction-period interest.
(b) The aggregate cost of land for Federal income tax purposes is $2,840,868 and the aggregate cost of buildings and improvements for Federal income tax purposes is $16,005,888. The total of the above-mentioned is $18,846,756.
(c) Reconciliation of Real Estate - ------------------------------ 1996 1995 1994 ----------- ------------- ------------- Balance at beginning of year $83,022,344 $83,022,344 $102,280,525
Reductions during the year: Cost of real estate sold (62,669,210) (19,258,181) ------------ ------------- ------------- Balance at end of year $20,353,134 $83,022,344 $83,022,344 ============ ============= =============
Reconciliation of Accumulated Depreciation ------------------------------------------- 1996 1995 1994 ------------ ------------ -------------- Balance at beginning of year $31,102,341 $28,913,579 $32,387,624
Depreciation expense for the year 1,256,642 2,188,762 2,492,641
Accumulated depreciation of real estate sold (24,067,418) (5,966,686) ----------- ------------ ------------ Balance at end of year $ 8,291,565 $31,102,341 $28,913,579 =========== =========== ============
(d) See description of Mortgage Notes Payable in Note 5 of Notes to Financial Statements.
(e) Depreciation expense is computed based upon the following estimated useful lives:
Buildings and improvements 30 years Furniture and fixtures 5 years
(f) Guaranteed income earned on properties under the terms of certain management and guarantee agreements is recorded by the Partnership as a reduction of the basis of the property to which the guaranteed income relates.