ITEM 1. BUSINESS
Real-Equity Partners ("REP" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on September 9, 1981. The Partnership was formed to invest in residential rental properties either directly or through investment in joint ventures and other partnerships which will invest in such real estate. Commencing on September 27, 1983, REP offered 30,000 units of the limited partnership interest (the "Units") through a public offering managed by E.F. Hutton Inc. REP's public offering was completed within a year of its commencement.
The general partners of REP are National Partnership Investments Corp. ("NAPICO"), a California corporation (the "Corporate General Partner"), and National Partnership Investments Associates II, a California limited partnership ("NAPIA II"). NAPIA II consists of Charles H. Boxenbaum and an unrelated individual as limited partners and NAPICO as general partner. The business of REP is conducted primarily by NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden.
As of December 31, 1998, the Partnership remains invested in five apartment projects. One property was foreclosed upon in 1996. Substantially all of the buildings are leased on a month-to-month basis. The management of the Partnership's properties is the responsibility of an affiliate of NAPICO (the "Property Manager"). The principal business of the Property Manager is residential property management.
The Partnership is subject to all of the risks incident to ownership of real estate and interests therein, many of which relate to the lack of liquidity of this type of investment. These risks include changes in general economic conditions, adverse local market conditions due to over-building or a decrease in employment or neighborhood values, changes in supply or demand of competing properties in an area, changes in interest rates and the availability and terms of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates, the potential imposition of rent controls, and the occurrence of uninsured losses, such as earthquakes, floods or other factors beyond the control of the General Partners. The illiquidity of real estate investments generally will impair the ability of the Partnership to respond promptly to changed circumstances.
As of September 25, 1998, the Partnership entered into an agreement to sell all the properties owned by the Partnership to JH Real Estate Partners, Inc. for a price of $31,900,000.
In December 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership. In January 1999, the consents of the limited partners to this sale were obtained and the transaction closed on February 17, 1999.
During 1998, the projects in which REP had invested were substantially rented.
The following is a schedule of the occupancy status, as of December 31, 1998, of the projects in which REP has invested:
SCHEDULE OF PROJECTS IN WHICH REP HAS AN INVESTMENT DECEMBER 31, 1998
ITEM 2.
ITEM 2. PROPERTIES
Through acquisition, REP holds interests in real estate properties. See Item 1 and Schedule XI for information pertaining to these properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1998, the Partnership's Corporate General Partner was a plaintiff or defendant in several lawsuits. Additionally, certain slip and fall lawsuits, each of which is covered by insurance, are pending against the Partnership although none are expected to result in any exposure to the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In December 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership to JH Real Estate Partners, Inc. for $31,900,000. In January 1999, the consents of the limited partners to this sale were obtained and the transaction closed on February 17, 1999.
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
The Limited Partnership Interests are not traded on a public exchange but were sold through a public offering managed by E.F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any partnership interest. Limited Partnership Interests may be transferred only if certain requirements are satisfied. At December 31, 1998, there were 2,740 registered holders of units in REP. It was intended that distributions of Net Cash From Operations will be made to the limited partners of record on a quarterly basis during the months of February, May, August, and November pro rata in proportion to the number of units held. From November 1994 through May 1996, distributions to the limited partners were not made due to the Partnership setting aside funds for losses incurred by REP as a result of the January 17, 1994 Northridge Earthquake. The Partnership made distributions of $600,000, $600,000 and $300,000 to the limited partners in 1998, 1997 and 1996, respectively. In addition, distributions of $66,668 and $900,856 were made to the Corporate General Partner in 1998 and 1997, respectively.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
LIQUIDITY
The Partnership's primary source of funds include cash flow from rental operations and interest income on certificates of deposit and money market accounts.
Distributions of net cash from operations were normally intended to be made to the Limited Partners of record on a quarterly basis during the months of February, May, August, and November pro rata in proportion to the number of Units held. From November 1994 through May 1996, distributions to the limited partners were not made due to the Partnership setting aside funds for losses incurred by REP as a result of the January 17, 1994 Northridge Earthquake. The Partnership made quarterly distributions, each in the amount of $150,000, to the limited partners, starting with August 1996.
Currently, it is anticipated that the Partnership will continue to meet its current and long-term obligations as they become due.
CAPITAL RESOURCES
As of December 31, 1984, REP received proceeds of $30,000,000 from the sale of limited partnership interests, pursuant to a registration statement on Form S-11.
RESULTS OF OPERATIONS
REP was formed to invest in residential rental properties either directly or through investments in joint ventures and other partnerships which will invest in such real estate, as discussed in Item 1. The seven rental properties originally owned by REP were acquired at various times during 1984 and 1985. The Partnership remains invested in five rental properties as of December 31, 1998.
Rental operations consist primarily of rental income and depreciation expense, debt service, and normal operating expenses to maintain the properties. Depreciation is provided on the straight-line method over the estimated useful lives of the buildings and equipment. Substantially all of the rental units in the apartment projects are leased on a month-to-month basis.
An annual property management fee, which shall in any event not exceed 5 percent of gross revenues from each property under management, is payable by the properties to an affiliate of NAPICO.
The Parkside Apartments rental property was operating at a deficit and NAPICO was unsuccessful in its attempt to negotiate a mortgage modification with the lender to improve the situation. In March 1995, the Parkside Apartments rental property ceased making payments to the mortgage lender. The mortgage lender filed a notice of default on January 17, 1996, and foreclosed on the property on May 23, 1996. The foreclosure resulted in a gain of $259,088 because the Partnership was relieved of nonrecourse liabilities which were in excess of the net book value of the property. The foreclosure of this property in 1996 accounts primarily for the decrease in rental revenues and expenses in 1997 as compared to 1996. Included in revenues and expenses for 1996 is $127,000 and $179,000, respectively, related to Parkside Apartments. This was partially offset by increases in revenues and expenses at the other properties.
Occupancy at the Warner Willows I and II properties averaged 98%, 98% and 94% in 1998, 1997 and 1996, respectively. Both properties operated with positive cash earnings in 1998, 1997 and 1996 (excluding, depreciation and principal payments on the mortgage loans). Positive cash earnings for 1998 were approximately $19,000 and $2,000 for Warner Willows I and II, respectively, for 1997 they were approximately $71,000 and $28,000 for Warner Willows I and II, respectively, and for 1996 approximately $96,000 and $38,000 for Warner Willows I and II, respectively. Occupancy at the Arbor Glen property averaged 97%, 94% and 96% in 1998, 1997 and 1996, respectively. The property operated
positively in 1998, 1997 and 1996, and produced cash flows of approximately $197,000, $288,000 and $189,000, respectively, (excluding depreciation and principal payments on the mortgage loan).
Occupancy at the Park Creek property averaged 94%, 92% and 81% in 1998, 1997 and 1996, respectively. The property operated positively during 1998, 1997 and 1996 producing cash earnings of approximately $126,000, $119,000 and $97,000, respectively, (excluding depreciation and principal payments on the mortgage loan).
Occupancy at the Willowbrook property averaged 92%, 97% and 94%, in 1998, 1997 and 1996, respectively. The property operated positively during 1998, 1997 and 1996, producing cash flows of approximately $393,000, $353,000 and $364,000, respectively, (excluding depreciation and principal payments on the mortgage loan).
On January 17, 1994, the Park Creek and Warner Willows I and II rental properties sustained damage, estimated at approximately $1,454,000, due to the Northridge Earthquake in January 1994. Insurance proceeds of approximately $630,000 have been allocated to the Partnership in 1994, as the estimated full settlement under a master umbrella insurance policy covering earthquake damage for these and other properties managed by a related party. The total estimated expenditures needed to repair the properties, net of the insurance recoveries, is approximately $824,000, and has been expensed in 1994 since they did not extend the useful life of the properties. Included in liabilities is approximately $506,000 at December 31, 1998 and 1997, related to the Northridge Earthquake damages. Through December 31, 1997, approximately $948,000 has been paid for earthquake repairs and of this amount approximately $859,000 was paid to an affiliate of NAPICO. Included in payments to the affiliate of NAPICO was approximately $122,000 paid under a contract for $123,456 entered into by the Partnership on February 22, 1996, after receiving competitive bids.
In March 1996, the Partnership received from the insurance company a final settlement payment of $334,591 related to the earthquake loss. This was accrued in income in 1995.
The Partnership operations consist primarily of interest income earned on certificates of deposit and other temporary investments of funds not required for investment in projects. The amount of interest income varies with market rates available on certificates of deposit and with the amount of funds available for investment.
As of September 25, 1998, the Partnership entered into an agreement to sell all the properties owned by the Partnership to JH Real Estate Partners, Inc. for a price of $31,900,000.
In December, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership. In January 1999, the consents of the limited partners to this sale were obtained and the transaction closed on February 17, 1999. In March 1999, the Partnership made cash distributions from operations of $150,000 to the limited partners and $16,667 to the general partners. In addition, the Partnership distributed cash proceeds from sale of the rental property of $14,854,986 to the limited partners and $150,050 to the general partners.
The partners intend to dissolve the Partnership in 1999.
Operating expenses of the Partnership consist substantially of recurring general and administrative expenses and professional fees for services rendered to the Partnership and interest on the deferred acquisition fee due the General Partners. Included in partnership general and administrative expenses for 1998 and 1997 is $498,688 and $136,815, respectively, in expenses, related to the aforementioned third-party review of the properties owned by the Partnership.
The Partnership is incurring interest expense at a rate of 8% per annum on the unpaid fees due the corporate general partner. Under the terms of the Amended and Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to the corporate general partner for a deferred acquisition fee for services rendered in connection with the selection, purchase, development, and management of the Partnership and monitoring the operations of the properties, in an amount which, when calculated on a present value basis (using a discount factor of 8% for this purpose) from the date of payment to the general partners to September 27, 1984 equals 10% of the gross proceeds of the offering ($3,000,000). Distribution of any part of this fee from net cash from operations shall be subordinate to receipt by each limited partner
of an amount equal to a cumulative noncompounded 6% distribution. The acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3% of investment in properties (approximately $600,000) plus any proceeds from sale or refinancing of the properties. An annual property management fee, which shall not in any event exceed 5% of gross revenues from each property under management, is also payable to an affiliate of the corporate general partner. As of December 31, 1998 and 1997, approximately $778,000 and $736,000, respectively, of the deferred acquisition fee was due to the corporate general partner. Interest expense to the corporate general partner was approximately $42,000 in each of the years in the three year period ended December 31, 1998.
The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are listed under Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
REAL-EQUITY PARTNERS (A California limited partnership)
FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT DECEMBER 31, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Real-Equity Partners (A California limited partnership)
We have audited the accompanying balance sheets of Real-Equity Partners (a California limited partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the index in item 14. These financial statements and financial statement schedule are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and 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 Real-Equity Partners as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1, the Partnership sold its rental property on February 17, 1999. The Partnership intends to dissolve in 1999.
DELOITTE & TOUCHE LLP
Los Angeles, California April 6, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Real-Equity Partners (A California limited partnership)
We have audited the accompanying balance sheets of Real-Equity Partners (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the index on item 14. These financial statements and financial statement schedule are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and 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 Real-Equity Partners as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California April 6, 1998
REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
The accompanying notes are an integral part of these financial statements.
REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The accompanying notes are an integral part of these financial statements.
REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The accompanying notes are an integral part of these financial statements.
REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The accompanying notes are an integral part of these financial statements.
REAL-EQUITY PARTNERS (A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The accompanying notes are an integral part of these financial statements.
REAL-EQUITY PARTNERS (a California limited partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Real-Equity Partners (the "Partnership") was formed under the California Limited Partnership Act on September 9, 1981. The Partnership was formed to invest in residential rental projects. The Partnership invested in seven residential apartment projects; one of these properties was foreclosed in March 1993. The general partners of the Partnership are National Partnership Investments Corp. (NAPICO), the corporate general partner, and National Partnership Investments Associates II (NAPIA II), a California limited partnership. The general partner of NAPIA II is NAPICO and one of the limited partners is an officer of NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden.
The Partnership offered and issued 30,000 units of limited partnership interests through a public offering. The terms of the Amended and Restated Certificate and Agreement of Limited Partnership (the "Partnership Agreement") provide, among other things, for allocation to the partners of profits, losses and any special allocations with respect thereto. Under the terms of the Partnership Agreement, cash available for distribution is to be allocated 90 percent to the limited partners as a group and 10 percent to the general partners. Based on cash distributions made to the limited partners as of December 31, 1996, $834,188 was due to the general partners as their 10% percent share of cash available for distribution. This amount was paid to the general partners in 1997, in addition to the $66,668 paid related to 1997.
In the case of the sale or refinancing of a property, the general partners shall first receive out of the net proceeds from sale or refinancing any unpaid portion of the deferred acquisition fee (see Note 6). Thereafter, the general partners shall receive 1 percent of the net proceeds from the sale or refinancing until the limited partners have received an amount equal to their adjusted capital value (as defined in the Partnership Agreement) plus cumulative distributions (including net cash from operations) equal to a non-compounded 6 percent annual distribution with respect to their adjusted capital value, and then the general partners shall receive 15 percent of the balance of any net proceeds from sale or refinancing.
Losses are allocated 99% to the limited partners and 1% to the general partners.
b. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Rental Property and Depreciation
Rental property is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the buildings and equipment as follows:
The Parkside Apartments rental property was operating at a deficit and NAPICO was unsuccessful in its attempt to negotiate a mortgage modification with the lender to improve the situation. In March 1995, the Parkside Apartments rental property ceased making payments to the mortgage lender. The mortgage lender filed a notice of default on January 17, 1996, and foreclosed on the property on May 23, 1996. The foreclosure resulted in a gain of $259,088 because the Partnership was relieved of nonrecourse liabilities which were in excess of the net book value of the property. The gain was classified as an ordinary gain because the fair value of the property approximated the liabilities that were relieved.
On January 17, 1994, the Park Creek and Warner Willows I and II rental properties sustained damage, estimated at approximately $1,454,000, due to the Northridge Earthquake in the Los Angeles area. Insurance proceeds of approximately $630,000 have been allocated to the Partnership in 1994, as the estimated full settlement under a master umbrella insurance policy covering earthquake damage for these and other properties managed by a related party. The total estimated expenditures needed to repair the properties, net of the insurance recoveries, which nets to approximately $824,000, have been expensed in 1994 since they do not extend the useful life of the properties.
In March 1996, the Partnership received from the insurance company a final settlement payment of $334,591 related to the earthquake loss. This was accrued in income in 1995.
Substantially all of the apartments are leased on a month-to-month basis.
The Partnership has been undergoing an extensive review of disposition, refinancing or re-engineering alternatives for the properties it owns. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $498,688 and $136,815 for the years ended December 31, 1998 and 1997, respectively.
As of September 25, 1998, the Partnership entered into an agreement to sell all the properties owned by the Partnership to JH Real Estate Partners, Inc. for a price of $31,900,000.
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the sale of the properties owned by the Partnership. In January 1999, the consents of the limited partners to this sale were obtained and the transaction closed on February 17, 1999. In March 1999, the Partnership made cash distributions from operations of $150,000 to the limited partners and $16,667 to the general partners. In addition, the Partnership distributed cash proceeds from sale of the rental property of $14,854,986 to the limited partners and $150,050 to the general partners. The partners intend to dissolve the Partnership in 1999.
d. Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash and bank certificates of deposits with an original maturity of three months or less.
e. Impairment of Long-Lived Assets
The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss.
2. MORTGAGE NOTES PAYABLE
Mortgage notes payable consists of the following:
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
2. MORTGAGE NOTES PAYABLE (CONTINUED)
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
2. MORTGAGE NOTES PAYABLE (CONTINUED)
Maturities on the mortgage notes payable, are as follows:
The notes were paid off in connection with the sale of the rental property on February 17, 1999.
3. INCOME TAXES
No provision has been made for income taxes in the accompanying financial statements as such taxes, if any, are the liability of the individual partners. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for rental property held by the Partnership.
4. NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by 30,000, the number of limited partnership interests outstanding during each year.
5. RELATED PARTY TRANSACTIONS
The Partnership has entered into agreements with an affiliate of NAPICO to manage the operations of the rental properties. The agreements are on a month-to-month basis and provide, among other things, for a management fee equal to 5% of gross rentals and other collections plus reimbursement of certain expenses. The affiliate received property management fees of $256,338 and $241,877 and $243,445 in 1998, 1997 and 1996, respectively.
An affiliate of NAPICO performed certain of the earthquake repairs at the Park Creek and Warner Willows I and II rental properties. The payments to this affiliate for these repairs was approximately $859,000 as of December 31, 1998 (Note 1). Included in payments to the affiliate of NAPICO was approximately $122,000 paid under a contract for $123,456 entered into by the Partnership on February 22, 1996, after receiving competitive bids.
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $12,601, $12,606 and $12,426 in 1998, 1997 and 1996, respectively, and is included in partnership general and administrative expenses.
6. ACCRUED FEES DUE GENERAL PARTNER
Under the terms of the Partnership Agreement, the Partnership is obligated to NAPICO for a deferred acquisition fee. This fee is for services rendered in connection with the management of the Partnership, and the selection, purchase, acquisition, development and monitoring the operations of its properties.
Distribution of any part of this fee from net cash from operations shall be subordinated to receipt by each limited partner of an amount equal to a cumulative, non-compounded 6 percent annual distribution with respect to his adjusted capital value (as defined in the Partnership Agreement). The aggregate amount of the deferred acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3 percent of the investment in properties plus any proceeds from sale or refinancing of the properties. The deferred acquisition fee shall be an amount which, when present valued at 8 percent from certain dates, as defined in the partnership agreement, equals 10 percent of the gross proceeds of the offering ($3,000,000). Distribution of the deferred acquisition fee will be made from net cash from operations and net proceeds from sale or refinancing for a maximum of 15 years, or until the above limit is met.
The present value of the deferred acquisition fee of $1,783,767 has been reflected in the accompanying financial statements and has been capitalized as part of the cost of rental property acquired. The amount outstanding as of December 31, 1998 and 1997 was approximately $778,000 and $736,000, respectively. This amount was paid in March 1999.
7. CONTINGENCIES
a) Litigation
The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named as defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the corporate general partner, these claims will not result in any material liability to the Partnership.
b) Year 2000 Information
The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition.
REAL-EQUITY PARTNERS (a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. One of the mortgage notes payable is insured by HUD and is secured by a rental property. The operations generated by the property are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of this mortgage note payable. The book values of all other debt instruments approximate their fair values because the interest rates of these instruments are comparable to rates currently offered to the Partnership. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity.
SCHEDULE III
REAL-EQUITY PARTNERS REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
SCHEDULE III (Continued)
REAL-EQUITY PARTNERS REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
NOTES: 1. Rental property is stated at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of the buildings and equipment. Substantially all of the apartments are leased on a month-to-month basis.
2. The total cost of land, buildings, and equipment for federal income tax purposes at December 31, 1998 is approximately $38,896,531.
3. Investments in property and equipment are as follows:
SCHEDULE III (Continued)
REAL-EQUITY PARTNERS REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
Buildings, Furnishings, And Equipment ------------ ACCUMULATED DEPRECIATION:
Balance at January 1, 1996 $ 14,497,544
Net additions 1996 824,434
Less Parkside foreclosure (2,220,594) ------------
Balance at December 31, 1996 13,101,384
Net additions 1997 738,412 ------------
Balance at December 31, 1997 13,839,796
Net additions 1998 738,412 ------------
Balance at December 31, 1998 $ 14,578,208 ============
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
REAL-EQUITY PARTNERS (the "Partnership") has no directors or executive officers of its own.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs.
CHARLES H. BOXENBAUM, 69, Chairman of the Board of Directors and Chief Executive Officer of NAPICO.
Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company.
Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. In 1963, he was the winner of the Snyder Award, the highest annual award offered by the National Association of Real Estate Boards for Best Exchange. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Mr. Boxenbaum was a member of the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago.
BRUCE E. NELSON, 47, President and a director of NAPICO.
Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis and negotiation of real estate investments.
From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas.
ALAN I. CASDEN, 53, Chairman of Casden Properties Inc. and The Casden Company, an affiliate of Casden Properties (formerly CoastFed Properties), a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO.
Mr. Casden is Chairman of the Board, Chief Executive Officer and a principal shareholder of The Casden Company and Casden Investment Company. He also became the Chairman of the Board Casden Properties Inc. in 1998. Previously, he was the president and chairman of Mayer Group, Inc., which he joined in 1975. He is also president of Mayer Management, Inc., a real estate management firm. Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums.
Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, and the President's Council of the California Building Industry Association. He also serves on the advisory board to the School of Accounting of the University of Southern California. He holds a Bachelor of Science degree from the University of Southern California.
HENRY C. CASDEN, 55, President, Chief Operating Officer and Secretary of The Casden Company and a director and secretary of NAPICO.
Mr. Casden has been President and Chief Operating Officer of The Casden Company, as well as a director of NAPICO since February 1988. He became secretary of both companies in late 1994. He also became President of Casden Properties Inc. in 1998. From 1982 to 1988, Mr. Casden was of counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From 1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink & Casden, Professional Corporation.
Mr. Casden received his Bachelor of Arts degree from the University of California at Los Angeles, and is a graduate of the University of San Diego Law School. Mr. Casden is a member of the State Bar of California and has numerous professional affiliations.
PAUL PATIERNO, 42, Chief Financial Officer.
Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs, as well as the limited partnerships sponsored by it. From 1995 until joining NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable housing group of Altschuler, Melvoin and Glasser LLP, a national public accounting firm. From 1990 to 1995, he practiced public accounting with a firm specializing in real estate syndication. Mr. Patierno received his bachelor of science degree in accounting from California State University at Northridge, and is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.
PATRICIA W. TOY, 68, Senior Vice President - Communications and Assistant Secretary.
Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts degree from the University of Nebraska.
MARK L. WALTHER, 37, Executive Vice President, General Counsel and Assistant Secretary.
Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther worked in the San Francisco law firm of Browne and Kahn which specialized in construction litigation. Mr. Walther received his Bachelor of Arts degree in Political Science from the University of California, Santa Barbara and is a graduate of the University of California, Davis, School of Law. He is a member of the State Bar of Hawaii.
NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The Partnership has no officers, directors, or employees of its own. All of its affairs are managed by the Corporate General Partner, NAPICO. The transactions with NAPICO and its affiliates are primarily in the form of fees paid by the Partnership to NAPICO for services rendered to the Partnership, as follows.
Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for a deferred acquisition fee for services rendered in connection with the management of the Partnership and the selection, purchase, development, and monitoring the operations of the properties, in an amount approximately equal to 10 percent (on a present value basis) of the gross proceeds of the offering. Distribution of any part of this fee shall be subordinated to receipt by each limited partner of an amount equal to a cumulative noncompounded 6 percent annual distribution with respect to his adjusted Adjusted Capital Value. The aggregate amount of the deferred acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3 percent of investment in properties (approximately $600,000).
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $12,601, $12,606 and $12,426 in 1998, 1997 and 1996, respectively, and is included in operating expenses.
An annual property management fee is also payable to an affiliate of NAPICO which shall in any event not exceed 5 percent of gross revenues from each property under management. Management fees charged to rental operations were approximately $256,000, $242,000 and $243,000 for 1998, 1997 and 1996, respectively.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The general partners own all of the outstanding general partnership interests of REP; no person is known to own beneficially in excess of 5 percent of the outstanding limited partnership interests.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Real-Equity Partners has no officers, employees, or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to the corporate general partner for a deferred acquisition fee for services rendered in connection with the management of the Partnership and the selection, purchase, development, and monitoring the operations of the properties, in an amount approximately equal to 10 percent (on a present value basis) of the gross proceeds of the offering. Distribution of any part of this fee shall be subordinated to receipt by each limited partner of an amount equal to a cumulative noncompounded 6 percent annual distribution with respect to his Adjusted Capital Value. The aggregate amount of the deferred acquisition fee distributed in any year from net cash from operations shall not exceed an amount equal to 3 percent of investment in properties (approximately $600,000). The Partnership is incurring interest expense at a rate of 8% per annum on the unpaid fees due the corporate general partner. Interest expense to the corporate general partner was $42,125, $42,125 and $42,240 for the years ended December 31, 1998, 1997 and 1996, respectively.
An annual property management fee is also payable to an affiliate of the NAPICO which shall in any event not exceed 5 percent of gross revenues from each property under management. Management fees charged to rental operations were approximately $256,000, $242,000 and $243,000 for 1998, 1997 and 1996, respectively.
An affiliate of the corporate general partner performed earthquake repairs at the Park Creek and Warner Willows I and II rental properties. The payments to this affiliate for these repairs was approximately $859,000 as of December 31, 1998.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $12,601, $12,606 and $12,426 in 1998, 1997 and 1996, respectively, and is included in operating expenses.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
FINANCIAL STATEMENTS
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1998 and 1997.
Statements of Operations for the years ended December 31, 1998, 1997 and 1996.
Statements of Partners' Equity (Deficiency) for the years ended December 31, 1998, 1997 and 1996.
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.
Notes to Financial Statements as of December 31, 1998.
FINANCIAL STATEMENT SCHEDULE
Schedule III - Real Estate and Accumulated Depreciation, December 31, 1998.
The remaining schedules are omitted because the required information is included in the financial statements and notes thereto or they are not applicable or not required.
EXHIBITS
(3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 Registration No. 2-82765 incorporated herein by reference.
(10) Material contracts: The registrant is not party to any material contracts, other than the Amended and Restated Certificate and Agreement of Limited Partnership dated September 9, 1981, and the seven apartment projects located in California and Nevada as previously filed at the Securities Exchange Commission, File No. 2-82765 which is hereby incorporated by reference.
REPORTS ON FORM 8-K
A report on Form 8-K dated November 26, 1996, was filed with the Securities and Exchange Commission. This Form 8-K disclosed that the registrant became aware of an entity conducting a tender offer for units in the registrant. The General Partners on behalf of the registrant, responded to the offer in registrant's Semi-Annual Report mailed to the limited partners on or about November 18, 1996. The Corporate General Partner advised the limited partners that it does not believe that this reported offer appears to reflect the full value of the limited partnership interests, and that each investor must consult with his or her tax advisor regarding the amount and character of any tax gain or loss.
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 in the City of Los Angeles, State of California.
REAL-EQUITY PARTNERS
By: NATIONAL PARTNERSHIP INVESTMENTS CORP. The General Partner
/s/ CHARLES H. BOXENBAUM - ------------------------------------------ Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer
/s/ BRUCE E. NELSON - ------------------------------------------ Bruce E. Nelson Director and President
/s/ ALAN I. CASDEN - ------------------------------------------ Alan I. Casden Director
/s/ HENRY C. CASDEN - ------------------------------------------ Henry C. Casden Director
/s/ PAUL PATIERNO - ------------------------------------------ Paul Patierno Chief Financial Officer