Investments, Equity Method and Joint Ventures

12 Months Ended

Dec. 31, 2011

Investments, Equity Method and Joint Ventures

Equity Method Investments Disclosure [Text Block]

2.  Investments in and Advances to Local Partnerships

At December 31, 2011, the Partnership holds limited partnership interests in five Local Partnerships, located in two states and Puerto Rico, that own residential low income rental projects consisting of 335 apartment units. At December 31, 2010 the Partnership held limited partnership interests in six Local Partnerships, located in three states and Puerto Rico, that owned residential low income rental projects consisting of 386 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies.

The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from most of the Local Partnerships are restricted by the Local Partnerships’ Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Partnership.

The individual investments are carried at cost plus the Partnership’s share of the Local Partnership’s profits less the Partnership’s share of the Local Partnership’s losses, distributions and impairment charges. See “Note 1 – Organization and Summary of Significant Accounting Policies” for a description of the impairment policy. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero.  Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. 

For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships.  Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

Two Local Partnerships, Santa Maria Limited Dividend Partnership Assoc. (“Santa Maria”) and Marina Del Rey Limited Dividend Partnership Assoc. (“Marina Del Rey”), have been marketing their properties for sale. On October 26, 2011, Santa Maria and Marina Del Rey each entered into separate purchase and sale contracts to sell their respective investment properties to a third party for a gross sales price of $2,600,000 and $2,750,000, respectively. After payment of closing costs and repayment of the notes payable encumbering the properties, the Partnership expects to receive approximately $330,000 and $500,000 from Santa Maria and Marina Del Rey, respectively, for advance repayments and distributions. The sales are expected to close during December 2012. The Partnership has no investment balances remaining in these two Local Partnerships at December 31, 2011 and 2010.

At December 31, 2011 and 2010, the investment balance in the five and six Local Partnerships, respectively, had been reduced to zero.

In May 2011, the Partnership assigned its limited partnership interest in Village Apartments (“Village”) to an affiliate of the operating general partner of Village. The Partnership believed that Village’s liabilities exceeded the fair value of the property. In addition, Village faced foreclosure as the lender had issued an acceleration notice on Village’s mortgage. The Partnership did not receive any proceeds for the assignment. The Partnership’s investment balance in Village was zero at December 31, 2011 and 2010.

At times, advances are made to the Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnership’s investment in the Local Partnerships. Advances to Local Partnerships for which the investment has been reduced to zero are charged to expense. During the year ended December 31, 2011, the Partnership advanced approximately $69,000 to two Local Partnerships, Santa Maria Ltd. and Marina Del Ray Limited Dividend Partnership Assoc., for entity taxes. During the year ended December 31, 2010, the Partnership advanced approximately $3,000 to one Local Partnership, Marina Del Ray Limited Dividend Partnership Assoc., for entity taxes. During the years ended December 31, 2011 and 2010, the Partnership recognized approximately $69,000 and $3,000 as expense for advances, respectively. While not obligated to make advances to any of the Local Partnerships, the Partnership may make future advances in order to protect its economic investment in the Local Partnerships.

Although the Partnership’s recorded value of its investments and its equity in losses/income and/or distributions from the Local Partnerships are individually not material to the overall financial position of the Partnership, the following are summaries of the unaudited condensed combined balance sheets of the aforementioned Local Partnerships as of December 31, 2011 and 2010 and the unaudited condensed combined results of operations for each of the two years in the period ended December 31, 2011.

The 2011 and 2010 amounts exclude the operations of Village Apartments for which the Partnership assigned its interests in May 2011:

Condensed Combined Balance Sheets of the Local Partnerships
(In thousands)
	December 31,
	2011	2010
	(unaudited)	(unaudited)
Assets
Land	$    459	$    459
Building and improvements, net of accumulated
depreciation of approximately $12,073 and
$11,880, respectively	1,454	1,633
Other assets	983	850
Total assets	$  2,896	$  2,942
Liabilities and Partners’ Deficit:
Liabilities:
Mortgage notes payable	$  8,993	$  9,199
Other liabilities	419	278
Total liabilities	9,412	9,477
Partners' deficit	(6,516)	(6,535)
Total Liabilities and Partners' Deficit	$  2,896	$  2,942

Condensed Combined Results of Operations of the Local Partnerships
(In thousands)
	Years ended December 31,
	2011	2010
	(unaudited)	(unaudited)
Rental and other income	$ 2,273	$ 2,228
Expenses:
Operating expenses	1,235	1,120
Financial expenses	743	758
Depreciation and amortization	215	217
Total expenses	2,193	2,095
Income from continuing operations	$    80	$   133

Real Estate and Accumulated Depreciation of Local Partnerships

The following is an unaudited summary of real estate, accumulated depreciation and encumbrances of the Local Partnerships in which REAL III has invested (in thousands-unaudited):

			Buildings
			And
			Related
			Personal		Accumulated	Date of
Description	Encumbrances	Land	Property	Total(1)	Depreciation (1)	Construction
Alabama Properties
Ltd. V	$ 1,334	$   53	$ 2,249	$ 2,302	$ 1,706	1980-1981
Lakeside Apts. Ltd.	843	72	1,036	1,108	914	1980-1981
Santa Maria Ltd.
Dividend
Partnership Assoc.	2,196	107	3,597	3,704	3,283	1981-1982
Marina Del Rey
Ltd. Dividend
Partnership Assoc.	2,183	124	3,209	3,333	2,796	1981-1982
Vista Housing Assoc. L.P.	2,437	103	3,436	3,539	3,374	1981-1982
Totals	$ 8,993	$  459	$13,527	$13,986	$12,073

 (1)  Reconciliation of real estate (unaudited)

	Years Ended December 31,
	2011	2010
	(in thousands)
Real Estate:
Balance at beginning of year	$ 13,972	$ 13,920
Improvements	30	57
Disposals of assets	(16)	(5)
Balance at end of year	$ 13,986	$ 13,972

      Reconciliation of accumulated depreciation (unaudited)

	Years Ended December 31,
	2011	2010
	(in thousands)
Accumulated Depreciation:
Balance at beginning of year	$ 11,880	$ 11,674
Depreciation expense	209	211
Disposals of assets	(16)	(5)
Balance at end of year	$ 12,073	$ 11,880

In addition to being the Corporate General Partner of the Partnership, NAPICO, or one of its affiliates is the local operating general partner for two of the Local Partnerships included above.

The current policy of the United States Department of Housing and Urban Development (“HUD”) is to not renew the Housing Assistance Payment (“HAP”) Contracts on a long term basis on the existing terms.  In connection with renewals of the HAP Contracts under current law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts.  The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD (“FHA”) unless such mortgage loans are restructured.  In order to address the reduction in payments under HAP Contracts as a result of current policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (“MAHRAA”) provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program.  Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan.  This restructuring results in a reduction in annual debt service payable to the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount.  MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.

When the HAP Contracts are subject to renewal, there can be no assurance that the Local Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA.  In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.