-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P0TJA5U5mhGuxeMwxQy2czdmRh0WCf+sKCxXCQw5Gii6fvledIKiBnyt91kV9XFp EVNuHZSqqwzx0e0OWFfwPQ== 0000914317-98-000254.txt : 19980416 0000914317-98-000254.hdr.sgml : 19980416 ACCESSION NUMBER: 0000914317-98-000254 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED RESOURCES HIGH EQUITY PARTNERS SERIES 85 CENTRAL INDEX KEY: 0000730067 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133239107 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14438 FILM NUMBER: 98594344 BUSINESS ADDRESS: STREET 1: 411 WEST PUTNAM AVE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038627000 MAIL ADDRESS: STREET 1: 411 WEST PUTNAM AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: HIGH EQUITY PARTNERS SERIES 85 DATE OF NAME CHANGE: 19850626 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCES HIGH EQUITY PARTNERS DATE OF NAME CHANGE: 19850203 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 1997 OR Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from _______to _______ Commission file number: 0-14438 INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 13-3239107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 West Putnam Avenue, Greenwich CT 06830 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 862-7444 Securities registered pursuant to Section 12(b) of the Act: None None - -------------------------------------------------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest, $250 Per Unit - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] DOCUMENTS INCORPORATED BY REFERENCE Exhibit A to the Prospectus of the registrant dated February 4, 1985, filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, is incorporated by reference in Part IV of this Form 10-K. PART I Item 1. Business Integrated Resources High Equity Partners, Series 85, a California Limited Partnership (the "Partnership"), was formed as of August 19, 1983. The Partnership is engaged in the business of operating and holding for investment previously acquired income-producing properties, consisting of office buildings, shopping centers and other commercial and industrial properties. Resources High Equity, Inc., a Delaware corporation and a wholly owned subsidiary of Presidio Capital Corp., a British Virgin Islands corporation ("Presidio"), is the Partnership's managing general partner (the "Managing General Partner"). Until November 3, 1994, Resources High Equity, Inc. was a wholly owned subsidiary of Integrated Resources, Inc. ("Integrated"). On November 3, 1994 Integrated consummated its plan of reorganization under Chapter 11 of the United States Bankruptcy Code at which time, pursuant to such plan of reorganization, the newly-formed Presidio purchased substantially all of Integrated's assets. Presidio AGP Corp., which is a wholly-owned subsidiary of Presidio, became the associate general partner (the "Associate General Partner") on February 28, 1995 replacing Z Square G Partners II which withdrew as of that date. The Managing General Partner and the Associate General Partner are referred to collectively hereinafter as the "General Partners." Affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. The Partnership offered 400,000 units of limited partnership interest (the "Units") pursuant to the Prospectus of the Partnership dated February 4, 1985, as supplemented by Supplements dated January 27, 1986 and April 11, 1986 (collectively, the "Prospectus"), filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933, as amended. The Prospectus was filed as part of the Partnership's Registration Statement on Form S-11, Commission File No. 2-92319 (the "Registration Statement"), pursuant to which the Units were registered and offered. The offering was terminated on May 30, 1986. Upon final admission of limited partners, the Partnership had accepted subscriptions for 400,010 Units (including the initial limited partner) for an aggregate of $100,002,500 in gross proceeds, resulting in net proceeds from the offering of $98,502,500 (gross proceeds of $100,002,500 less organization and offering costs of $1,500,000). All underwriting and sales commissions were paid by Integrated or its affiliates and not by the Partnership. As of March 15, 1998, the Partnership had invested all of its net proceeds in real estate. Revenues from the following properties represented 15% or more of the Partnership's gross revenues during each of the last three fiscal years: in 1997, Southport and 568 Broadway represented 31% and 27% of gross revenues, respectively; 1996, Southport and 568 Broadway represented 30% and 25% of gross revenues, respectively; in 1995, revenue from Southport, 568 Broadway and Loch Raven represented 31%, 24% and 17% of gross revenues, respectively. The Partnership owned the following properties as of March 15, 1998: (1) Westbrook Mall Shopping Center On July 10, 1985, the Partnership purchased the fee simple interest in the Westbrook Mall Shopping Center ("Westbrook"), a partially enclosed shopping center located next to a regional mall in Brooklyn Center, Minnesota, near Minneapolis. It comprises three buildings on approximately 9.87 acres, with a total of 79,242 square feet of gross leasable area and parking for approximately 460 cars. It was built in three phases from 1966 to 1977. Westbrook is located directly across the street from the 1,000,000 square foot Brookdale Regional Shopping Center. Westbrook is in direct competition with two nearby shopping centers: Brookdale Square, which is located one-quarter mile east of Westbrook, has 140,000 square feet of gross leasable area; and Northbrook Center, which is located one and one-quarter miles east of Westbrook, contains 18 stores and has 76,000 square feet of gross leasable area. In addition, there are two relatively new shopping centers in the vicinity: one, anchored by a 105,000 square foot Target Discount Store, has an additional 39,000 square feet of retail space; the other, anchored by a 68,000 square foot Designer Depot, has an additional 32,000 square feet of retail space. Overall the Brookdale market comprises approximately 1.6 million square feet of retail space. Westbrook was 38% leased as of January 1, 1998, compared to 77% as of January 1, 1997. Occupancy, however, was only 14% as of January 1, 1998. Kids R' Us closed its 18,500 square foot store in October 1994. However, it remains obligated under its lease until it expires in January 2014. There are no leases that represent at least 10% of the square footage of the center scheduled to expire in 1998. The Partnership's efforts to lease space in the center have been unsuccessful due primarily to the functional obsolescence of the structure, and secondarily to the weak retail climate in the immediate market. Therefore, in addition to continuing to search for tenants for the existing vacancies, the Partnership is pursuing various alternatives. (2) Southport Shopping Center On April 15, 1986, the Partnership purchased the fee simple interest in Southport Shopping Center ("Southport"), a regional shopping center located on the 17th Street Causeway in Fort Lauderdale, Florida near the intercoastal waterway and beach area. The center's three buildings, comprising a total of 143,089 square feet, are situated on a 9.45 acre site. Southport was built in phases from 1968 to 1977 and expanded again and renovated in 1985. The site provides parking for 563 cars. Southport was 100% occupied as of January 1, 1998 as compared to 95% on January 1, 1997. There are no leases that represent at least 10% of the square footage of the center scheduled to expire in 1998. The roof on the East quadrant of the main center building was replaced in 1997. Southport is highly visible from S.E. 17th Street, the major east/west artery in the commercially-oriented area. Developments in the area are diversified and include hotels, restaurants, retail centers, office buildings and the 750,000 square foot Broward County Convention Center, which opened in 1991, is within walking distance. In 1996, the new 75,000 square foot, three story mixed-use NorthPort Marketplace opened on county owned land adjacent to the Convention Center. The development has attracted national restaurant/entertainment chains and is not considered competition for Southport's tenants. The center continues to maintain a solid tenant base and anchor tenants, Publix, Eckerd and McCrory's, combined square footage represents 39% of the center's leasable area. (3) Loch Raven Plaza On June 26, 1986, the Partnership purchased the fee simple interest in Loch Raven Plaza ("Loch Raven"), a retail/office complex located in Towson, Maryland. It contains approximately 25,000 square feet of office and storage space and 125,000 square feet of retail space, with parking for approximately 655 vehicles. The property was 90% occupied as of January 1, 1998, compared to 91% at January 1, 1997. There are no leases which represent at least 10% of the square footage of the center scheduled to expire during 1998. A complete renovation of the exterior of the center and the parking lot was completed in 1997. The entire project cost $1.1 million and was completed during the fourth quarter of 1997. The renovation was deemed necessary in order to retain tenants as neighboring centers have recently undertaken renovation and re-tenanting programs. (4) Century Park I On November 7, 1986, a joint venture (the "Century Park Joint Venture") comprised of the Partnership and High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated public limited partnership, purchased the fee simple interest in Century Park I ("Century Park I"), an office complex. The Partnership and HEP-86 each have a 50% interest in the Century Park Joint Venture. Century Park I, situated on approximately 8.6 acres, is located in the center of San Diego County in Kearny Mesa, California, directly adjacent to Highway 163 at the northeast corner of Balboa Avenue and Kearny Villa Road. Century Park I is part of an office park consisting of six office buildings and two parking garages, in which Century Park Joint Venture owns three buildings, comprising 200,002 net rentable square feet and one garage with approximately 810 parking spaces. One of the three buildings was completed in the latter half of 1985, and the other two buildings were completed in February 1986. The property was 91% leased as of January 1, 1998 compared to 74% at January 1, 1997. There are no leases that represent at least 10% of the square footage of the property scheduled to expire in 1998. Capital expenditures during 1997 included replacing the roof and the installation of an HVAC monitoring system in Building I. Century Park I competes with other office parks and office buildings in the Kearny Mesa sub-market. The primary competition continues to be Metropolitan Office Park with 100,000 square feet of available space. (5) 568 Broadway On December 2, 1986, a joint venture (the "Broadway Joint Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest in 568-578 Broadway ("568 Broadway"), a commercial building in New York City, New York. Until February 1, 1990, the Partnership and HEP-86 each had a 50% interest in the Broadway Joint Venture. On February 1, 1990, the Broadway Joint Venture admitted a third joint venture partner, High Equity Partners L.P. - Series 88 ("HEP-88"), an affiliated public limited partnership sponsored by Integrated. HEP-88 contributed $10,000,000 for a 22.15% interest in the joint venture. The Partnership and HEP-86 each retain a 38.925% interest in the joint venture. 568 Broadway is located in the SoHo district of Manhattan on the northeast corner of Broadway and Prince Street. 568 Broadway is a 12-story plus basement and sub-basement building constructed in 1898. It is situated on a site of approximately 23,600 square feet, has a rentable square footage of approximately 299,000 square feet and a floor size of approximately 26,000 square feet. Formerly catering primarily to industrial light manufacturing, the building has been converted to an office building and is currently being leased to art galleries, photography studios, retail and office tenants. The last manufacturing tenant vacated in January 1993. The building was 100% leased as of January 1, 1998 and January 1, 1997. There are no leases which represent at least 10% of the square footage of the property scheduled to expire during 1998. 568 Broadway competes with several other buildings in the SoHo area. (6) Seattle Tower On December 16, 1986, a joint venture (the "Seattle Landmark Joint Venture") comprised of the Partnership and HEP-86 acquired a fee simple interest in Seattle Tower, a commercial office building located in downtown Seattle ("Seattle Tower"). The Partnership and HEP-86 each have a 50% interest in the Seattle Landmark Joint Venture. Seattle Tower is located at Third Avenue and University Street on the eastern shore of Puget Sound in the financial and retail core of the Seattle central business district. Seattle Tower, built in 1928, is a 27-story commercial building containing approximately 141,000 rentable square feet, including almost 10,000 square feet of retail space and approximately 2,211 square feet of storage space. The building also contains a 55-car garage. Seattle Tower is connected to the Unigard Financial Center and the Olympic Four Seasons Hotel by a skybridge system. Seattle Tower, formerly Northern Life Tower, represented the first appearance in Seattle of a major building in the Art Deco style. It was accepted into the National Register of Historic Places in 1975. Seattle Tower's occupancy at January 1, 1998 was 95% compared to 96% at January 1, 1997. There are no leases which represent at least 10% of the square footage of the property scheduled to expire during 1998. Roof replacement and exterior building facade projects, which were budgeted for 1997 in the aggregate amount of approximately $630,000, have been postponed until 1998. The Partnership believes that Seattle Tower's primary direct competition comes from three office buildings of similar size or age in the immediate vicinity of Seattle Tower, which buildings have current occupancy rates which are comparable to Seattle Tower's. Write-downs for Impairment See Note 4 to the financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of write-downs for impairment. Competition The real estate business is highly competitive and, as discussed more particularly above, the properties acquired by the Partnership may have active competition from similar properties in the vicinity. In addition, various limited partnerships have been formed by the Managing General Partner and/or its affiliates that engage in businesses that may be competitive with the Partnership. The Partnership will also experience competition for potential buyers at such time as it seeks to sell any of its properties. Employees On-site personnel perform services for the Partnership at the properties. Salaries for such on-site personnel are paid by the Partnership or by unaffiliated management companies that service the Partnership's properties from monies received by them from the Partnership. Services are also performed by the Managing General Partner and by Resources Supervisory Management Corp. ("Resources Supervisory"), each of which is an affiliate of the Partnership. Resources Supervisory currently provides supervisory management and leasing services for all of the Partnership's properties and subcontracts certain management and leasing functions to unaffiliated third parties. The Partnership does not have any employees. NorthStar Presidio Management Company, LLC ("NorthStar") performs accounting, secretarial, transfer and administrative services for the Partnership. See Item 10, "Directors and Executive Officers of the Registrant", Item 11, "Executive Compensation", and Item 13, "Certain Relationships and Related Transactions". Forward-Looking Statements Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements include statements regarding the intent, belief or current expectations of the Partnership and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions, which will, among other things, affect the demand for retail space or retail goods, availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing, adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environment/safety requirements. Item 2. Properties A description of the Partnership's properties is contained in Item 1 above (see Schedule III to the financial statements for additional information with respect to the properties). Item 3. Legal Proceedings The Broadway Joint Venture is currently involved in litigation with a number of present or former tenants who are in default on their lease obligations. Several of these tenants have asserted claims or counterclaims seeking monetary damages. The plaintiffs' allegations include, but are not limited to, claims for breach of contract, failure to provide certain services, overcharging of expenses and loss of profits and income. These suits seek total damages in excess of $20 million plus additional damages of an indeterminate amount. The Broadway Joint Venture's action for rent against Solo Press was tried in 1992 and resulted in a judgment in favor of the Broadway Joint Venture for rent owed. The Partnership believes this will result in dismissal of the action brought by Solo Press against the Broadway Joint Venture. Since the facts of the other actions which involve similar claims and counterclaims are substantially similar, the Partnership believes that the Broadway Joint Venture will prevail in those actions as well. A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a related corporation that is a retail tenant of a building adjacent to 568 Broadway filed a lawsuit in the Supreme Court of The State of New York, County of New York, against the Broadway Joint Venture which owns 568 Broadway. The action was filed on April 13, 1994. The plaintiffs alleged that by erecting a sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and visibility to their customers. The sidewalk shed was erected, as required by local law, in connection with the inspection and restoration of the 568 Broadway building facade, which is also required by local law. Plaintiffs further alleged that the erection of the sidewalk shed for a continuous period of over two years is unreasonable and unjustified and that such conduct by defendants has deprived plaintiffs of the use and enjoyment of their property. The suit seeks a judgment requiring removal of the sidewalk shed, compensatory damages of $20 million, and punitive damages of $10 million. The Partnership believes that this suit is meritless and intends to vigorously defend it. On or about May 11, 1993 High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated partnership, was advised of the existence of an action (the "California Action') in which a complaint (the "HEP Complaint") was filed in the Superior Court for the State of California for the County of Los Angeles (the "Court") on behalf of a purported class consisting of all of the purchasers of limited partnership interests in HEP-86. On April 7, 1994 the plaintiffs were granted leave to file an amended complaint (the "Amended Complaint") on behalf of a class consisting of all of the purchasers of limited partnership interests in HEP-86, the Partnership and High Equity Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership. On November 30, 1995, after the Court preliminarily approved a settlement of the California Action but ultimately declined to grant final approval and after the Court granted motions to intervene, the original and intervening plaintiffs filed a Consolidated Class and Derivative Action Complaint (the "Consolidated Complaint") against the Managing General Partner of the Partnership and HEP-88 and the Investment General Partner of HEP-86; the Administrative General Partner of HEP-86 (the "General Partners"); a subsidiary of the indirect corporate parent of the General Partners; and the indirect corporate parent of the General Partners. The Consolidated Complaint alleged various state law class and derivative claims, including claims for breach of fiduciary duties; breach of contract; unfair and fraudulent business practices under California Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and receivership; fraud; and negligent misrepresentation. The Consolidated Complaint alleged, among other things, that the General Partners caused a waste of the HEP partnership's assets by collecting management fees in lieu of pursuing a strategy to maximize the value of the investments owned by the limited partners; that the General Partners breached their duty of loyalty and due care to the limited partners by expropriating management fees from the HEP partnerships without trying to run the HEP partnerships for the purposes for which they are intended; that the General Partners acted improperly to enrich themselves in their position of control over the HEP partnerships and that their actions prevented non-affiliated entities from making and completing tender offers to purchase units in the HEP partnerships; that by refusing to seek the sale of the HEP partnerships' properties, the General Partners diminished the value of the limited partners' equity in the HEP partnerships; that the General Partners took a heavily overvalued partnership asset management fee; and that limited partnership units were sold and marketed through the use of false and misleading statements. The Court entered an order on January 14, 1997 rejecting the settlement and concluding that there had not been an adequate showing that the settlement was fair and reasonable. On February 24, 1997, the Court granted the request of one plaintiffs' law firm to withdraw as class counsel. Thereafter, in June 1997, the plaintiffs again amended their complaint (the "Second Amended Complaint"). The Second Amended Complaint asserts substantially the same claims as the Consolidated Complaint, except that it no longer contains causes of action for fraud, for negligent misrepresentation, or for negligence. The defendants served answers denying the allegations and asserting numerous affirmative defenses. In February 1998, the Court certified three plaintiff classes consisting of current unit holders in each of the three HEP Partnerships. On March 11, 1998, the Court stayed the California Action temporarily to permit the parties to engage in renewed settlement discussions. The General Partners believe that each of the claims asserted in the Second Amended Complaint are meritless and intend to continue to vigorously defend the California Action. It is impossible at this time to predict what the defense of the California Action will cost, the Partnership's financial exposure as a result of the indemnification agreement discussed above, and whether the costs of defending could adversely affect the Managing General Partner's ability to perform its obligations to the Partnership. The Limited Partnership Agreement provides for indemnification of the General Partners and their affiliates in certain circumstances. The Partnership has agreed to reimburse the General Partners for their actual costs incurred in defending this litigation and the costs of preparing settlement materials. Through December 31, 1997, the General Partners had billed the Partnership a total of $1,034,510 for these costs, $824,510 of which was paid in February 1997. On February 6,1998, Everest Investors 8, LLC commenced an action in the Superior Court of the State of California for the County of Los Angeles (Case No. BC 185554), against, among others, the HEP partnerships, Resources Pension Shares 5 LP (an affiliated partnership), the general partners of each of the partnerships, and DCC Securities Corp. In the action, Everest alleged, among other things, that the partnerships, and the general partners breached the provisions of the applicable partnership agreements by refusing to recognize transfers to Everest of limited partnership units purportedly acquired pursuant to tender offers that had been made by Everest (the "Everest Tender Units"). Everest sought injunctive relief (a) directing the recognition of transfers to Everest of the Everest Tender Units and the admission of Everest as a limited partner with respect to the Everest Tender Units and (b) enjoining the transfer of the Everest Tender Units to any either party. Everest seeks damages, including punitive damages, for alleged breach of contract, defamation and intentional interference with contractual relations. Everest's motion for a temporary restraining order was denied on February 6, 1998. A hearing on Everest's application for a preliminary injunction had been scheduled for February 26, however, on February 20, 1998, Everest asked the Court to take its application off calendar. The defendants served answers denying the allegations and asserting numerous affirmative defenses. Merits discovery has commenced. The partnerships and the general partners believe that Everest's claims are without merit and intend to vigorously contest the action. On March 27, 1998, Everest commenced an action in the United States District Court for the Central District of California against, among others, the general partners of the HEP partnerships. In the action, Everest alleged, among other things, various violations of the Williams Act Section 14(d) of the Securities Exchange Act of 1934 in connection with the general partners' refusal to recognize transfers to Everest of limited partnership units purportedly acquired pursuant to the Everest tender offers and the letters sent by the general partners to the limited partners advising them of the general partners' determination that the Everest tender offers violated applicable securities laws. The general partners believe that Everest's claims are without merit and intend to vigorously contest the action. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise. PART II Item 5. Market for Registrant's Securities and Related Security Holder Matters Units of the Partnership are not publicly traded. There are certain restrictions set forth in the Partnership's amended limited partnership agreement (the "Limited Partnership Agreement") which may limit the ability of a limited partner to transfer Units. Such restrictions could impair the ability of a limited partner to liquidate its investment in the event of an emergency or for any other reason. In 1987, the Internal Revenue Service adopted certain rules concerning publicly traded partnerships. The effect of being classified as a publicly traded partnership would be that income produced by the Partnership would be classified as portfolio income rather than passive income. In order to avoid this effect, the Limited Partnership Agreement contains limitations on the ability of a limited partner to transfer Units in circumstances in which such transfers could result in the Partnership being classified as a publicly traded partnership. However, due to the low volume of transfers of Units, it is not anticipated that this will occur. As of March 15, 1998, there were 10,266 holders of Units of the Partnership, owning an aggregate of 400,010 Units (including Units held by the initial limited partner). Distributions per Unit of the Partnership for periods during 1996 and 1997 were as follows: Distributions for the Amount of Distribution Quarter Ended Per Unit - ------------- -------- March 31, 1996 $ 0.60 June 30, 1996 $ 0.60 September 30, 1996 $ 0.60 December 31, 1996 $ 0.60 March 31, 1997 $ 0.75 June 30, 1997 $ 0.94 September 30, 1997 $ 0.94 December 31, 1997 $ 0.94 The source of distributions in 1996 and 1997 was cash flow from operations. All distributions are in excess of accumulated undistributed net income and, therefore, represent a return of capital to investors on a generally accepted accounting principles basis. In 1996, capital expenditures were funded from cash flow and working capital reserves and in 1997, capital expenditures were funded from cash flow. There are no material legal restrictions set forth in the Limited Partnership Agreement upon the Partnership's present or future ability to make distributions. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", for a discussion of factors which may affect the Partnership's ability to pay distributions. Pursuant to an agreement dated as of March 6, 1998 among Presidio Capital Corp., American Real Estate Holding L.P. and Olympia Investors L.P. (the "Purchaser"), on March 12, 1998, the Purchaser commenced a tender offer to purchase up to 40% of the outstanding units of limited partnership interest at a purchase price of $95.00 per unit. The agreement provides, among other things, for: (i) the Purchaser's tender offers for up to 40% of the outstanding units of limited partnership interest of the Partnership and of High Equity Partners L.P. - Series 86 and High Equity Partners L.P. -Series 88 (collectively, the "Partnerships") and the cooperation of the general partners of the Partnerships (collectively, the "General Partners") to facilitate such offers (including furnishing the Purchaser with limited partner lists for use in connection with the tender offers and taking a neutral stance with respect to the tender offers) and the transfer of tendered units to the Purchaser without transfer fees; (ii) an agreement by the Purchaser and its affiliates to limit their acquisition of units to those acquired in the tender offers and to limit their acquisition of assets or properties of the Partnerships to properties or assets the General Partners or their affiliates have publicly announced their intention to sell or in respect of which they have hired a broker; (iii) an agreement by the Purchaser and its affiliates not to (A) seek the removal of the General Partners or call any meeting of limited partners of the Partnerships; (B) make any proposal to or seek proxies from limited partners of the Partnerships; or (C) act, either alone or in concert with others, to seek to control the management, policies or affairs of the Partnerships or to effect any business combination or other extraordianry transactions with the Partnerships or the General Partners; (iv) an agreement by the Purchaser and its affiliates to vote all units owned by them in favor of a proposal, if any, by the General Partners resulting in limited partners receiving securities listed on NASDAQ or a national securities exchange; (v) the Purchaser's grant to an affiliate of the General Partners of an option to purchase 50% of the units acquired in the offers at a price equal to the lesser of the price paid by the Purchaser or $95.00 per unit (except that this limitation does not apply, if the purchase price in the offer is increased to more than $110.68 in response to a competing bid), plus 50% of the Purchaser's costs associated with the offer; (vi) the grant to that same affiliate of the General Partners of a similar option to purchase 50% of the units in the other Partnerships acquired pursuant to the tender offers; and (vii) an agreement pursuant to which either party can initiate so-called "buy/sell" procedures by notifying the other of a specified price per unit (not to exceed the then current net asset value of the units) and the other terms and conditions on which the non-initiating party would then be requried to elect (subject to certain exceptions) either to buy the units acquired in connection with the tender offer from the initiating party or to sell the units to the initiating party. The agreements of the Purchaser and its affiliates described in clauses (ii), (iii), and (iv) above expire on March 6, 2001, but may expire earlier under certain circumstances. On March 25, 1998, the Partnership advised its limited partners of its neutral stance on the offer. Item 6. Selected Financial Data
For the Year Ended December 31, --------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ------------- ------------- ------------- ------------ Revenue $ 9,021,378 $ 8,888,016 $ 7,877,644 $ 7,995,126 $ 9,568,198 Net Income (Loss) 2,134,659 2,134,717 (18,624,934)4 1,442,884 2 (7,160,418) Net Income (Loss) per Unit 5.07 5.07 (44.23)4 3.43 2 (17.01) 1 Distribution Per Unit 5 3.57 2.40 2.40 14.39 3 6.25 Total Assets 39,600,417 39,290,185 37,309,597 56,742,945 63,040,600
(1) Net loss for the year ended December 31, 1993 includes a write-down for impairment on Southern National, Century Park I and 568 Broadway in the aggregate amount of $10,050,650, or $23.87 per Unit. (2) Net income for the year ended December 31, 1994 includes a write-down for impairment on Southern National of $181,000, or $0.43 per Unit. (3) Distributions for the year ended December 31, 1994 include a $9.45 per Unit distribution from the proceeds of the sale of Southern National. (4) Net loss for the year ended December 31, 1995 includes a write-down for impairment on Century Park I, Seattle Tower, 568 Broadway, Loch Raven, Southport and Westbrook in the aggregate amount of $20,469,050, or $48.61 per Unit. (5) All distributions are in excess of accumulated undistributed net income and, therefore represent a return of capital to investors on a generally accepted accounting principles basis. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Partnership's real estate properties are office buildings and shopping centers, all of which were acquired for cash. The public offering of the Units commenced on February 4, 1985 and was terminated on May 30, 1986. Upon termination, the Partnership had accepted subscriptions for 400,010 Units for aggregate net proceeds of $98,502,500 (gross proceeds of $100,002,500 less organization and offering expenses aggregating $1,500,000). The Partnership uses working capital reserves remaining from the net proceeds of its public offering and any undistributed cash from operations as its primary source of liquidity. For the year ended December 31, 1997, all capital expenditures and distributions were funded from cash flow. As of December 31, 1997, the Partnership had total working capital reserves of approximately $2,850,000. The Partnership intends to distribute less than all of its future cash flow from operations in order to maintain adequate reserves for capital improvements and capitalized lease procurement costs. If real estate market conditions deteriorate in any areas where the Partnership's properties are located, there is substantial risk that future cash flow distributions may be reduced. Working capital reserves are temporarily invested in short-term instruments and, together with operating cash flow, are expected to be sufficient to fund anticipated capital improvements to the Partnership's properties. During the year ended December 31, 1997, cash and cash equivalents decreased $519,630 as a result of capital expenditures and distributions to partners in excess of cash provided by operations. The Partnership's primary source of funds is cash flow from the operation of its properties, principally rents received from tenants, which amounted to $2,808,029 for the year ended December 31, 1997. The Partnership used $1,967,626 for capital expenditures related to capital and tenant improvements to the properties and $1,360,033 for distributions to partners for the year ended December 31, 1997. The following table sets forth, for each of the last three fiscal years, the amount of the Partnership's expenditures at each of its properties for capital improvements and capitalized tenant procurement costs:
Capital Improvements and Capitalized Tenant Procurement Costs 1997 1996 1995 ---------- -------- ----------- Seattle Tower $ 78,754 $352,522 $ 227,677 Century Park I 506,704 28,010 1,243,594 568 Broadway 84,805 233,376 742,972 Westbrook 0 0 10,410 Loch Raven 990,911 224,666 327,807 Southport 520,032 58,571 86,233 ========== ======== ========== Totals $2,181,206 $897,145 $2,638,693 ========== ========= ==========
The Partnership has budgeted expenditures for capital improvements and capitalized tenant procurement costs in 1998 which is expected to be funded from cash flow from operations. However, such expenditures will depend upon the level of leasing activity and other factors which cannot be predicted with certainty. The Partnership expects to continue to utilize a portion of its cash flow from operations to pay for various capital and tenant improvements to the properties and leasing commissions (the amount of which cannot be predicted with certainty). Capital and tenant improvements may in the future exceed the Partnership's current working capital reserves. In that event, the Partnership would utilize the remaining working capital reserves, eliminate or reduce distributions, or sell one or more properties. Except as discussed above, management is not aware of any other trends, events, commitments or uncertainties that will have a significant impact on liquidity. Real Estate Market The real estate market has begun to recover from the effects of the substantial decline in the market value of existing properties which occurred in the early 1990's. However, market values have been slow to recover, and high vacancy rates continue to exist in some areas. Technological changes are also occurring which may reduce the office space needs of many users. These factors may continue to reduce rental rates. As a result, the Partnership's potential for realizing the full value of its investment in its properties is at continued risk. Impairment of Assets The Partnership evaluates the recoverability of the net carrying value of its real estate and related assets at least annually, and more often if circumstances dictate. The Partnership estimates the future cash flows expected to result from the use of each property and its eventual disposition, generally over a five-year holding period. In performing this review, management takes into account, among other things, the existing occupancy, the expected leasing prospects of the property and the economic situation in the region where the property is located. If the sum of the expected future cash flows, undiscounted, is less than the carrying amount of the property, the Partnership recognizes an impairment loss, and reduces the carrying amount of the asset to its estimated fair value. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Management estimates fair value using discounted cash flows or market comparables, as most appropriate for each property. Independent certified appraisers are utilized to assist management, when warranted. Impairment write-downs recorded by the Partnership do not affect the tax basis of the assets and are not included in the determination of taxable income or loss. Because the cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore, actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs, which could be material in subsequent years if real estate markets or local economic conditions change. All of the Partnership's properties have experienced varying degrees of operating difficulties and the Partnership recorded significant impairment write-downs in 1995 and prior years. Improvements in the real estate market and in the properties operations resulted in no write-downs for impairment being needed in 1996 or 1997. The following table represents the write-downs for impairment recorded on the Partnership's properties:
Property 1995 Prior ----------- ----------- Seattle Tower $ 3,550,000 $ 2,500,000 Century Park I 1,250,000 10,450,000 568 Broadway 2,569,050 8,252,100 Westbrook 3,400,000 0 Loch Raven 4,800,000 0 Southport 4,900,000 0 Southern National(a) 0 3,631,000 ----------- ----------- $20,469,050 $24,833,100 =========== ===========
(a) Property sold in August 1994 The details of each 1995 write-down are as follows: Seattle Tower The Partnership was not able to achieve leasing expectations at Seattle Tower and occupancy in 1995 remained at approximately 80%. In addition, market rents remained lower than projected. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $25 per square foot. This fair value estimate resulted in a $7,100,000 write-down for impairment in 1995 of which the Partnership's share was $3,550,000. Century Park I During 1995 market conditions surrounding Century Park I deteriorated causing higher vacancy and lower rental rates. Leasing expectations were not achieved and capital expenditures exceeded projections due to converting the building from a single user to multi-tenancy capabilities. In early 1995, occupancy was only 25%. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate, in order to determine the write-down for impairment. The fair value estimate resulted in a $2,500,000 write-down for impairment in 1995 of which the Partnership's share was $1,250,000. 568 Broadway During 1995 significantly greater capital improvement expenditures than were previously anticipated were required in order to render 568 Broadway more competitive in the New York market. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $45 per square foot. This fair value estimate resulted in a $6,600,000 write-down for impairment in 1995 of which the Partnership's share was $2,569,050. Westbrook Occupancy at Westbrook was 28% in early 1995. Two significant tenants were not operating while continuing to make rental payments under the terms of their leases. However, their absence adversely impacted both the lease-up of the remaining space and rental rates, and required additional tenant procurement costs. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $25 per square foot. This fair value estimate resulted in a $3,400,000 write-down for impairment in 1995. Loch Raven Rental income at Loch Raven in 1995 did not meet previously projected levels due to lower rental market rates. Expenses also decreased slightly but this decrease was offset by significant capital expenditures which were not anticipated. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate, in order to determine the write-down for impairment. This fair value estimate resulted in $4,800,000 write-down for impairment in 1995. Southport Despite an occupancy rate in excess of 90% in 1995, actual income levels at Southport did not meet previously projected income levels due to lower rental market rates. Expenses were slightly higher than anticipated and tenant procurement cost estimates are greater than amounts projected. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $105 per square foot. This fair value estimate resulted in a $4,900,000 write-down for impairment in 1995. Results Of Operations 1997 vs. 1996 The Partnership's net income for the year ended December 31, 1997 remained consistent compared to the prior year as higher rental revenues and interest income were offset by higher costs and expenses and lower other income during 1997. Rental revenues increased at Southport and 568 Broadway during the year ended December 31, 1997 compared to 1996, primarily due to higher percentage rents collected during 1997 at Southport and lease renewals at 568 Broadway at rates higher than those in 1996. These increases were partially offset by lower rental revenues at Westbrook primarily due to lower occupancy rates in 1997 as compared to 1996. Costs and expenses increased during the year ended December 31, 1997 compared to the same periods in 1996, primarily due to increases in operating expenses, depreciation and amortization, and property management fees. Operating expenses increased during 1997 due to higher real estate taxes and higher bad debt expenses partially offset by lower insurance expense. Overall real estate tax expense was higher at 568 Broadway in 1997 due to the significant refunds received in 1996 which offset the annual tax payments. Bad debt expense increased at Westbrook as certain tenants' accounts were written-off as the tenants vacated. Insurance expenses decreased during 1997 due to the payment of lower premiums while coverage remained the same. Depreciation and property management fees were higher in 1997 due to significant capital additions in 1996 and higher revenues, respectively. These increases were partially offset by lower administrative expenses, as legal and accounting fees related to ongoing litigation and the HEP reorganization were higher in 1996. Interest income increased in 1997 due to higher interest rates and higher invested cash balances compared to the 1996. Other income decreased during the year ended December 31, 1997 compared to 1996 due to fewer investor transfers. 1996 vs. 1995 The Partnership experienced net income for the year ended December 31, 1996 compared to a net loss for the prior year due primarily to the significant write-downs for impairment recorded during 1995 as previously discussed. Rental revenue increased for the year ended December 31, 1996 as compared to the prior year. Revenues at 568 Broadway, Seattle Tower and Century Park I increased during 1996 due to higher occupancy rates and increased at Southport due to higher rental rates in 1996 as compared to the prior year. These increases, however, were partially offset by a decrease in revenue at Westbrook as certain tenants vacated during 1996. Costs and expenses decreased during 1996 as compared to 1995 due primarily to the significant write-downs for impairment recorded in 1995. Operating expenses decreased slightly during 1996 due to decreases in real estate taxes and bad debt expenses at certain properties partially offset by an increase in repairs and maintenance and utility costs. Real estate taxes decreased significantly at 568 Broadway due to the receipt of refunds related to the 1992-1995 tax years of which the partnership's share was $353,500. Bad debt expenses decreased at Southport, Westbrook, and Loch Raven due to fewer tenant write-offs and/or bankruptcies in 1996 compared to 1995. Repairs and maintenance at Century Park I and utility expenses at 568 Broadway increased due to increased occupancy during the year ended December 31, 1996 as compared to the prior year. Depreciation expense for 1996 increased due to the significant capital improvement and tenant procurement costs incurred and capitalized during the year ended December 31, 1995. The partnership management fee remained relatively consistent in 1996 as compared to the prior year. Administrative expenses increased due to the Partnership's reimbursement of the General Partner's litigation and settlement costs as previously discussed. The property management fee increase was the direct result of higher revenues at the aforementioned properties. Interest income increased due to higher cash balances in 1996 partially offset by slightly lower interest rates in 1996 as compared to the prior year. For the year ended December 31, 1996, other income, which consists of investor ownership transfer fees, increased compared to 1995 due to a greater number of transfers during 1996. Inflation is not expected to have a material impact on the Partnership's operations or financial position. Legal Proceedings The Partnership is a party to certain litigation. See Note 8 to the Partnership's financial statements for a description thereof. Year 2000 Compliance The Partnership's accounting, administrative and property management services are provided by affiliates of the General Partners. Those affiliates have and will continue to make certain investments in their software systems and applications to ensure that they are year 2000 compliant. The Partnership's management believes that the financial impact to the Partnership of ensuring its year 2000 compliance has not been and is not anticipated to be material to the Partnership's financial position or results of operations. Item 8. Financial Statements and Supplementary Data INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 I N D E X Independent Auditors' report.................................................... Financial statements, years ended December 31, 1997, 1996 and 1995 Balance Sheets......................................................... Statements of Operations............................................... Statements of Partners' Equity......................................... Statements of Cash Flows............................................... Notes to Financial Statements.......................................... INDEPENDENT AUDITORS' REPORT To the Partners of Integrated Resources High Equity Partners, Series 85 We have audited the accompanying balance sheets of Integrated Resources High Equity Partners, Series 85 (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1997. Our audit also included the financial statement schedule listed in the Index at Item 14(a) 2. 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, such financial statements present fairly, in all material respects, the financial position of Integrated Resources High Equity Partners, Series 85 at 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. /s/DELOITTE & TOUCHE LLP - ------------------------ DELOITTE & TOUCHE LLP March 27, 1998 New York, NY
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 BALANCE SHEETS December 31, ----------------------------- 1997 1996 ----------- ----------- ASSETS Real estate ................................ $33,033,710 $32,154,253 Cash and cash equivalents .................. 4,350,887 4,870,517 Other assets ............................... 2,033,252 2,107,211 Receivables ................................ 182,568 158,204 ----------- ----------- TOTAL ASSETS ............................... $39,600,417 $39,290,185 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses ...... $ 1,183,720 $ 1,061,732 Due to affiliates .......................... 577,739 1,164,121 Distributions payable ...................... 395,799 252,638 ----------- ----------- Total liabilities ..................... 2,157,258 2,478,491 ----------- ----------- COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY: Limited partners' equity (400,010 units issued and outstanding) .......... 35,570,050 34,970,158 General partners' equity ................. 1,873,109 1,841,536 ----------- ----------- Total partners' equity ................ 37,443,159 36,811,694 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY ..... $39,600,417 $39,290,185 =========== ===========
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF OPERATIONS For the Years Ended December 31, ---------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Rental Revenue .................................. $ 9,021,378 $ 8,888,016 $ 7,877,644 ------------ ------------ ------------ Costs and Expenses: Operating expenses .................. 3,426,267 3,139,504 3,397,690 Depreciation and amortization ...... 1,360,929 1,270,172 1,161,328 Partnership management fee .......... 908,172 908,172 908,172 Administrative expenses ............ 1,116,971 1,359,027 447,270 Property management fee ............. 350,490 327,759 303,936 Write-down for impairment ........... -- -- 20,469,050 ------------ ------------ ------------ 7,162,829 7,004,634 26,687,446 ------------ ------------ ------------ Income (loss) before interest and other income .. 1,858,549 1,883,382 (18,809,802) Interest income ........................ 207,420 141,939 130,173 Other income ........................... 68,690 109,396 54,695 ------------ ------------ ------------ Net Income (loss) ............................... $ 2,134,659 $ 2,134,717 $(18,624,934) ============ ============ ============ Net income (loss) attributable to: Limited partners ........................ $ 2,027,926 $ 2,027,981 $(17,693,687) General partners ....................... 106,733 106,736 (931,247) ------------ ------------ ------------ Net income (loss) ............................... $ 2,134,659 $ 2,134,717 $(18,624,934) ============ ============ ============ Net income (loss) per unit of limited partnership Interest (400,010 units outstanding) ....... $ 5.07 $ 5.07 $ (44.23) ============ ============ ============
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF PARTNERS' EQUITY General Limited Partners' Partners' Equity Equity Total ------------ ------------ ------------ Balance, January 1, 1995 ........... $ 2,767,103 $ 52,555,912 $ 55,323,015 Net Loss ........................... (931,247) (17,693,687) (18,624,934) Distributions as a return of capital ($2.40 per limited partnership unit) (50,528) (960,024) (1,010,552) ------------ ------------ ------------ Balance, December 31, 1995 ......... 1,785,328 33,902,201 35,687,529 Net Income ......................... 106,736 2,027,981 2,134,717 Distributions as return of capital ($2.40 per limited partnership unit) (50,528) (960,024) (1,010,552) ----------- ------------ ------------ Balance, December 31, 1996 ......... 1,841,536 34,970,158 36,811,694 Net Income ......................... 106,733 2,027,926 2,134,659 Distributions as return of capital ($3.57 per limited partnership unit) (75,160) (1,428,034) (1,503,194) ------------ ------------ ------------ Balance, December 31, 1997 ......... $ 1,873,109 $ 35,570,050 $ 37,443,159 ============ ============ ============
See notes to financial statements
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 STATEMENTS OF CASH FLOWS For the Years Ended December 31, ------------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net Income (loss) ..................................... $ 2,134,659 $ 2,134,717 $(18,624,934) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-down for impairment ........................ -- -- 20,469,050 Depreciation and amortization .................... 1,360,929 1,270,172 1,161,328 Straight line adjustment for stepped lease rentals 3,999 (52,915) (43,550) Changes in asset and liabilities: Accounts payable and accrued expenses ............ 121,988 44,935 159,873 Receivables ...................................... (24,364) 44,558 211,547 Due to affiliates ................................ (586,382) 811,488 42,265 Other assets...................................... (202,800) (177,542) (504,798) ------------ ------------ ------------ Net cash provided by operating activities ............. 2,808,029 4,075,413 2,870,781 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Improvements to real estate....................... (1,967,626) (645,287) (2,075,671) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners......................... (1,360,033) (1,010,552) (1,010,552) ------------ ------------ ------------ (Decrease) Increase in Cash and Cash Equivalents ..... (519,630) 2,419,574 (215,442) Cash and Cash Equivalents, Beginning of Year .......... 4,870,517 2,450,943 2,666,385 ------------ ------------ ------------ Cash and Cash Equivalents, End of Year ................ $ 4,350,887 $ 4,870,517 $ 2,450,943 ============ ============ ============
See notes to financial statements INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Integrated Resources High Equity Partners, Series 85, A California Limited Partnership (the "Partnership"), is a limited partnership, organized under the Uniform Limited Partnership Laws of California on August 19, 1983 for the purpose of investing in, holding and operating income-producing real estate. The Partnership will terminate on December 31, 2008 or sooner, in accordance with terms of the Agreement of Limited Partnership. The Partnership invested in three shopping centers and four office properties (one of which was sold in 1994), none of which are encumbered by debt. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial statements The financial statements are prepared on the accrual basis of accounting. 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the financial statements for the prior years in order to conform to the current year's classifications. Cash and cash equivalents For purposes of the statements of cash flows, the Partnership considers all short-term investments which have original maturities of three months or less from the date of issuance to be cash equivalents. Leases The Partnership accounts for its leases under the operating method. Under this method, revenue is recognized as rentals become due, except for stepped leases where the revenue from the lease is averaged over the life of the lease. Depreciation Depreciation is computed using the straight-line method over the useful life of the property, which is estimated to be 40 years. The cost of properties represents the initial cost of the properties to the Partnership plus acquisition and closing costs less write-downs, if any. Tenant improvements are amortized over the applicable lease term. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments in joint ventures For properties purchased in joint venture ownership with affiliated partnerships, the financial statements present the assets, liabilities, and expenses of the joint venture on a pro rata basis in accordance with the Partnership's percentage of ownership. Impairment of Assets The Partnership evaluates the recoverability of the net carrying value of its real estate and related assets at least annually, and more often if circumstances dictate. The Partnership estimates the future cash flows expected to result from the use of each property and its eventual disposition, generally over a five-year holding period. In performing this review, management takes into account, among other things, the existing occupancy, the expected leasing prospects of the property and the economic situation in the region where the property is located. If the sum of the expected future cash flows, undiscounted, is less than the carrying amount of the property, the Partnership recognizes an impairment loss, and reduces the carrying amount of the asset to its estimated fair value. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Management estimates fair value using discounted cash flows or market comparables, as most appropriate for each property. Independent certified appraisers are utilized to assist management, when warranted. Impairment write-downs recorded by the Partnership do not affect the tax basis of the assets and are not included in the determination of taxable income or loss. Because the cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur and some assumptions may not materialize; therefore, actual results may vary from the estimates and the variances may be material. The Partnership may provide additional write-downs, which could be material in subsequent years if real estate markets or local economic conditions change. Income taxes No provision has been made for federal, state and local income taxes since they are the personal responsibility of the partners. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net income (loss) and distributions per unit of limited partnership interest Net income (loss) and distributions per unit of limited partnership interest is calculated based upon the number of units outstanding (400,010), for each of the years ended December 31, 1997, 1996 and 1995. Recently issued accounting pronouncements The Financial Accounting Standards Board ("FASB") has recently issued several new accounting pronouncements. Statement No. 130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components. Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information: establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. These two standards are effective for the Partnership's 1998 financial statements, but the Partnership does not believe that they will have any effect on the Partnership's computation or presentation of net income or other disclosures. The implementation in 1997 of FASB Statement No. 128 "Earnings per Share" and Statement No. 129 "Disclosure of Information about Capital Structure" did not have any impact on the Partnerships financial statements. 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES The Managing General Partner of the Partnership, Resources High Equity Inc., is a wholly owned subsidiary of Presidio Capital Corp. ("Presidio"). Presidio AGP Corp., which is also a wholly owned subsidiary of Presidio, is the Associate General Partner (together with the Managing General Partner the "General Partners"). Affiliates of the General Partners are also engaged in businesses related to the acquisition and operation of real estate. Presidio is also the parent of other corporations that are or may in the future be engaged in business that may be in competition with the Partnership. Accordingly, conflicts of interest may arise between the Partnership and such other businesses. Subject to the rights of the Limited Partners under the Limited Partnership Agreement, Presidio controls the Partnership through its indirect ownership of all the shares of the General Partners. On August 28,1997, an affiliate of NorthStar Capital Partners acquired all of the Class B shares of Presidio. This acquisition, when aggregated which other acquisitions, caused NorthStar Capital Partners to acquire indirect control of the General Partners. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) On November 2, 1997 the Administrative Services Agreement with Wexford Management LLC ("Wexford"), the administrator for Presidio, expired pursuant to its terms. Pursuant to that agreement, Wexford had authority to designate directors of the General Partners. Presidio also entered into a management agreement with NorthStar Presidio Management Company, LLC ("NorthStar Presidio"). Under the terms of the management agreement, NorthStar Presidio will provide the day-to-day management of Presidio, and its direct and indirect subsidiaries and affiliates. Effective November 3, 1997, Wexford and Presidio entered into an Administrative Services Agreement dated as of November 3, 1997 (the "ASA"). The ASA provides that Wexford will continue to provide consulting and administrative services to Presidio and its affiliates for a term of six months. During the years ended December 31, 1997 and 1996, reimbursable expenses paid to Wexford by the Partnership amounted to $41,994 and $80,895, respectively. The Partnership has a property management services agreement with Resources Supervisory Management Corp. ("Resources Supervisory"), an affiliate of the Managing General Partner, to perform certain functions relating to the management of the properties of the Partnership. Portions of the property management fees were paid to unaffiliated management companies which are engaged for the purpose of performing the management functions for certain properties. For the years ended December 31, 1997, 1996, and 1995, Resources Supervisory was entitled to receive an aggregate of $350,490, $327,759, and $303,936, of which $196,300, $191,956, and $161,137 was paid to unaffiliated management companies, respectively. For the administration of the Partnership the Managing General Partner is entitled to receive reimbursement of expenses of a maximum of $150,000 per year for each of the years ended December 31, 1997, 1996 and 1995. For managing the affairs of the Partnership, the Managing General Partner is entitled to receive a Partnership management fee equal to 1.05% of the amount of original gross proceeds paid or allocable to the acquisition of property by the Partnership. For each of the years ended December 31, 1997, 1996, and 1995 the Managing General Partner earned $908,172. The General Partners are allocated 5% of the net income or (losses) of the Partnership which amounted to $106,733, $106,736, and ($931,247) in 1997, 1996 and 1995, respectively. The General Partners are also entitled to receive 5% of distributions which amounted to $75,160, $50,528, and $50,528 in 1997, 1996 and 1995, respectively. During the liquidation stage of the Partnership, the Managing General Partner or an affiliate may be entitled to receive certain fees which are subordinated to the limited partners receiving their original invested capital and certain specified minimum returns on their investments. All fees received by the General Partners are subject to certain limitations as set forth in the Partnership Agreement. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) During July 1996 through March 1998, Millennium Funding II Corp., a wholly owned indirect subsidiary of Presidio, contracted to purchase 39,123 units of the Partnership from various limited partners, which represents approximately 9.8% of the outstanding limited partnership units of the Partnership. During 1997, distributions in the amount of $26,697 were received by Millennium Funding II Corp related to these units. Pursuant to an agreement dated as of March 6, 1998 among Presidio, American Real Estate Holding L.P. and Olympia Investors L.P. (the "Purchaser"), on March 12, 1998, the Purchaser commenced a tender offer to purchase up to 40% of the outstanding units of limited partnership interest at a purchase price of $95.00 per unit. 4. REAL ESTATE Management recorded write-downs for impairment totaling $20,469,050 in 1995. No write-downs were required for the years ended December 31, 1996 or 1997. The details of write-downs recorded in 1995 are as follows: During 1995, market conditions surrounding Century Park deteriorated causing higher vacancy and lower rental rates. Leasing expectations were not achieved and capital expenditures exceeded projections due to converting the building from a single user to multi-tenancy capabilities. In early 1995, occupancy was only 25%. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower that the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate in order to determine the write-down for impairment. This fair value estimate resulted in a $2,500,000 write-down for impairment in 1995 of which the Partnership's share was $1,250,000. The Partnership was not able to achieve leasing expectations at Seattle Tower and occupancy in 1995 remained at approximately 80%. In addition, market rents were lower than projected. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $25 per square foot. This fair value estimate resulted in a $7,100,000 write-down for impairment in 1995 of which the Partnership's share was $3,550,000. During 1995, significantly greater capital improvement expenditures than were previously anticipated were required in order to render 568 Broadway more competitive in the New York market. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 4. REAL ESTATE (CONTINUED) determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $45 per square foot. This fair value estimate resulted in a $6,600,000 write-down for impairment in 1995 of which the Partnership's share was $2,569,050. Occupancy at Westbrook was 28% in early 1995. Two significant tenants were not operating while continuing to make rental payments under the terms of their leases. However, their absence adversely impacted both the lease-up of the remaining space and rental rates, and required additional tenant procurement costs. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $20 per square foot. This fair value estimate resulted in a $3,400,000 write-down for impairment in 1995. Rental income at Loch Raven in 1995 did not meet previously projected levels due to lower rental market rates. Expenses also decreased slightly but this decrease was offset by significant capital expenditures which were not anticipated. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value, using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate, in order to determine the write-down for impairment. This fair value estimate resulted in a $4,800,000 write-down for impairment in 1995. Despite an occupancy rate in excess of 90% in 1995, actual income levels at Southport did not meet previously projected income levels due to lower rental market rates. Expenses were slightly higher than anticipated and tenant procurement cost estimates were greater than amounts projected. Because the estimate of undiscounted cash flows prepared in 1995 yielded a result lower than the asset's net carrying value, management determined that an impairment existed. Management estimated the property's fair value in order to determine the write-down for impairment. Because the estimate of fair value using expected cash flows discounted at 13% over 15 years and an assumed sale at the end of the holding period using a 10% capitalization rate INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 4. REAL ESTATE (CONTINUED) yielded a result which, in management's opinion, was lower than the property's value in the marketplace, the property was valued using sales of comparable buildings which indicated a fair value of $105 per square foot. This fair value estimated resulted in a $4,900,000 write-down for impairment in 1995. The following table is a summary of the Partnership's real estate as of:
December 31, -------------------------------- 1997 1996 ------------ ------------ Land ................................... $ 11,056,966 $ 11,056,966 Buildings and improvements ............. 36,784,708 34,817,081 ------------ ------------ 47,841,674 45,874,047 Less: Accumulated depreciation ........ (14,807,964) (13,719,794) ------------ ------------ $ 33,033,710 $ 32,154,253 ============ ============
The following is a summary of the Partnership's share of anticipated future receipts under noncancellable leases:
YEARS ENDING DECEMBER 31, ------------------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 Thereafter Total ---------- ---------- ---------- ---------- ---------- ----------- ----------- $6,446,000 $5,951,000 $5,342,000 $4,343,000 $4,101,000 $12,176,000 $38,359,000 ========== ========== ========== ========== ========== =========== ===========
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 5. DISTRIBUTIONS PAYABLE
December 31, ---------------------- 1997 1996 -------- --------- Limited Partners ($.94 and $.60 per unit) .............. $376,009 $240,006 General Partners ....................................... 19,790 12,632 -------- -------- $395,799 $252,638 ======== ========
Such distributions were paid in the subsequent quarters 6. DUE TO AFFILIATES
December 31, -------------------------- 1997 1996 ---------- ----------- Partnership asset management fee ........................ $ 227,044 $ 227,044 Reorganization and litigation cost reimbursement (Note 7) 210,000 824,510 Property management fee ................................. 103,195 75,067 Non-accountable expense reimbursement ................... 37,500 37,500 ========== ========== $ 577,739 $1,164,121 ========== ==========
Such amounts were paid in the subsequent quarters 7. COMMITMENTS AND CONTINGENCIES a) 568 Broadway Joint Venture is currently involved in litigation with a number of present or former tenants who are in default on their lease obligations. Several of these tenants have asserted claims or counter claims seeking monetary damages. The plaintiffs' allegations include but are not limited to claims for breach of contract, failure to provide certain services, overcharging of expenses and loss of profits and income. These suits seek total damages in excess of $20 million plus additional damages of an indeterminate amount. The Broadway Joint Venture's action for rent against Solo Press was tried in 1992 and resulted in a judgement in favor of the Broadway Joint Venture for rent owed. The Partnership believes this will result in dismissal of the action brought by Solo Press against the Broadway Joint Venture. Since the facts of the other actions which involve material claims or counterclaims are substantially similar, the Partnership believes that the Broadway Joint Venture will prevail in those actions as well. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (continued) b) A former retail tenant of 568 Broadway (Galix Shops, Inc.) and a related corporation which is a retail tenant of a building adjacent to 568 Broadway filed a lawsuit in the Supreme Court of The State of New York, County of New York, against the Broadway Joint Venture which owns 568 Broadway. The action was filed on April 13, 1994. The Plaintiffs allege that by erecting a sidewalk shed in 1991, 568 Broadway deprived plaintiffs of light, air and visibility to their customers. The sidewalk shed was erected, as required by local law, in connection with the inspection and restoration of the Broadway building facade, which is also required by local law. Plaintiffs further allege that the erection of the sidewalk shed for a continuous period of over two years is unreasonable and unjustified and that such conduct by defendants has deprived plaintiffs of the use and enjoyment of their property. The suit seeks a judgement requiring removal of the sidewalk shed, compensatory damages of $20 million, and punitive damages of $10 million. The Partnership believes that this suit is without merit and intends to vigorously defend it. c) On or about May 11, 1993 High Equity Partners L.P. - Series 86 ("HEP-86"), an affiliated partnership, was advised of the existence of an action (the "California Action") in which a complaint (the "HEP Complaint") was filed in the Superior Court for the State of California for the County of Los Angeles (the "Court") on behalf of a purported class consisting of all of the purchasers of limited partnership interests in the Partnership. On April 7, 1994 the plaintiffs were granted leave to file an amended complaint (the "Amended Complaint") on behalf of a class consisting of all of the purchasers of limited partnership interests in HEP-86, the Partnership and High Equity Partners L.P. - Series 88 ("HEP-88"), another affiliated partnership. On November 30, 1995, after the Court preliminarily approved a settlement of the California Action but ultimately declined to grant final approval and after the Court granted motions to intervene, the original and intervening plaintiffs filed a Consolidated Class and Derivative Action Complaint (the "Consolidated Complaint") against the Managing General Partner of the Partnership and HEP-88 and the Investment General Partner of HEP-86; the Administrative General Partner of HEP-86 (the "General Partners"); a subsidiary of the indirect corporate parent of the General Partners; and the indirect corporate parent of the General Partners. The Consolidated Complaint alleged various state law class and derivative claims, including claims for breach of fiduciary duties; breach of contract; unfair and fraudulent business practices under California Bus. & Prof. Code Sec. 17200; negligence; dissolution, accounting and receivership; fraud; and negligent misrepresentation. The Consolidated Complaint alleged, among other things, that the General Partners caused a waste of the HEP partnership's assets by collecting management fees in lieu of pursuing a strategy to maximize the value of the investments owned by the limited partners; that the General Partners breached their duty of loyalty and due care to the limited partners by expropriating management fees from the HEP partnerships without trying to run the HEP partnerships for the purposes for which they are intended; that the General Partners acted improperly to enrich themselves in their position of control over the HEP partnerships and that their actions prevented non-affiliated entities from making and completing tender offers to purchase units in the HEP partnerships; that by refusing to INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) seek the sale of the HEP partnerships' properties, the General Partners diminished the value of the limited partners' equity in the HEP partnerships; that the General Partners took a heavily overvalued partnership asset management fee; and that limited partnership units were sold and marketed through the use of false and misleading statements. The Court entered an order on January 14, 1997 rejecting the settlement and concluding that there had not been an adequate showing that the settlement was fair and reasonable. On February 24, 1997, the Court granted the request of one plaintiffs' law firm to withdraw as class counsel. Thereafter, in June 1997, the plaintiffs again amended their complaint (the "Second Amended Complaint"). The Seconded Amended Complaint asserts substantially the same claims as the Consolidated Complaint, except that it no longer contains causes of action for fraud, for negligent misrepresentation, or for negligence. The defendants served answers denying the allegations and asserting numerous affirmative defenses. In February 1998, the Court certified three plaintiff classes consisting of current unit holders in each of the three HEP partnerships. On March 11, 1998, the Court stayed the California Action temporarily to permit the parties to engage in renewed settlement discussions. The General Partners believe that each of the claims asserted in the Second Amended Complaint are meritless and intend to continue to vigorously defend the California Action. It is impossible at this time to predict what the defense of the California Action will cost, the Partnership's financial exposure as a result of the indemnification agreement discussed above, and whether the costs of defending could adversely affect the Managing General Partner's ability to perform its obligations to the Partnership. The Limited Partnership Agreement provides for indemnification of the General Partners and their affiliates in certain circumstances. The Partnership has agreed to reimburse the General Partners for their actual costs incurred in defending this litigation and the costs of preparing settlement materials. Through December 31, 1997, the General Partners had billed the Partnership a total of $1,034,510 for these costs, of which $824,510 was paid in February 1997. d) On February 6,1998, Everest Investors 8, LLC("Everest") commenced an action in the Superior Court of the State of California for the County of Los Angeles (Case No. BC 185554), against, among others, the HEP partnerships, Resources Pension Shares 5 LP (an affiliated partnership), the general partners of each of the partnerships, and DCC Securities Corp. In the action, Everest alleged, among other things, that the partnerships and the general partners breached the provisions of the applicable partnership agreements by refusing to recognize transfers to Everest of limited partnership units purportedly acquired pursuant to tender offers that had been made by Everest (the "Everest Tender Units"). Everest sought injunctive relief (a) directing the recognition of transfers to Everest of the Everest Tender Units and the INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 7. COMMITMENTS AND CONTINGENCIES (continued) admission of Everest as a limited partner with respect to the Everest Tender Units and (b) enjoining the transfer of the Everest Tender Units to any either party. Everest seeks damages, including punitive damages, for alleged breach of contract, defamation and intentional interference with contractual relations. Everest's motion for a temporary restraining order was denied on February 6, 1998. A hearing on Everest's application for a preliminary injunction had been scheduled for February 26, however, on February 20, 1998, Everest asked the Court to take its application off calendar. The defendants served answers denying the allegations and asserting numerous affirmative defenses. Merits discovery has commenced. The partnerships and the general partners believe that Everest's claims are without merit and intend to vigorously contest the action. On March 27, 1998, Everest commenced an action in the United States District Court for the Central District of California against, among others, the general partners of the HEP partnerships. In the action, Everest alleged, among other things, various violations of the Williams Act Section 14(d) of the Securities Exchange Act of 1934 in connection with the general partners' refusal to recognize transfers to Everest of limited partnership units purportedly acquired pursuant to the Everest tender offers and the letters sent by the general partners to the limited partners advising them of the general partners' determination that the Everest tender offers violated applicable securities laws. The general partners believe that Everest's claims are without merit and intend to vigorously contest the action. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 NOTES TO FINANCIAL STATEMENTS 8. RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL STATEMENTS TO TAX REPORTING The Partnership files its tax returns on an accrual basis and has computed depreciation for tax purposes using the accelerated cost recovery systems, which is not in accordance with generally accepted accounting principles. The following is a reconciliation of the net income (loss) per the financial statements to the net taxable income (loss).
Years Ended December 31, ------------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Net income (loss) per financial statements ...... $ 2,134,659 $ 2,134,717 $(18,624,934) Write-down for impairment ....................... -- -- 20,469,050 Tax depreciation in excess of financial statement depreciation .................................... (1,524,130) (1,553,354) (1,564,609) ------------ ------------ ------------ Net taxable income .............................. $ 610,529 $ 581,363 $ 279,507 ============ ============ ============
The differences between the Partnership's assets and liabilities for tax purposes and financial reporting purposes are as follows:
December 31, 1997 ------------- Net assets per financial statements ..................................... $ 37,443,159 Write-down for impairment ............................................... 41,671,150 Tax depreciation in excess of financial statement depreciation .......... (13,519,187) Gain on admission of joint venture partner not recognied for tax purposes (307,093) Organization costs not charged to partners' equity for tax purposes ..... 1,500,000 ------------ Net assets per tax reporting ............................................ $ 66,788,029 ============
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The Partnership has no officers or directors. The Managing General Partner manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. The Managing General Partner is also the investment general partner of HEP-86 and the managing general partner of HEP-88, both limited partnerships with investment objectives similar to those of the Partnership. The Associate General Partner is also a general partner in other partnerships affiliated with Presidio and whose investment objectives are similar to those of the Partnership. The Associate General Partner, in its capacity as such, does not devote any material amount of its business time and attention to the Partnership's affairs. Based on a review of Forms 3 and 4 and amendments thereto furnished to the Partnership pursuant to Rule 16a-3(e) during its most recent fiscal year and Form 5 and amendments thereto furnished to the Partnership with respect to its most recent fiscal year, and written representations pursuant to Item 405(b)(2)(i) of Regulation S-K, none of the General Partners, directors or officers of the Managing General Partner or beneficial owners of more than 10% of the Units failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") during the most recent fiscal or prior fiscal years. No written representations were received from the partners of the Associate General Partner. As of March 15, 1998, the names and ages of, and the positions held by, the officers and directors of the Managing General Partner and the Associate General Partner are as follows:
Has Served as an Officer and/or Name Age Position Director Since ---- --- -------- -------------- W. Edward Scheetz 33 Director November 1997 David Hamamoto 38 Director November 1997 Richard Sabella 42 President, Director November 1997 David King 35 Executive VP, Director and Assistant Treasurer November 1997 Larry Schacter 41 Senior VP, CFO January 1998 Kevin Reardon 39 VP, Secretary, Treasurer & Director November 1997 Allan B. Rothschild 36 Executive Vice President December 1997 Marc Gordon 33 Vice President November 1997 Charles Humber 24 Vice President November 1997 Adam Anhang 24 Vice President November 1997 Gregory Peck 23 Assistant Secretary November 1997
W. Edward Scheetz co-founded NorthStar with David Hamamoto in July 1997 having previously been a partner at Apollo Real Estate Advisors L.P. since 1993. From 1989 to 1993, Mr. Scheetz was a principal with Trammell Crow Ventures. David Hamamoto co-founded NorthStar with W. Edward Scheetz in July 1997, having previously been a partner and co-head of the Real Estate Principal Investment Area at Goldman, Sachs & Co., where he initiated the effort to build a real estate principal investment business in 1988 under the auspices of the Whitehall Funds. Richard Sabella joined NorthStar in November 1997, having previously been the head of real estate and a partner at the law firm of Cahill, Gordon & Reindel since 1989. Mr. Sabella has also been associated with the law firms of Milgrim, Thomajian, Jacobs & Lee, P.C. and Cravath, Swaine & Moore. David King joined NorthStar in November 1997, having previously been a Senior Vice President of Finance at Olympia & York Companies (USA). Prior to joining Olympia & York in 1990. Mr. King worked for Bankers Trust in its real estate finance group. Larry Schachter joined NorthStar Presidio in January 1998, having previously held the position as Controller at CB Commercial/Hampshhire, LLC from 1996 to 1997. Prior to joining CB, Mr. Schachter held the position of Controller at Goodrich Associates in 1996, and at Greenthal/Harlan Realty Services Co. from 1992 to 1995. Mr. Schachter, who holds a CPA, graduated from Miami University (Ohio). Kevin Reardon joined NorthStar in October 1997, having previously held the position of Controller at Lazard Freres Real Estate Investors from 1996 to 1997. Prior to joing Lazard Freres, MR. Reardon was the Director of Finance in charge of European expansion at the law firm of Dewey Ballantine from 1993 to 1996. Prior to 1993, Mr. Reardon held a financial position at Hearst-ABC-Viacom Entertainment Services. Mr. Reardon, who holds a CPA, graduated from Fordham University with a B.S. in accounting. Allan B. Rothschild joined NorthStar in December 1997, having previously been the Senior Vice President and General Counsel of Newkirk Limited Partnership wehre he managed a large portfolio of net-leased real estate assets. Prior to joining Newkirk, Mr. Rothschild was associated with the law firm of Proskauer, Rose LLP in its real estate group. Marc Gordon joined NorthStar in October 1997, having previously been a Vice President in the Real Estate Investment Banking Group at Merrill Lynch where he executed corporate finance and strategic transactions for public and private real estate ownership companies, including REITs, real estate service companies, and real estate intensive operating companies. Prior to joing Merrill Lynch, in 1993, Mr. Gordon was in the Real Estate and Banking Group at the law firm of Irell & Manella. Mr. Gordon graduated from Dartmouth College with an A.B. in economics and also holds a J.D. from the UCLA School of Law. Charles Humber joined NorthStar in September 1997, having previously worked for Merrill Lynche's Real Estate Investment Banking group from 1996 to 1997. Mr. Humber graduated from Brown University with a B.A. in international relations and organizational behavior and management. Adam Anhang joined NorthStar in August 1997, having previously worked for the Athena Group's Russia and Former Soviet Union development team from 1996 to 1997. Mr. Anhang graduated from the Wharton School of the University of Pennsylvania with a B.S. in economics with concentrations in finance and real estate. Gregory Peck joined NorthStar in July 1997, having previously worked for the Morgan Stanley Realty Real Estate Funds (MSREF) and Morgan Stanley's Real Estate Investment Banking group from 1996 to 1997. Prior to joining Morgan Stanley, Mr. Peck worked for Lazard Freres & Co. LLC in the Real Estate Investment Banking group from 1994 to 1996. Mr. Peck graduated from Columbia College with a A.B. in mathematics and a A.B. in economics. All of the directors will hold office, subject to the bylaws of the Managing General Partner, until the next annual meeting of stockholders of the Managing General Partner and until their successors are elected and qualified. There are no family relationships between any executive officer and any other executive officer or director of the Managing General Partner. Affiliates of the General Partners are also engaged in business related to the acquisition and operation of real estate. Many of the officers, directors and partners of the Managing General Partner and the Associate General Partner are also officers and/or directors of the general partners of other public partnerships controlled by Presidio and various subsidiaries of Presidio. Item 11. Executive Compensation The Partnership is not required to and did not pay remuneration to the officers and directors of the Managing General Partner or the partners of the Associate General Partner. Certain officers and directors of the Managing General Partner receive compensation from the Managing General Partner and/or its affiliates (but not from the Partnership) for services performed for various affiliated entities, which may include services performed for the Partnership; however, the Managing General Partner believes that any compensation attributable to services performed for the Partnership is immaterial. See also "Item 13. Certain Relationships and Related Transactions." Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 15, 1998, an affiliate of the General Partners owned approximately 9.8% of the Units. No directors, officers or partners of the Managing General Partner presently own any Units. To the knowledge of the Registrant, the following sets forth certain information regarding ownership of the Class A shares of Presidio as of March 11, 1998 (except as otherwise noted) by (i) each person or entity who owns of record or beneficially five percent or more of the Class A shares, (ii) each director and executive officer of Presidio, and (iii) all directors and executive officers of Presidio as a group. To the knowledge of Presidio, each of such shareholders has sole voting and investment power as to the shares shown unless otherwise noted. All outstanding shares of Presidio are owned by Presidio Capital Investment Company, LLC ("PCIC"), a Delaware limited liability company. The interest in PCIC (and beneficial ownership in Presidio) are held as follows:
Percentage Ownership in PCIC and Percentage Beneficial Ownership Name of Beneficial Owner in Presidio ------------------------ -------------------------------- Five Percent Holders: Presidio Holding Company, LLC(1) 71.93% AG Presidio Investors, LLC(2) 14.12% DK Presidio Investors, LLC(3) 8.45% Stonehill Partners, LP(4) 5.50%
The holdings of the directors and executive officers of Presidio are as follows:
Directors and Officers: Adam Anhang(5) 0% Marc Gordon(5) 0% David Hamamoto(5) 71.93% Charles Humber(5) 0% David King(5) 0% Gregory Peck(5) 0% Kevin Reardon(5) 0% Allan Rothschild(5) 0% Richard J. Sabella(5) 0% Lawrence Schachter(5) 0% W. Edward Scheetz(5) 71.93% Directors and Officers as a group: 71.93%
(1) Presidio Holding Company, LLC is a New York limited liability company whose address is 527 Madison Avenue, 16th Floor, New York, New York 10022. PHC has two members, Polaris Operating LLC ("Polaris") which holds a 1% interest, and Northstar Operating, LLC ("Northstar") which holds a 99% interest. Polaris is a Delaware limited liability company whose address is 527 Madison Avenue, 16th Floor, New York, New York 10022. Polaris has two members, Sextant Operating Corp. ("Sextant"), which holds a 1% interest, and Northstar, which holds a 99% interest. Sextant is a Delaware corporation whose address is 527 Madison Avenue, 16th Floor, New York, New York 10022 and whose sole shareholder is Northstar. Northstar is a Delaware limited liability company whose address is527 Madison Avenue, 16th Floor, New York, New York 10022. Northstar has two members, Northstar Capital Partners ("NCP"), which holds a 99% interest, and Northstar Capital Holdings I, LLC ("NCHI"), which holds a 1% interest. Both NCP and NCHI are Delaware limited liability companies, whose business address is 527 Madison Avenue, 16th Floor, New York, New York 10022. NCP has two members, NCHI, which holds a 74.75% interest, and Northstar Capital Holdings II LLC ("NCHII"), which holds a 25.25% interest. The business address for NCHII, a Delaware limited liability company is 527 Madison Avenue, 16th Floor, New York, New York 10022. NCHII has three members, NCHI, which holds a 99% interest, Edward Scheetz, who holds a 0.5% interest and David Hamamoto, who holds a 0.5% interest. Mr. Scheetz, a U.S. citizen whose business address is 527 Madison Avenue, 16th Floor, New York, New York 10022, is a founding member of NCP. Mr. Hamamoto, a U.S. citizen whose business address is 527 Madison Avenue, 16th Floor, New York, New York 10022, is a founding member of NCP. NCHI has two members, Mr. Scheetz and Mr. Hamamoto, each of whom holds a 50% interest. Pursuant to that certain Amended and Restated Pledge and Security Agreement (the "Pledge Agreement") dated March 5, 1998 made by PHC in favor of Credit Suisse First Boston Mortgage Capital LLC ("CSFB"), PHC pledged all of its membership interest in PCIC to CSFB as security for loans issued under the Loan Agreement dated as of February 20, 1998 by and among PHC and CSFB and the First Amendment thereon dated March 5, 1998 (together, the "Loan Agreement"). The Pledge Agreement and Loan Agreement contain standard default and event of default provisions which may at a subsequent date result in a change of control of PCIC and, therefore, the Registrant. (2) Each of Angelo, Gordon & Company, LP, as sole manager of AG Presidio Investors, LLC, and John M. Angelo and Michael L. Gordon, as general partners of the general partner of Angelo, Gordon & Company, LP may be deemed to beneficially own for purposes of rule 13 d-3 of the Exchange Act, the securities beneficially owned by AG Presidio Investors, LLC. Each of John M. Angelo and Michael L. Gordon disclaim such beneficial ownership. The business address for such persons is c/o Angelo, Gordon & Company, LP, 345 Park Avenue, 26th Floor, New York, New York 10167. (3) M.H. Davidson & Company, Inc., as sole manager of DK Presidio Investors, LLC may be deemed to beneficially own for purposes of Rule 13d-3 of the Exchange Act, the securities beneficially owned by DK Presidio Investors, LLC. The business address for such person is c/o M.H. Davidson & Company, 885 Third Avenue, New York, New York 10022. (4) Includes shares of PCIC beneficially owned by Stonehill Offshore Partners Limited and Stonehill Institutional Partners, LP. John A. Motulsky is a managing general partner of Stonehill Partners, LP, a managing member of the investment advisor to Stonehill Offshore Partners Limited and is a general partner of Stonehill Institutional Partners, LP. John A. Motulsky disclaims beneficial ownership of the shares held by these entities. The business address for such person is c/o Stonehill Investment Corporation, 110 East 59th Street, New York, New York 10022. (5) The business address for such person is 527 Madison Avenue, 16th Floor, New York, New York 10022. Item 13. Certain Relationships and Related Transactions The General Partners and certain affiliated entities have, during the year ended December 31, 1997, earned or received compensation or payments for services or reimbursements from the Partnership or Presidio subsidiaries as follows:
Name of Recipient Capacity in Which Served Compensation from the Partnership ----------------- ------------------------ --------------------------------- Resources High Equity Inc. Managing General Partner $1,271,859(1) Presidio AGP Corp. Associate General Partner 1,473(2) Resources Supervisory Management Corp. Affiliated Property Managers 154,190(3) Resources Capital Corp. Affiliate 70,000(4)
1 Of this amount $73,687 represents the Managing General Partner's share of distributions of cash from operations, $150,000 represents payment for non-accountable expenses of the Managing General Partner based upon the number of Units sold, $140,000 represents reimbursement of costs in connection with the California Action, and $908,172 represents a Partnership Management Fee for managing the affairs of the Partnership. Furthermore, under the Partnership's Limited Partnership Agreement, 5% of the Partnership's net income and net loss is allocated to the General Partners (0.1% to the Associate General Partner and 4.9% to the Managing General Partner). Pursuant thereto, for the year ended December 31, 1997, $30,643 of the Partnership's taxable income was allocated to the Managing General Partner. 2 This amount represents the Associate General Partner's share of distributions of cash from operations. In addition, for the year ended December 31, 1997, $625 of the Partnership's taxable income was allocated to the Associate General Partner. 3 This amount was earned pursuant to a management agreement with Resources Supervisory, a wholly owned subsidiary of Presidio, for performance of certain functions relating to the management of the Partnership's properties. The total fee paid to Resources Supervisory was $350,490, of which $196,300 was paid to unaffiliated management companies. 4 This amount represents reimbursements of actual costs incurred in defending the California Action and the cost of preparing settlement materials. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) Financial Statements: see Index to Financial Statements in Item 8. (a) (2) Financial Statement Schedule: III. Real Estate and Accumulated Depreciation (a) (3) Exhibits: 3, 4. (a) Amended and Restated Partnership Agreement ("Partnership Agreement") of the Partnership, incorporated by reference to Exhibit A to the Prospectus of the Partnership dated February 4, 1985, included in the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (b) Amendment dated April 1, 1985 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1985. (c) Restatement of Amendment dated December 1, 1986 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Current Report on Form 8-K dated December 8, 1986. (d) Amendment dated as of April 1, 1988 to the Partnership's Partnership Agreement, incorporated by reference to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1988. 10. (a) Agent's Agreement between the Partnership and Resources Property Management Corp., incorporated by reference to Exhibit 10(b) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (b) Acquisition and Disposition Services Agreement among the Partnership and Realty Resources Inc., and Resources Acquisitions, Inc., incorporated by reference to Exhibit 10(c) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (c) Agreement among Resources High Equity, Inc., Integrated Resources, Inc. and Z Square G Partners II, incorporated by reference to Exhibit 10(d) to the Partnership's Registration Statement on Form S-11 (Reg. No. 2-92319). (d) Lease Agreement dated June 12, 1985, between the Partnership and First Federal Savings and Loan Association of South Carolina for the First Federal Office Building, incorporated by reference to Exhibit 10(g) to the Partnership's Post-Effective Amendment No. 1 to Registration Statement on Form S-11 (Reg. No. 2-92319). (e) Joint Venture Agreement dated November 2, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, A California Limited Partnership, with respect to Century Park I, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated November 7, 1986. (f) Joint Venture Agreement dated October 27, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, with respect to 568 Broadway, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated November 19, 1986. (g) Joint Venture Agreement dated November 24, 1986 between the Partnership and High Equity Partners, L.P. - Series 86, with respect to Seattle Tower, incorporated by reference to Exhibit 10(b) to the Partnership's Current Report on Form 8-K dated December 8, 1986. (h) Amended and Restated Joint Venture Agreement dated February 1, 1990 among the Partnership, High Equity Partners, L.P. - Series 86 and High Equity Partners, L.P. - Series 88, with respect to 568 Broadway, incorporated by reference to Exhibit 10(a) to the Partnership's Current Report on Form 8-K dated February 1, 1990. (i) First Amendment to Amended and Restated Joint Venture Agreement of 568 Broadway Joint Venture, dated as of February 1, 1990, among the Partnership, High Equity Partners, L.P. - Series 86 and High Equity Partners, L.P. - Series 88, incorporated by reference to Exhibit 10(p) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. (j) Agreement, dated as of March 23, 1990, among the Partnership, Resources High Equity Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(q) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. (k) Amending Agreement, dated as of December 31, 1991, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(r) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. (l) Form of Termination of Supervisory Management Agreement (separate agreement entered into with respect to each individual property) and Form of Supervisory Management Agreement between the Partnership and Resources Supervisory (separate agreement entered into with respect to each property), incorporated by reference to Exhibit 10(s) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. (m) Amending Agreement, dated as of December 30, 1992, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity, Inc. and Resources Property Management Corp., with respect to the payment of deferred fees, incorporated by reference to Exhibit 10(m) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992. (n) Amending Agreement, dated as of December 29, 1993, to Agreement dated as of March 23, 1990, among the Partnership, Resources High Equity, Inc. and Resources Property Management Corp., incorporated by reference with respect to the payment of deferred fees. (b) Reports on Form 8-K: The Partnership filed the following reports on Form 8-K during the last quarter of the fiscal year: None. Financial Statement Schedule Filed Pursuant to Item 14(a)(2) INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP ADDITIONAL INFORMATION YEARS ENDED DECEMBER 31, 1997 1996 AND 1995 INDEX Additional financial information furnished pursuant to the requirements of Form 10-K: Schedules- December 31, 1997, 1996 and 1995 and years then ended, as required: Schedule III - Real estate and accumulated depreciation - Notes to Schedule III - Real estate and accumulated depreciation All other schedules have been omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto. 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. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85, A CALIFORNIA LIMITED PARTNERSHIP By: RESOURCES HIGH EQUITY, INC. Managing General Partner Dated: March 27, 1998 By: /s/ Richard Sabella -------------------- Richard Sabella President and Director (Principal Executive Officer) 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 their capacities on the dates indicated. Dated: March 27, 1998 By: /s/ Richard Sabella -------------------- Richard Sabella President and Director (Principal Executive Officer) Dated: March 27, 1998 By: /s/ Lawrence Schachter ---------------------- Lawrence Schachter Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 27, 1998 By: /s/ Kevin Reardon ------------------ Kevin Reardon Director, Vice President, Treasurer and Secretary Dated: March 27, 1998 By: /s/ David King --------------- David King Director and Executive Vice President
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A California Limited Partnership SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 Costs Reductions Capitalized Recorded Subsequent to Subsequent to Initial Cost Acquisition Acquisition ----------------------- ----------------------- ----------- Buildings And Carrying Description Encumbrances Land Improvements Improvement Costs Write Downs ----------- ------------ ---- ------------ ----------- ----- ----------- RETAIL: The Westbrook Brooklyn $ -- $1,424,800 $ 3,648,837 $ 714,579 $ 374,968 $ (3,400,000) Mall Shopping Center, MN Center The Southport Ft. -- 6,961,667 13,723,333 1,347,160 1,866,962 (4,900,000) Shopping Center Lauderdale, FL The Loch Raven Towson, MD -- 2,469,871 6,860,748 1,945,911 953,837 (4,800,000) Shopping Center -------- ----------- ----------- ---------- ---------- ------------ -- 10,856,338 24,232,918 4,007,650 3,195,767 (13,100,000) -------- ----------- ----------- ---------- ---------- ------------ OFFICE: Century Park Kearny Mesa, -- 3,122,064 12,717,936 1,885,955 1,353,130 (11,700,000) Office Complex CA 568 Broadway New York, NY -- 2,318,801 9,821,517 4,916,105 1,556,212 (10,821,150) Office Building Seattle Tower Seattle, WA -- 2,163,253 5,030,803 1,714,983 609,392 (6,050,000) Office Building --------- ----------- ----------- ---------- ---------- ------------ -- 7,604,118 27,570,256 8,517,043 3,528,734 (28,571,150) --------- ----------- ----------- ----------- ---------- ------------ $ $18,460,456 $51,803,174 $12,524,693 $6,724,501 $(41,671,150) ========= =========== =========== =========== ========== ============
INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A California Limited Partnership SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (continued) Gross Amount at Which Carried at Close of Period ------------------------------------ Buildings And Accumulated Date Description Land Improvements Total Depreciation Acquired ----------- ---- ------------ ----- ------------ -------- RETAIL: The Westbrook Brooklyn $ 686,001 $ 2,077,183 $ 2,763,184 $ 1,297,890 1985 Mall Shopping Center, MN Center The Southport Ft. 5,998,194 13,000,928 18,999,122 4,535,166 1986 Shopping Center Lauderdale, FL The Loch Raven Towson, MD 1,507,227 5,923,140 7,430,367 2,113,329 1986 Shopping Center ---------- ----------- ------------ ------------ 8,191,422 21,001,251 29,192,673 7,946,385 ---------- ----------- ------------ ------------ OFFICE: Century Park Kearny Mesa, 1,123,811 6,265,274 7,389,085 2,829,950 1986 Office Complex CA 568 Broadway New York, NY 977,120 6,814,365 7,791,485 2,684,159 1986 Office Building Seattle Tower Seattle, WA 764,613 2,703,818 3,468,431 1,347,470 1986 Office Building ---------- ----------- ------------ ------------ 2,865,544 15,783,457 18,649,001 6,861,579 ----------- ----------- ------------ ------------ $11,056,966 $36,784,708 $47,841,674 $14,807,964 =========== =========== =========== ===========
Note: The aggregate cost for Federal income tax purposes is $89,512,824 at December 31, 1997. INTEGRATED RESOURCES HIGH EQUITY PARTNERS, SERIES 85 A California Limited Partnership NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (A) RECONCILIATION OF REAL ESTATE OWNED:
For the Years Ended December 31, ------------ ------------ ------------- 1997 1996 1995 ------------ ------------ ------------- BALANCE AT BEGINNING OF YEAR ... $ 45,874,047 $ 45,228,760 $ 63,622,139 ADDITIONS DURING THE YEAR ...... 1,967,627 645,287 2,075,671 Improvements to Real Estate OTHER CHANGES Write-down for impairment -- -- (20,469,050) ============ ============ ============ BALANCE AT END OF YEAR (1) ..... $ 47,841,674 $ 45,874,047 $ 45,228,760 ============ ============ ============
(1) INCLUDES THE INITIAL COST OF THE PROPERTIES PLUS ACQUISITION AND CLOSING COSTS. (B) RECONCILIATION OF ACCUMULATED DEPRECIATION:
For the Years Ended December 31, ------------ ------------ ------------ 1997 1996 1995 ------------ ------------ ------------ BALANCE AT BEGINNING OF YEAR ... $13,719,794 $12,694,788 $11,714,459 ADDITIONS DURING THE YEAR Depreciation Expense(1) ... 1,088,170 1,025,006 980,329 ----------- ----------- ----------- BALANCE AT END OF YEAR ......... $14,807,964 $13,719,794 $12,694,788 =========== =========== ===========
(1) DEPRECIATION IS PROVIDED ON BUILDINGS USING THE STRAIGHT-LINE METHOD OVER THE USEFUL LIFE OF THE PROPERTY, WHICH IS ESTIMATED TO BE 40 YEARS. EX-27 2
5 The schedule contains summary information extracted from the financial statements of the December 31, 1997 Form 10-K of Integrated Resources High Equity Partners, Series 85 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 DEC-31-1997 4,350,887 0 182,568 0 0 0 0 0 39,600,417 0 0 0 0 0 37,443,159 39,600,417 0 9,021,378 0 3,426,267 3,736,562 0 0 2,134,659 0 2,134,659 0 0 0 2,134,659 0 0
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