10QSB 1 f4.txt BRAUVIN REAL ESTATE FUND LP 4 9-30-06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended _____September 30, 2006_____ or [ ]Transition Report Pursuant to Section 13 or 15(d) of the Se curities Exchange Act of 1934 For the transition period from _____________ to____________ Commission File Number ______________0-13402_______________ ____________ Brauvin Real Estate Fund L.P. 4_______________ (Name of small business issuer as specified in its charter) Delaware 36-3304339________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 North LaSalle Street, Chicago, Illinois 60602____ (Address of principal executive offices) (Zip Code) ____________________ (312)759-7660_________________________ (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None___________ Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests________________ (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer 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 whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes No X. INDEX PART I Page Item 1. Financial Statements 3 Consolidated Statement of Net Assets in Liquidation as of September 30, 2006(Liquidation Basis) 4 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2006 to September 30, 2006 (Liquidation Basis) 5 Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2005 to September 30, 2005 (Liquidation Basis) 6 Consolidated Statements of Operations for the nine months ended September 30, 2006 and 2005 (Liquidation Basis) 7 Consolidated Statements of Operations for the three months ended September 30, 2006 and 2005 (Liquidation Basis) 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis or Plan of Operation 20 Item 3. Controls and Procedures 25 PART II Item 1. Legal Proceedings 26 Item 2. Changes in Securities 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 26 Item 6. Exhibits, and Reports on Form 8-K 26 Signatures 27 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements The following Consolidated Statement of Net Assets in Liquidation as of September 30, 2006 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2006 to September 30, 2006 (Liquidation Basis), Consolidated Statement of Changes in Net Assets in Liquidation for the period January 1, 2005 to September 30, 2005 (Liquidation Basis), Consolidated Statements of Operations for the nine months ended September 30, 2006 and 2005 (Liquidation Basis) and Consolidated Statements of Operations for the three months ended September 30, 2006 and 2005 (Liquidation Basis) for Brauvin Real Estate Fund L.P. 4 (the "Partnership") are unaudited but reflect, in the opinion of the management, all adjustments necessary to present fairly the information required. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's 2005 Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF SEPTEMBER 30, 2006 (LIQUIDATION BASIS) (Unaudited) ASSETS Real estate held for sale $6,026,500 Cash and cash equivalents 645,940 Tenant receivables 23,274 Escrow deposits 403,625 Other assets 35,852 ---------- Total Assets 7,135,191 ---------- LIABILITIES Mortgage notes payable (Note 4) 4,400,000 Accounts payable and accrued expenses 543,559 Deferred gain on sale of real estate (Note 2) 464,312 Reserve for estimated costs during the period of liquidation 188,400 Tenant security deposits 13,090 Due to affiliates 3,200 ---------- Total Liabilities 5,612,561 ---------- Net Assets in Liquidation $1,522,630 ========== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2006 TO SEPTEMBER 30, 2006 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2006 $2,092,903 Loss from operations (570,273) ---------- Net assets in liquidation at September 30, 2006 $1,522,630 ========== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JANUARY 1, 2005 TO SEPTEMBER 30, 2005 (LIQUIDATION BASIS) (Unaudited) Net assets in liquidation at January 1, 2005 $1,824,095 Loss from operations (182,894) ---------- Net assets in liquidation at September 30, 2005 $1,641,201 ========== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (LIQUIDATION BASIS) (Unaudited) 2006 2005 --------- ---------- INCOME Rental $ 532,044 $ 550,650 Interest 16,366 801 Other, primarily tenant expense reimbursements 120,348 110,994 ---------- ---------- Total income 668,728 662,445 ---------- ---------- EXPENSES Interest 240,356 328,743 Real estate taxes 83,367 90,134 Repairs and maintenance 20,309 18,766 Management fees (Note 5) 37,676 39,217 Other property operating 30,164 32,062 General and administrative 815,804 322,036 ---------- ---------- Total expenses 1,227,676 830,958 ---------- ---------- Loss before equity interests (558,948) (168,513) Equity interest in Sabal Palm Joint Venture's net loss (11,325) (14,381) ---------- ---------- Net loss $ (570,273) $ (182,894) ========== ========== Net loss allocated to the General Partners $ (5,703) $ (1,829) ========== ========== Net loss allocated to the Limited Partners $ (564,570) $ (181,065) ========== ========== Net loss per Limited Partnership Interest (9,550 units outstanding) $ (59.12) $ (18.96) ========== ========== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (LIQUIDATION BASIS) (Unaudited) 2006 2005 ---------- -------- INCOME Rental $ 173,704 $185,533 Interest 6,079 28 Other, primarily tenant expense reimbursements 32,111 41,089 --------- -------- Total income 211,894 226,650 --------- -------- EXPENSES Interest 84,244 128,462 Real estate taxes 25,984 30,310 Repairs and maintenance 12,343 12,565 Management fees (Note 5) 11,211 13,186 Other property operating 9,065 9,593 General and administrative 217,987 51,973 --------- -------- Total expenses 360,834 246,089 --------- -------- Loss before equity interests (148,940) (19,439) Equity interest in Sabal Palm Joint Venture's net (loss) income -- 21,305 ---------- -------- Net (loss) income $(148,940) $ 1,866 ========= ======== Net (loss) income allocated to the General Partners $ (1,489) $ 19 ========= ======== Net (loss) income allocated to the Limited Partners $(147,451) $ 1,847 ========= ======== Net loss per Limited Partnership Interest (9,550 units outstanding) $ (15.44) $ 0.19 ========= ======== See accompanying notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements consolidate the accounts of Brauvin Real Estate Fund L.P. 4 (the "Partnership") and a 47% interest in another joint venture, which is accounted for using the equity method of accounting. The Partnership is a Delaware limited partnership organized for the purpose of acquiring, operating, holding for investment and disposing of existing office buildings, medical office centers, shopping centers and industrial and retail commercial buildings of a general purpose nature, all in metropolitan areas. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. Mr. Cezar M. Froelich resigned as a director of the corporate general partner in December 1994, and resigned as an Individual General Partner effective 90 days from August 14, 1997. Brauvin Ventures, Inc. is owned by A.G.E. Realty Corporation Inc.(50%), and by Messrs. Brault (beneficially) (25%) and Froelich (25%). A. G. Edwards & Sons, Inc. and Brauvin Securities, Inc., affiliates of the General Partners, were the selling agents of the Partnership. The Partnership is managed by an affiliate of the General Partners. The General Partners of the Partnership filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which became effective on February 16, 1984. The sale of the minimum of $1,200,000 of limited partnership interests of the Partnership (the "Units") necessary for the Partnership to commence operations was achieved on April 30, 1984 and the Partnership was formed. The Partnership's offering closed on December 31, 1984. A total of $9,550,000 of Units were subscribed and issued between February 16, 1984 and December 31, 1984 pursuant to the Partnership's public offering. Properties acquired by the Partnership either directly or indirectly through affiliated joint ventures were: (a) Fortune Professional Building (which was sold February 2003); (b) Raleigh Springs Marketplace; (c) Strawberry Fields Shopping Center(which was sold in July 2001) and (d) Sabal Palm Shopping Center(which was sold in December 2005). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership has begun the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of assets are presented at their net realizable amounts and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets in liquidation as of September 30, 2006. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. Tenant Receivables Tenant receivables are comprised of (a) billed but uncollected amounts due for monthly rents and other charges and (b) estimated unbilled amounts due for tenant reimbursement of common area maintenance charges and property taxes. Receivables are recorded at management's estimate of the amounts that will ultimately be collected. An allowance for doubtful accounts of $29,269 is based on specific identification of uncollectible accounts and the Partnership's historical collection experience. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Principles of Consolidation The Partnership has one affiliate, Brauvin Raleigh, L.L.C. which is owned 100% by the Partnership. The accounts of the Partnership have been consolidated with its wholly owned subsidiary in the accompanying financial statements. All significant intercompany balances and transactions have been eliminated upon consolidation. Investment in Joint Venture Partnership The Partnership owned a 47% equity interest in Sabal Palm Joint Venture (see Note 6). Sabal Palm was reported as an investment in an affiliated joint venture. The accompanying financial statements include the investment in Sabal Palm Joint Venture at estimated net realizable value using the equity method of accounting. On December 7, 2005 the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis of accounting, the operating properties acquired by the Partnership were stated at cost including acquisition costs, leasing commissions, tenant improvements and net of impairment. Depreciation and amortization expense were computed on a straight-line basis over approximately 31.5 years and the term of the applicable leases, respectively. The Partnership's remaining property is subject to a lien under a first mortgage (see Note 4). Subsequent to the adoption of the liquidation basis of accounting (see Note 2), the Partnership adjusted its investment in real estate to estimated net realizable value, which is recorded as real estate held for sale. Additionally, the Partnership suspended recording any further depreciation expense. The Partnership has adopted Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which is effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing intangibles, reassessment of the useful lives of existing intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The Partnership has adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 retains the recognition and measurement requirements of its predecessor, but resolves significant implementation issues. In addition, it applies to a segment of a business accounted for as a discontinued operation. SFAS 144 has not had a significant impact on the Partnership's financial statements. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. The Partnership maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. Management believes the Partnership is not exposed to any significant credit risk related to cash or cash equivalents. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of September 30, 2006, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In connection with the adoption of the liquidation basis of accounting, which approximates fair value at September 30, 2006, assets were adjusted to net realizable value, and liabilities were adjusted to estimated settlement amounts. Derivatives and Hedging Instruments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the balance sheet and be measured at fair value. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Partnership effective January 1, 2001. Variable Interest Entities In January 2003, FASB issued interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of certain variable interest entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation was revised in December 2003 and for calendar year end entities, is effective as of December 31, 2003. The Partnership does not own any "special purpose entities" (as defined). The adoption of FIN 46 has not had a significant impact on the Partnership's financial statements. Liabilities and Equity Characteristics In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with the Characteristics of both Liabilities and Equity" ("SFAS 150"), which is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective beginning July 1, 2003. SFAS 150 establishes standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 has not had a significant impact on the Partnership's financial statements. Recent Accounting Pronouncements During 2005, FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47") which is effective for the Partnership's year ended December 31, 2005. FIN 47 is an interpretation of FASB Statement No. 143 "Asset Retirement Obligations." Under this standard, a company must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated. The adoption of FIN 47 did not have a material effect on the Partnership's consolidated financial statements. SFAS No. 153, "Exchanges of Nonmonetary Assets-an amendment of APB Opinion 29" issued by FASB in December 2004, generally requires exchanges of productive assets to be accounted for at fair value rather than carryover basis unless the transactions lack commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement did not have a material impact on the Partnership's financial position or results of operations. In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections" was issued by FASB. SFAS No. 154 replaces APB Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." This statement requires voluntary changes in accounting policies to be accounted for retrospectively with prior periods to be restated as if the newly adopted policy had always been used. The provisions of SFAS No. 154 could have an impact on prior year financial statements if the Partnership has a change in accounting policy. In June 2005, FASB ratified its consensus in EITF Issue 04- 05, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights" (Issue 04- 05). Issue 04-05 was effective for all new or modified partnerships after June 29, 2005 and for all new partnerships after December 31, 2005. The adoption of Issue 04-05 did not have an impact on the Partnership's financial statements. (2) ADJUSTMENT TO LIQUIDATION BASIS On July 12, 1999, in accordance with the liquidation basis of accounting, assets were adjusted to estimated net realizable value and liabilities were adjusted to estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Additionally, a deferred gain was recorded in 2003, and a deferred gain will be recognized in income on the completion of the property sale. (3) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition in accordance with paragraph 2, section K of the Agreement; and second, all remaining profits shall be allocated to the Limited Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: 99% of such net loss shall be allocated to the Limited Partners and 1% of such net loss shall be allocated to the General Partners. The Agreement provides that distributions of Operating Cash Flow, as defined in the Agreement, shall be distributed 99% to the Limited Partners and 1% to the General Partners. The receipt by the General Partners of such 1% of Operating Cash Flow shall be subordinated to the receipt by the Limited Partners of Operating Cash Flow equal to a 10% per annum, cumulative, non-compounded return on their Adjusted Investment (the "Preferential Distribution"), as such term is defined in the Agreement. In the event the full Preferential Distribution is not made in any year (herein referred to as a "Preferential Distribution Deficiency") and Operating Cash Flow is available in following years in excess of the Preferential Distribution for said year, then the Limited Partners shall be paid such excess Operating Cash Flow until they have been paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. At September 30, 2006, the Preferential Distribution Deficiency exceeded the potential liquidation value of the remaining Partnership assets. (4) MORTGAGE NOTES PAYABLE Mortgage notes payable at September 30, 2006 consist of the following: Interest Date Balance Rate Due Raleigh Springs Marketplace $ 4,400,000 LIBOR+ 2.25% 12/06 Raleigh Springs Marketplace serves as collateral under the respective nonrecourse debt obligation. On March 11, 2002, the Partnership accepted a proposal to modify the Raleigh Springs Marketplace mortgage loan. Under the terms of the proposal, the maturity date was extended to April 1, 2007. The loan, which continued to bear interest at 10% per annum, required monthly installments of principal and interest of $46,839 (based upon a 25 year amortization schedule) with a final payment of unpaid interest and principal on April 1, 2007. On November 17, 2005, the Partnership paid off the prior loan (in the amount of $3,910,423) from the proceeds from a new first mortgage loan ("First Mortgage") in the amount of $4,400,000. This loan requires payments of interest only and has a twelve- month maturity. In addition, the Partnership has the ability to extend this loan for an additional twelve-month period (with the payment of an additional fee of $11,000). Interest is payable based on the LIBOR rate plus 2.25%. On September 30, 2006 the interest rate was approximately 7.58%. The Partnership was also required to purchase an interest rate cap agreement with a maturity of December 15, 2006 in order to fix the underlying base rates of the mortgage (LIBOR) at 6.45%. The notional amount of the interest rate cap is identical to the notional amount of the mortgage loan. The total cost related to the cap was $2,500. The First Mortgage also required the establishment of a $300,000 escrow that can be used for the payment of tenant improvements and leasing commissions. The First Mortgage lender also required the Partnership to create a special purpose entity, Brauvin Raleigh LLC, which is fully owned by the Partnership. The Partnership transferred its ownership interest in the Raleigh Springs Marketplace to the special purpose entity. The Partnership was also required to enter into a limited guaranty agreement. Primarily, under the terms of the guaranty agreement the Partnership will not be personally liable unless the Partnership or Brauvin Raleigh LLC commit fraud by misapplication or misappropriation of cash receipts. In the fourth quarter of 2006, Brauvin Raleigh LLC began loan extension discussions with the First Mortgage Lender. Brauvin Raleigh LLC is currently completing the requirements of the extension. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses incurred or payable to the General Partners or their affiliates for the nine months ended September 30, 2006 and 2005 were as follows: 2006 2005 ------- ------- Management fees $37,676 $39,217 Reimbursable office expenses 71,050 57,150 As of September 30, 2006, the Partnership had made all payments to affiliates except for $3,200 for management fees. (6) EQUITY INVESTMENT The Partnership owns a 47% interest in Sabal Palm Joint Venture ("Sabal Palm") and accounts for its investment under the equity method. On December 7, 2005, the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. Under the terms of the transaction, the joint venture was able to bill and retain the 2005 common area maintenance reimbursements. Accordingly, in late December 2005, the joint venture billed the Sabal Palm tenants approximately $75,000 for its common area reimbursement. The joint venture made every effort to collect the remaining receivables from the Sabal Palm tenants. The following are condensed financial statements for Sabal Palm: Liquidation Basis For the nine months ended September 30, 2006 2005 ------- --------- Rental income $ -- $ 367,765 Other income 4,182 86,828 -------- --------- 4,182 454,593 -------- --------- Mortgage and other interest -- 123,887 Operating and administrative expenses 31,950 361,303 -------- --------- 31,950 485,190 -------- --------- Net loss $(27,768) $ (30,597) ======== ========= (7) COMMITMENTS AND CONTINGENCIES In late February 2006, the Internal Revenue Service informed the Partnership that it was being assessed penalties in the amount of $181,900 for late filing and failure to electronically file its 2004 partnership tax return. The Partnership out- sourced these activities to a third party vendor. This vendor had successfully completed the Partnership's 2003 tax filings and, prior to the notice from the Internal Revenue Service, the Partnership believed that the vendor had also successfully filed its 2004 tax returns. The Partnership appealed these penalties. The Partnership did not record any provision for this item in 2005 or 2006. On May 1, 2006 the Partnership received a notice from the Internal Revenue Service that all the penalties related to the 2004 late filings have been waived. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) ITEM 2. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Quarterly Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Liquidity and Capital Resources The Partnership intends to satisfy its short-term liquidity needs through cash flow from its remaining property. Mortgage notes payable are expected to be satisfied through a property sale. The General Partners determined to pursue the disposition of the Partnership's assets. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all the Partnership's properties, either on an individual or group basis, and to subsequently liquidate the Partnership. The solicitation, which was approved by the Limited Partners in the third quarter of 1999, stated that the Partnership's properties may be sold individually or in any combination provided that the total sales price for the properties included in the transaction equals or exceeds 70% of the aggregate appraised value for such properties, which valuation was conducted by an independent third party appraisal firm. Once the occupancy of Raleigh Springs Marketplace has been stabilized, the Partnership intends to sell this property under a closed bid process which will include identification of target buyers with proven financing ability and performance of certain evaluations of the properties, such as environmental testing. Potential buyers will be requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners have determined that each bid must be all cash, completely unconditional and accompanied by a substantial deposit. Property Status Raleigh Springs Marketplace In the fourth quarter of 2001, the Partnership leased 13,400 square feet of space to Sav A Lot, a national grocery chain. In the third quarter of 2004, Sav A Lot exercised its first option and extended the lease maturity through 2008. In the first quarter of 2004, the Partnership reached an agreement in principle with AJ Wright, a national clothing retailer to take approximately 25,000 square feet of part of the space then leased to Toys "R" Us. The Partnership negotiated a lease with the tenant, that required substantial reconfiguration to the existing space and tenant improvements. This lease was subject to a successful termination and buyout of the existing Toys "R" Us lease. The Partnership reached an agreement with Toys "R" Us for the termination and a substantial buyout payment of Toys "R" Us to the Partnership (such payment in the amount of $1,400,000 having been received in September 2004). The Partnership anticipates the payment will cover all of the conversion and tenant build out costs required by the new tenant. The buyout of the lease was subject to the approval of the property's lender and the lender agreed to the transaction. In addition in 2004, the Partnership leased approximately 10,000 square feet to the Veterans Administration (the "VA"). The VA lease also required a significant build out. The Partnership has incurred the cost of the build out and funded the expense through a portion of the Toys "R" Us lease buyout. In addition, the VA will make additional lease payments to the Partnership in an amount that will amortize the cost of the improvements over a five-year period. AJ Wright and the VA took occupancy in the fourth quarter of 2004. In the first quarter of 2006, the Partnership received an expression of interest in leasing the remaining space that was the former Toys "R" Us (approximately 11,000 square feet). In the second quarter of 2006 the Partnership and Marty's, LLC (a regional supplier of mens fashion clothing) executed a lease agreement. The tenant required significant improvements to be made to the space prior to its occupancy, which is scheduled to begin in mid November 2006. The Partnership intends to pay for these improvements through the use of the escrow funds held by the First Mortgage lender (as detailed below) and available cash on hand. The Partnership anticipates it will be making a number of cosmetic repairs and improvements to the center to improve its marketability for sale. These improvements will include painting and repair of the sign band as well as minor parking lot repairs. In the second quarter of 2005, the Partnership executed a letter of intent with a national lender to refinance the existing debt and to provide for additional tenant improvements. On November 17, 2005, the Partnership paid off the Modified Loan (in the amount of $3,910,423) from the proceeds from a new first mortgage loan ("First Mortgage") in the amount of $4,400,000. This loan requires payments of interest only and has a twelve-month maturity. In addition, the Partnership has the ability to extend this loan for an additional twelve-month period (with the payment of an additional fee of $11,000). Interest is payable based on the LIBOR rate plus 2.25%. On September 30, 2006 the total interest rate was approximately 7.45%. The Partnership was also required to purchase a interest rate cap at a cost of $2,500, which caps the LIBOR rate at 6.45% for a one year period. The First Mortgage also required the establishment of a $300,000 escrow that can be used for the payment of tenant improvements and leasing commissions. The First Mortgage lender also required the Partnership to create a special purpose entity, Brauvin Raleigh LLC, which is fully owned by the Partnership. The Partnership transferred its ownership interest in the Raleigh Springs Marketplace to the special purpose entity. The Partnership was also required to enter into a limited guaranty agreement. Primarily, under the terms of the guaranty agreement the Partnership will not be personally liable unless the Partnership or Brauvin Raleigh LLC commit fraud by misapplication or misappropriation of cash receipts. In the fourth quarter of 2006, Brauvin Raleigh LLC began loan extension discussions with the First Mortgage Lender. Brauvin Raleigh LLC is currently completing the requirements of the extension. Sabal Palm Shopping Center On December 7, 2005, the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. Under the terms of the transaction, the joint venture was able to bill and retain the 2005 common area maintenance reimbursements. Accordingly, in late December 2005, the joint venture billed the Sabal Palm tenants approximately $75,000 for its common area reimbursement. The joint venture made every effort to collect the remaining receivables from the Sabal Palm tenants. Results of Operations The Partnership's revenue and expenses are affected primarily by the operations of the properties. Property operations, and in particular the components of income, demand for space and rental rates are, to a large extent, determined by local and national market conditions. These conditions have generally adversely impacted the Partnership's property economics. The General Partners conduct an in-depth assessment of each property's physical condition as well as a demographic analysis to assess opportunities for increasing occupancy and rental rates and decreasing operating costs. In all instances, decisions concerning restructuring of loan terms, reversions and subsequent operation of the property are made with the intent of maximizing the potential proceeds to the Partnership and, therefore, return of investment and income to Limited Partners. In certain instances and under limited circumstances, management of the Partnership entered into negotiations with lenders for the purpose of restructuring the terms of loans to provide for debt service levels that could be supported by operations of the properties. When negotiations are unsuccessful, management of the Partnership considers the possibility of reverting the properties to the first mortgage lender. Foreclosure proceedings may require 6 to 24 months to conclude. Results of Operations - Nine months ended September 30, 2006 and 2005 (Liquidation Basis) As a result of the Partnership's adoption of the liquidation basis of accounting, and in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. The Partnership generated net loss of $570,000 for the period ended September 30, 2006 as compared to a net loss of $183,000 for the same period in 2005. The $387,000 increase in net loss is primarily a result of an increase in general and administrative expenses of $494,000, partially offset by a decrease in interest expense of $88,000. The Partnership's share of Sabal Palms net loss decreased $3,000. Total income for the period ended September 30, 2006 was $669,000 as compared to $662,000 for the same period in 2005. The $7,000 increase in total income was primarily a result of a $16,000 increase in interest income and a $9,000 increase in other income. Partially offsetting the increases in income was a decrease of rental income of $19,000. Other income increased as a result of a reimbursement from one of the tenants for certain improvements completed in the tenant's space. Rental income decreased as a result of a decrease in occupancy at Raleigh Springs. Total expenses for the period ended September 30, 2006 were $1,228,000 as compared to $831,000 for the same period in 2005. The $397,000 increase in total expense was due to an increase in general and administrative expense. General and administrative expenses increased $494,000 as a result of the buildout costs associated with the Marty's lease. Partially offsetting the increase in general and administrative expense was a decrease in interest expense of $88,000 as a result of the November 17, 2005 Raleigh Springs loan refinancing. Results of Operations - Three months ended September 30, 2006 and 2005 (Liquidation Basis) The Partnership generated net loss of $149,000 for the three month period ended September 30, 2006 as compared to a net income of $2,000 for the same period in 2005. The $151,000 increase in net loss is primarily a result of an increase in general and administrative expenses of $166,000, which was primarily related to the Marty's buildout, partially offset by a decrease in interest expense of $44,000. The Partnership's share of Sabal Palms net income decreased $21,000. Total income for the three month period ended September 30, 2006 was $212,000 as compared to $227,000 for the same period in 2005. The $15,000 decrease in total income was primarily a result of a $11,000 decrease in rental income, a $9,000 decrease in other income and a $6,000 increase in interest income. Rental and other income decreased as a result of a decrease in occupancy at Raleigh Springs. Total expenses for the three month period ended September 30, 2006 were $361,000 as compared to $246,000 for the same period in 2005. The $115,000 increase in total expense was due to an increase in general and administration expense of $166,000. General and administration expense increased as a result of the buildout costs associated with the Marty's lease. Partially offsetting the increase in general and administrative expense was a decrease in interest expense of $88,000 as a result of the November 17, 2005 Raleigh Springs loan refinancing. ITEM 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and Chief Financial Officer, of the corporate general partner, have reviewed and evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before the filing date of this Annual Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Partnership's current disclosure controls and procedures are effective and timely, providing all material information relating to the Partnership required to be disclosed in reports filed or submitted under the Exchange Act. Changes in Internal Controls There have not been any significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Defaults Upon Senior Securities. None. ITEM 4. Submission of Matters to a Vote of Security Holders. None. ITEM 5. Other Information. In late February 2006, the Internal Revenue Service informed the Partnership that it was being assessed penalties in the amount of $181,900 for late filing and failure to electronically file its 2004 partnership tax return. The Partnership out- sourced these activities to a third party vendor. This vendor had successfully completed the Partnership's 2003 tax filings and, prior to the notice from the Internal Revenue Service, the Partnership believed that the vendor had also successfully filed its 2004 tax returns. The Partnership appealed these penalties. The Partnership did not record any provision for this item in 2005 or 2006. On May 1, 2006 the Partnership received a notice from the Internal Revenue Service that all the penalties related to the 2004 late filings have been waived. ITEM 6. Exhibits and Reports On Form 8-K. Exhibit 99. Certification of Officers SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: November 14, 2006 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: November 14, 2006 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 4 I, Jerome J. Brault, Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P. 4; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: November 14, 2006 CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF BRAUVIN VENTURES, INC. CORPORATE GENERAL PARTNER OF BRAUVIN REAL ESTATE FUND L.P. 4 I, Thomas E. Murphy, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Brauvin Real Estate Fund L.P 4.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the small business issue and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls over financial reporting. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: November 14, 2006 Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 and shall not be deemed filed pursuant to any provisions of the Securities Exchange Act of 1934 or any other securities law: Each of the undersigned certifies that the foregoing Report on Form 10-QSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Real Estate Fund L.P. 4. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors and President DATE: November 14, 2006 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: November 14, 2006