10KSB 1 f5.txt BRAUVIN REAL ESTATE FUND LP 4 10-KSB 12-31-05 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2005 or [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _____________ Commission File Number 0-14481 Brauvin Real Estate Fund L.P. 5 (Name of small business issuer in its charter) Delaware 36-3432071 (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 Exchange Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g)of the Exchange 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X . State issuer's revenues for its most recent fiscal year $698,001. The aggregate sales price of the limited partnership interests of the issuer (the "Units") to unaffiliated investors of the issuer was $9,914,500. This does not reflect market value. This is the price at which the Units were sold to the public. There is no current established trading market for these Units, nor have any Units been sold within the last 60 days prior to this filing. Portions of the Prospectus of the registrant dated March 1, 1985, as supplemented, and filed pursuant to Rule 424(b) and 424(c)under the Securities Act of 1933, as amended, are incorporated by reference into Parts II and III of this Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 5 2005 FORM 10-KSB ANNUAL REPORT INDEX PART I Page Item 1. Description of Business 3 Item 2. Description of Properties 5 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for the Issuer's Limited Partnership Interests, Related Security Holder Matters and Small Business Issuer Purchases of Equity Securities 10 Item 6. Management's Discussion and Analysis or Plan of Operation 10 Item 7. Consolidated Financial Statements and Supplementary Data 17 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 Item 8a. Controls and Procedures. 18 Item 8b. Other 19 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 20 Item 10. Executive Compensation 22 Item 11. Security Ownership of Certain Beneficial Owners and Management 22 Item 12. Certain Relationships and Related Transactions 23 Item 13. Exhibits 24 Item 14. Principal Accountant Fees and Services 25 Signatures 26 BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) PART I Item 1. Description of Business. Brauvin Real Estate Fund L.P. 5 (the "Partnership") is a Delaware limited partnership formed in 1985 whose business has been devoted exclusively to acquiring, operating, holding for investment and disposing of existing office buildings, shopping centers and industrial and retail commercial buildings, all in greater metropolitan areas. The General Partners originally intended to dispose of the Partnership's properties approximately five to eight years after acquisition of each property, with a view toward liquidation of the Partnership. Due to the past real estate market conditions and economic trends in the areas where the Partnership's properties were located, the General Partners believed it to be in the best interest of the Partnership to retain the properties until such time as the General Partners reasonably believed it was appropriate to dispose of the Partnership's properties. In order to make this determination, the General Partners periodically evaluated market conditions. In 1998, the General Partners notified the Limited Partners that they will explore various alternatives to sell the Partnership's assets. In this regard, the Partnership engaged a nationally known appraisal firm to value the Partnership's assets. Additionally, this firm assisted the General Partners in determining the appropriate method and timing for the disposition of the Partnership's assets. The General Partners had 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 of 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. The amended and restated limited partnership agreement (the "Agreement") provides that the Partnership shall terminate December 31, 2025, unless sooner terminated. As of December 31, 1998, the Partnership owned one rental property (which was sold in 2002), a 42% interest in a joint venture which acquired a second rental property (which was subsequently sold in 2001) and a 53% interest in a joint venture which acquired a third rental property (which was sold in 2005 see details below). A fourth rental property which the Partnership had acquired a 54% interest in a joint venture was foreclosed upon on May 15, 1995 and the joint venture was terminated and dissolved in 1996. The Partnership will not purchase any additional properties. Operations currently consist of collecting the remaining receivables from the sold joint venture property (see below). Prior to the last property sale the focus of property management activities was improvement in the economic performance of the properties with the goal of maximizing value to the Partnership upon disposition. 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 is making every effort to collect the remaining receivables from the Sabal Palm tenants. As a result of the sale by the joint venture of its property, the Partnership no longer has any investments in real estate. The Partnership has no employees. The General Partners expect to distribute proceeds from the sale of real estate to Limited Partners in a manner that is consistent with the investment objectives of the Partnership. Subject to the collection of the remaining tenant receivables and the satisfactory resolution of the matter described in Item 8b, the General Partners expect to make a final distribution to the Limited Partners in 2006. Market Conditions/Competition The Partnership faced active competition in all aspects of its business and competed with entities which owned properties similar in type to that owned by the Partnership. Competition existed in such areas as attracting and retaining creditworthy tenants, financing capital improvements and eventually selling properties. Many of the factors affecting the ability of the Partnership to compete were beyond the Partnership's control, such as softened markets caused by an oversupply of similar rental facilities, declining performance in the economy in which the property was located, population shifts, changes in zoning laws or changes in patterns of the needs of users. The marketability of the property was also affected by prevailing interest rates and existing tax laws. The Partnership retained ownership of its properties for periods longer than anticipated at acquisition. Market conditions had weakened in several markets resulting in lower cash flows than were originally anticipated. The Partnership strived to maximize economic occupancy and, as such, adjusted rents to attract and retain tenants. The Partnership, by virtue of its prior ownership of real estate, is subject to federal and state laws and regulations covering various environmental issues. Management of the Partnership retained the services of third parties who held themselves out to be experts in the field to assess a wide range of environmental issues and conduct tests for environmental contamination. Management believes that all prior real estate owned by the Partnership was in full compliance with applicable environmental laws and regulations at the time of sale. Item 2. Description of Properties. The following is a summary of the real estate and improvements owned by the Partnership at January 1, 2004 and subsequent transactions related thereto. In the opinion of the General Partners, the Partnership provided for adequate insurance coverage of its real estate investment properties. Sabal Palm Square ("Sabal Palm") On October 31, 1986, the Partnership and Brauvin Real Estate Fund L.P. 4 ("BREF 4") formed a joint venture to purchase Sabal Palm, a shopping center in Palm Bay, Florida, for $5,924,000. The Partnership has a 53% interest and BREF 4 has a 47% interest in the joint venture which owns Sabal Palm. The purchase was funded with $2,724,000 cash at closing and a $3,200,000 interim loan. On February 19, 1987, the joint venture obtained a first mortgage loan in the amount of $3,200,000 collateralized by Sabal Palm from an unaffiliated lender. The loan was payable with interest only at 9.5% per annum until February 1992, at which time the loan required payments of principal and interest based on a 30 year amortization schedule. This loan was repaid in April 2003, as detailed below. Sabal Palm is a neighborhood shopping center consisting of approximately 89,000 square feet of retail space situated on approximately 9.7 acres of land. Sabal Palm was constructed in 1985. As of December 2005, Sabal Palm's anchor tenants were Sav A Lot, Family Dollar and Goodwill. The Goodwill space was originally leased to Walgreens, which sublet its space until the end of its lease term in April 2005 (as detailed below). Sabal Palm has several outparcels, which are not owned by the Partnership, but which added to the center's appearance and customer activity. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens moved out, however, it remained liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In the second quarter of 1998, Winn-Dixie vacated its space at the center (which was approximately 42,000 square feet). Winn- Dixie failed to timely pay its rental obligation for November and December 2001 and January through March 2002. Due to non-payment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. In April 2002, the joint venture and the lender agreed to a twelve-month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Sav A Lot took occupancy of its space in October, 2002. In addition, in the first quarter of 2004 the joint venture executed a lease with Family Dollar (a national discount retailer) to lease approximately 10,675 square feet (another one of the demized spaces). Family Dollar has taken occupancy in the center. Separately, the Partnership has made a number of cosmetic improvements to the center in preparation for its sale. However, the property was damaged by two of the hurricanes that struck the Palm Bay area in the third quarter of 2004, which delayed the sale of the property until December 2005 (as discussed below). A requirement of the Family Dollar lease was that the joint venture reimburse the tenant approximately $127,000 for the substantial improvements made by the tenant to the existing space. The joint venture reimbursed Family Dollar in September 2004. On April 29, 2003, the Sabal Palm joint venture closed on a $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The AmSouth loan bore interest at LIBOR plus 2.85% and was payable interest only monthly until maturity (May 3, 2005, extended to February 3, 2006) at which time all unpaid interest and principal was to be due. The loan was secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 4 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, pursuant to the existing loan agreement, the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture was contemplating making in order to facilitate the sale of the property. Due to the fact that damage caused by the hurricanes in 2004 was being repaired in the first and second quarter of 2005, the joint venture did not believe it would be able to repay the loan in May 2005. Therefore, the joint venture requested an extension of the mortgage loan. On April 13, 2005, the joint venture and the lender agreed to terms for a nine-month extension of the then current mortgage note. The lender required that the joint venture make a principal reduction in the amount of $400,000, which the lender agreed would be paid from the cash deposit held by the lender. Additionally, the joint venture was required to pay an extension fee in the amount of $5,000. Further, as part of the extension, the lender agreed to release the unencumbered liquid asset requirement of the mortgage loan. All other terms and conditions remained the same. 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 is making every effort to collect the remaining receivables from the Sabal Palm tenants. Risks of Ownership The possibility exists that the tenants of the Partnership's sold joint venture property may be unable to fulfill their obligations pursuant to the terms of the leases, including making base rent, percentage rent or common area reimbursement payments to the Partnership. Such defaults by one or more of the tenants could have an adverse effect on the financial situation of the Partnership. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Issuer's Limited Partnership Interests, Related Security Holder Matters and Small Business Issuer Purchases of Equity Securities. At December 31, 2005, there were approximately 581 Limited Partners in the Partnership. There is currently no established public trading market for the Units and it is not anticipated that a public market for the Units will develop. Bid prices quoted by "partnership exchanges" vary widely and are not considered a reliable indication of market value. Neither the Partnership nor Brauvin Ventures, Inc. (the "Corporate General Partner") will redeem or repurchase outstanding Units. Pursuant to the terms of the Agreement, there are restrictions on the ability of the Limited Partners to transfer their Units. In all cases, the General Partners must consent to any substitution of a Limited Partner. There were no cash distributions to Limited Partners for 2005 and 2004. Item 6. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Annual Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing forward-looking statements may be found in this section and in the section entitled "Description of Business." 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's mortgage note payable was satisfied through the sale of Sabal Palm. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all of 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. The Partnership sold the remaining investment under a closed bid process which included identification of target buyers with proven financing ability and performance of certain evaluations of the property, such as environmental testing. Potential buyers were requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners determined that each bid must have been all cash, completely unconditional and accompanied by a substantial deposit. Property Status Sabal Palm Sabal Palm was required to make a balloon mortgage payment in February 1997. Prior to the scheduled maturity of the First Mortgage Loan, the lender granted Sabal Palm an extension until April 1, 1997. On March 31, 1997, Sabal Palm obtained a first mortgage loan in the amount of $3,200,000 (the "First Mortgage Loan"), secured by its real estate, from NationsBanc Mortgage Capital Corporation. Prior to April 29, 2003 the First Mortgage Loan bore interest at the rate of 8.93% per annum, was amortized over a 25-year period, required monthly payments of principal and interest of approximately $26,700 and was scheduled to mature on March 26, 2002 (later extended to April 2003). A portion of the proceeds of the First Mortgage Loan, approximately $3,077,000, was used to retire Sabal Palm's existing mortgage from Lincoln National Pension Insurance Company. Sabal Palm is a neighborhood shopping center consisting of approximately 89,000 square feet of retail space situated on approximately 9.7 acres of land. Sabal Palm was constructed in 1985. As of December 2005, Sabal Palm's anchor tenants were Sav A Lot, Family Dollar and Goodwill. The Goodwill space was originally leased to Walgreens, which sublet its space until the end of its lease term in April 2005 (as detailed below). Sabal Palm has several outparcels, which are not owned by the Partnership, but which added to the center's appearance and customer activity. On August 7, 2000, Sabal Palm was given notice that Walgreens will vacate the space prior to its lease termination of April 30, 2005. Walgreens moved out, however, it remained liable for rental payments under its lease with Sabal Palm. The joint venture and Walgreens reached an agreement with a subtenant for the occupancy of this space through the initial term ending in April 2005. Subsequently, the joint venture entered into a new direct lease with the replacement tenant for this space through June 30, 2007. In the second quarter of 1998, Winn-Dixie vacated its space at the center (which was approximately 42,000 square feet). Winn- Dixie failed to timely pay its rental obligation for November and December 2001 and January through March 2002. Due to non-payment of Winn-Dixie's rental obligations, the joint venture did not make its mortgage payments for Sabal Palm in November and December 2001 and January through March 2002 thus resulting in a default on its loan. In April 2002, the joint venture and the lender agreed to a twelve-month extension of the existing mortgage loan. The loan extension was subject to the lease termination of Winn-Dixie and Winn-Dixie's payment of a $300,000 termination fee and payment of all past due amounts thus curing the default. As a requirement of the extension, the joint venture and the lender agreed to use the proceeds from the termination to redemize the former Winn-Dixie space into three spaces as well as certain other improvements to the center. The joint venture signed a lease with Sav A Lot, a national grocery chain, for 14,350 square feet (one of the demized spaces). Sav A Lot took occupancy of its space in October, 2002. In addition, in the first quarter of 2004 the joint venture executed a lease with Family Dollar (a national discount retailer) to lease approximately 10,675 square feet (another one of the demized spaces). Family Dollar has taken occupancy in the center. Separately, the Partnership has made a number of cosmetic improvements to the center in preparation for its sale. However, the property was damaged by two of the hurricanes that struck the Palm Bay area in the third quarter of 2004, which delayed the sale of the property until December 2005 (as discussed below). A requirement of the Family Dollar lease was that the joint venture reimburse the tenant approximately $127,000 for the substantial improvements made by the tenant to the existing space. The joint venture reimbursed Family Dollar in September 2004. On April 29, 2003, the Sabal Palm joint venture closed on a $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The AmSouth loan bore interest at LIBOR plus 2.85% and was payable interest only monthly until maturity (May 3, 2005, extended to February 3, 2006) at which time all unpaid interest and principal was to be due. The loan was secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 4 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, pursuant to the existing loan agreement, the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture was contemplating making in order to facilitate the sale of the property. Due to the fact that damage caused by the hurricanes in 2004 was being repaired in the first and second quarter of 2005, the joint venture did not believe it would be able to repay the loan in May 2005. Therefore, the joint venture requested an extension of the mortgage loan. On April 13, 2005, the joint venture and the lender agreed to terms for a nine-month extension of the then current mortgage note. The lender required that the joint venture make a principal reduction in the amount of $400,000, which the lender agreed to be paid from the cash deposit held by the lender. Additionally, the joint venture was required to pay an extension fee in the amount of $5,000. Further, as part of the extension, the lender agreed to release the unencumbered liquid asset requirement of the mortgage loan. All other terms and conditions remained the same. 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 is making every effort to collect the remaining receivables from the Sabal Palm tenants. As a result of the July 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership 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 the assets are presented at net realizable values and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on the liquidation basis of accounting 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 consolidated statement of net assets as of December 31, 2005. The General Partners expect to distribute proceeds from the sale of real estate to Limited Partners in a manner that is consistent with the investment objectives of the Partnership. Subject to the collection of the remaining tenant receivables and the satisfactory resolution of the matter described in Item 8b, the General Partners expect to make a final distribution to the Limited Partners in 2006. Results of Operations The Partnership's revenue and expenses were 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. Rental and occupancy rates were generally below where they were when the properties were acquired. The General Partners conducted 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 were 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 were unsuccessful, management of the Partnership considered the possibility of reverting the properties to the first mortgage lender. An affiliate of the Partnership and the General Partners was assigned responsibility for day-to-day management of the properties. The affiliate receives a combined management and leasing fee which cannot exceed 6% of gross revenues generated by the properties. Management fee rates are determined by the extent of services provided by the affiliate versus services that may be provided by third parties, i.e., independent leasing agents. In all instances, fees paid by the Partnership to the property management affiliate are, in the General Partners opinion, comparable to fees that would be paid to independent third parties. Results of Operations for the years ended December 31,2005 and 2004 The Partnership generated net income of $648,000 for the year ended December 31, 2005 as compared to a net loss of $138,000 for the same period in 2004. The $786,000 change is primarily the result of an increase in the gain on the sale of property of $1,190,000, an increase in total income of $114,000 and a decrease in total expenses of $106,000. Minority interest share in Sabal Palm's net income increased $623,000. Total income for the year ended December 31, 2005 was $698,000 as compared to $584,000 for the same period in 2004. The $114,000 increase in total income was primarily a result of a $42,000 increase in rental income, a $40,000 increase in interest income and a $31,000 increase in other income. Rental and other tenant income increased as a result of an increase in the occupancy at Sabal Palm during 2005 when compared to 2004. Total expenses for the year ended December 31, 2005 were $669,000 as compared to $775,000 for the same period in 2004. The $106,000 decrease in total expense was primarily a result of a $153,000 decrease in general and administrative expense and a $28,000 decrease in operating expense. Partially offsetting these decreases is a $67,000 increase in repairs and maintenance and a $21,000 increase in interest expense. General and administrative expenses decreased between the two periods primarily as a result of the $127,000 payment in September 2004 to reimburse a tenant at Sabal Palm for part of their buildout. In addition, general and administrative expenses decreased as a result of paying more leasing commissions during the period ended in 2004 than in 2005. Repairs and maintenance increased primarily as a result of roof repairs at the Sabal Palm property. Results of Operations for the years ended December 31,2004 and 2003 The Partnership generated a net loss of $138,000 for the year ended December 31, 2004 as compared to a net loss of $228,000 for the same period in 2003. The $90,000 decrease in net loss is primarily the result of an increase in total income of $90,000 offset by an increase in total expenses of $42,000. Minority interest share in Sabal Palm's net loss increased $43,000. Total income for the year ended December 31, 2004 was $584,000 as compared to $494,000 for the same period in 2003. The $90,000 increase in total income was primarily a result of a $52,000 increase in rental income, a $26,000 increase in other income and a $12,000 increase in interest income. Rental and other income increased primarily as a result of increased occupancy at Sabal Palm. Total expenses for the year ended December 31, 2004 were $775,000 as compared to $733,000 for the same period in 2003. The $42,000 increase in total expense was primarily a result of a $135,000 increase in general and administrative expense, an $84,000 increase in repairs and maintenance, a $28,000 increase in operating expense, a $1,000 increase in management fees, a $2,000 increase in real estate tax expense, partially offset by a $185,000 decrease in state taxes and a $43,000 decrease in interest expense. General and administrative expenses increased as a result of the Family Dollar reimbursement payment. Additionally, general and administrative expenses increased as a result of increasing the estimated liquidation time period and therefore increasing the reserve for estimated future costs during liquidation. Repairs and maintenance increased as a result of certain repairs at the Sabal property. The decrease in state taxes primarily was a result of the 2002 sale of Crown Point Shopping center. Interest expense decreased as a result of the of Sabal Palm's new mortgage. Item 7. Consolidated Financial Statements and Supplementary Data. See Index to Consolidated Financial Statements on Page F-1 of this Form 10-KSB for consolidated financial statements where applicable. The financial information required in Item 310(b) of Regulation S-B is not applicable. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 8a. Controls and Procedures Evaluation of Disclosure Controls and Procedures The 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. Item 8b. Other Information In late February 2006, the Internal Revenue Service informed the Partnership that it was being assessed penalties in the amount of $188,800 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 has appealed these penalties. The Partnership believes its appeal will be granted and the penalties ultimately waived or reduced, however, the Partnership has not received any further correspondence from the Internal Revenue Service. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of The Exchange Act. The General Partners of the Partnership are: Brauvin Ventures, Inc., an Illinois corporation Mr. Jerome J. Brault, individually Brauvin Ventures, Inc. was formed under the laws of the State of Illinois in 1983, with its issued and outstanding shares being owned by A.G.E. Realty Corporation, Inc. (50%), and Messrs. Jerome J. Brault (beneficially) (25%) and Cezar M. Froelich (25%). The principal officers and directors of the Corporate General Partner are: Mr. Jerome J. Brault Chairman of the Board of Directors, Director, Chief Executive Officer and President Mr. James L. Brault Vice President and Secretary Mr. Thomas E. Murphy Treasurer and Chief Financial Officer The business experience during the past five years of the General Partners, officers and directors is as follows: MR. JEROME J. BRAULT (age 72) chairman of the board of directors, president and chief executive officer of the Corporate General Partner, as well as a principal shareholder of the Corporate General Partner. He is a member and manager of Brauvin Real Estate Funds, L.L.C. He is a member of Brauvin Capital Trust L.L.C. and Brauvin Net Capital Manager, L.L.C. Since 1979, he has been a shareholder, president and a director of Brauvin/Chicago, Ltd. He is an officer, director and one of the principal shareholders of various Brauvin entities which act as the general partners of two other publicly registered real estate programs. He is an officer, director and one of the principal shareholders of Brauvin Associates, Inc., Brauvin Management Company, Brauvin Advisory Services, Inc. and Brauvin Securities, Inc., Illinois companies engaged in the real estate and securities businesses. He is a director, president and chief executive officer of Brauvin Net Lease V, Inc. He is the chief executive officer of Brauvin Capital Trust, Inc. Mr. Brault received a B.S. in Business from DePaul University, Chicago, Illinois in 1959. MR. JAMES L. BRAULT (age 45) is a vice president and secretary and is responsible for the overall operations of the Corporate General Partner and other affiliates of the Corporate General Partner. He is an officer of various Brauvin entities which act as the general partners of two other publicly registered real estate programs. Mr. Brault is executive vice president and assistant secretary and is responsible for the overall operations of Brauvin Management Company. He is also an executive vice president and secretary of Brauvin Net Lease V, Inc. He is a manager of Brauvin Capital Trust, L.L.C., BA/Brauvin L.L.C. and Brauvin Net Capital, L.L.C. He is the president of Brauvin Capital Trust, Inc. Prior to joining the Brauvin organization in May 1989, he was a Vice President of the Commercial Real Estate Division of the First National Bank of Chicago ("First Chicago"), based in their Washington, D.C. office. Mr. Brault joined First Chicago in 1983 and his responsibilities included the origination and management of commercial real estate loans, as well as the direct management of a loan portfolio in excess of $150 million. Mr. Brault received a B.A. in Economics from Williams College, Williamstown, Massachusetts in 1983 and an M.B.A. in Finance and Investments from George Washington University, Washington, D.C. in 1987. Mr. Brault is the son of Mr. Jerome J. Brault. MR. THOMAS E. MURPHY (age 39) is the treasurer and chief financial officer of the Corporate General Partner and other affiliates of the Corporate General Partner. He is the chief financial officer of various Brauvin entities which act as the general partners of two other publicly registered real estate programs. Mr. Murphy is also the chief financial officer of Brauvin Management Company, Brauvin Financial, Inc., Brauvin Securities, Inc. and Brauvin Net Lease V, Inc. He is the treasurer, chief financial officer and secretary of Brauvin Capital Trust, Inc. He is responsible for the Partnership's accounting and financial reporting to regulatory agencies. He joined the Brauvin organization in July 1994. Mr. Murphy received a B.S. in Accounting from Northern Illinois University in 1988. Mr. Murphy is a Certified Public Accountant and is a member of the Illinois CPA Society. Item 10. Executive Compensation. (a & b) The Partnership is required to pay certain fees, make distributions and allocate a share of the profits and losses of the Partnership to the Corporate General Partner or other affiliates as described under the caption "Compensation Table" on pages 11 to 13 of the Partnership's Prospectus, as supplemented, and the sections of the Agreement entitled "Distributions of Operating Cash Flow", "Allocation of Profits, Losses and Deductions", "Distribution of Net Sale or Refinancing Proceeds" and "Compensation of General Partners and Their Affiliates" on pages A-9 to A-13 of the Agreement attached as Exhibit A to the Partnership's Prospectus. The relationship of the Corporate General Partner (and its directors and officers) to its affiliates is set forth above in Item 9. Reference is also made to Notes 3 and 5 of the Notes to Consolidated Financial Statements filed with this annual report for a description of such distributions and allocations. The General Partners received a share of Partnership income or loss for 2005 and 2004. An affiliate of the General Partners is reimbursed for its direct expenses relating to the administration of the Partnership. The Partnership does not have any employees and therefore there is no compensation paid. (c - h) Not applicable. Item 11. Security Ownership of Certain Beneficial Owners and Management. (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding voting Units of the Partnership. (b) The officers and directors of the Corporate General Partner do not, individually or as a group, own any Units. (c) The Partnership is not aware of any arrangements, the operations of which may result in a change of control of the Partnership. No officer or director of the Corporate General Partner possesses a right to acquire beneficial ownership of Units. The General Partners will share in the profits, losses and distributions of the Partnership as outlined in Item 10, "Executive Compensation." Item 12. Certain Relationships and Related Transactions. (a & b) The Partnership is entitled to engage in various transactions involving affiliates of the Corporate General Partner of the Partnership, as described in the section of the Partnership's Prospectus, as supplemented, entitled "Compensation Table" and "Conflicts of Interest" at pages 11 to 16 and the section of the Agreement entitled "Rights, Duties and Obligations of General Partners" at pages A-15 to A-18 of the Agreement. The relationship of the Corporate General Partner to its affiliates is set forth in Item 10. Cezar M. Froelich resigned as an individual general partner of the Partnership effective 90 days after August 14, 1997 but remains a shareholder of the Corporate General Partner. He is also a principal of the law firm of Shefsky & Froelich Ltd., which firm acted as securities and real estate counsel to the Partnership. Reference is made to Note 5 of the Notes to Consolidated Financial Statements filed with this annual report for a summary of transactions with affiliates. (c) Not applicable. (d) There have been no transactions with promoters. Item 13. Exhibits (a) The following documents are filed as part of this report: (1) (2) Consolidated Financial Statements. (See Index to Consolidated Financial Statements filed with this annual report). (3) Exhibits required by the Securities and Exchange Commission Regulation S-B Item 601: Exhibit No. Description *3.(a) Restated Limited Partnership Agreement *3.(b) Articles of Incorporation of Brauvin Ventures, Inc. *3.(c) By-Laws of Brauvin Ventures, Inc. *3.(d) Amendment to the Certificate of Limited Partnership of the Partnership *10.(a) Escrow Agreement *10.(b)(1) Management Agreement 21. Subsidiaries of the registrant *28. Pages 11-16, A-9 to A-13 and A-15 to A-18 of the Partnership's Prospectus and the Agreement dated March 1, 1985, as supplemented. * Incorporated by reference from the exhibits filed with the Partnership's registration statement (File No. 2-95633) on Form S-11 filed under the Securities Act of 1933. (b) No portions of the annual report have been incorporated by reference in this Form 10-KSB. (c) An annual report for the fiscal year 2005 will be sent to the Limited Partners subsequent to this filing. Item 14. Principal Accountant Fees and Services Altschuler, Melvoin & Glasser LLP ("AMG") has been engaged by the General Partners as the Partnership's independent auditor for the years 2005 and 2004. AMG has audited the Partnership's financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001. AMG has not performed any other services for the Partnership. The aggregate fees billed for each of the last two years professional services rendered by AMG for the audit of the Partnership's annual financial statements and reviews included in Form 10-KSB aggregated $22,500 during 2005 and $22,500 during 2004. AMG had a continuing relationship with American Express Tax and Business Services, Inc. ("TBS") from which it leased staff who were full time, permanent employees of TBS and through which its partners provide non-audit services. As a result of this arrangement, AMG has no full time employees and, therefore, none of the audit services performed were provided by permanent, full- time employees of AMG. Effective October 1, 2005, TBS was acquired by RSM McGlandrey, Inc. ("RSM") and AMG's relationship with TBS has been replaced with a similar relationship with RSM. AMG manages and supervises the audit engagement and the audit staff and are exclusively responsible for the opinion rendered in connection with its audit. Tax compliance services were provided by TBS for which fees billed amounted to $19,800 and $27,250 as of December 31, 2005 and 2004, respectively. Tax compliance services for 2005 will be provided by RSM. No other services have been provided by TBS or RSM. In accordance with policies of the board of directors of the Corporate General Partner, all services provided by AMG, TBS and RSM are required to be and have been pre-approved. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRAUVIN REAL ESTATE FUND L.P. 5 BY: Brauvin Ventures, Inc. Corporate General Partner By: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, Chief Executive Officer and President By: /s/ James L. Brault James L. Brault Vice President and Secretary By: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer INDIVIDUAL GENERAL PARTNER /s/ Jerome J. Brault Jerome J. Brault Dated: March 29, 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. 5 I, Jerome J. Brault, Chief Executive Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-KSB of Brauvin Real Estate Fund L.P. 5; 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 issuer 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 annual 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. 5 BY:/s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, President and Chief Executive Officer DATE: March 29, 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. 5 I, Thomas E. Murphy, Chief Financial Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-KSB of Brauvin Real Estate Fund L.P 5.; 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 issuer 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 annual 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. 5 BY:/s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: March 29, 2006 Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Annual Report on Form 10-KSB for the year ended December 31, 2005, 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-KSB 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-KSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Real Estate Fund L.P. 5. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 5 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, Chief Executive Officer and President DATE: March 29, 2006 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: March 29, 2006 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm. F-2 Consolidated Statement of Net Assets in Liquidation as of December 31, 2005 F-3 Consolidated Statement of Changes in Net Assets in Liquidation for the year ended December 31, 2005 (Liquidation Basis) F-4 Consolidated Statement of Changes in Net Assets in Liquidation for the year ended December 31, 2004 (Liquidation Basis) F-5 Consolidated Statements of Operations for the years ended December 31, 2005 and 2004 (Liquidation Basis) F-6 Notes to Consolidated Financial Statements F-7 All other schedules provided for in Item 13 (a) of Form 10-KSB are either not required, not applicable, or immaterial. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners of Brauvin Real Estate Fund L.P. 5 We have audited the accompanying consolidated financial statements of Brauvin Real Estate Fund L.P. 5, as of December 31, 2005, and for the years ended December 31, 2005 and 2004 as listed in the index to the consolidated financial statements. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated net assets in liquidation of Brauvin Real Estate Fund L.P. 5 and subsidiary at December 31, 2005, and the changes in their net assets in liquidation and the results of their operations for the years ended December 31, 2005 and 2004 in conformity with accounting principles generally accepted in the United States. /s/ Altschuler, Melvoin and Glasser LLP Chicago, Illinois February 22, 2006, except for Note 6 which is as of March 8, 2006 BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 2005 ASSETS Cash and cash equivalents $3,267,302 Tenant receivables 84,852 ---------- Total Assets 3,352,154 ---------- LIABILITIES Accounts payable and accrued expenses 36,183 Reserve for estimated costs during the period of liquidation (Note 2) 140,565 Due to affiliates 593 ---------- Total Liabilities 177,341 Minority interest in Sabal Palm joint venture 102,050 ---------- Net Assets in Liquidation $3,072,763 ========== See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 2005 (LIQUIDATION BASIS) Net assets in liquidation at January 1, 2005 $2,424,275 Income from continuing operations (after minority interest share) 17,828 Gain on sale of property (after minority interest share) 630,660 ---------- Net assets in liquidation at December 31, 2005 $3,072,763 ========== See notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 2004 (LIQUIDATION BASIS) Net assets in liquidation at January 1, 2004 $2,562,051 Loss from continuing operations (137,776) ---------- Net assets in liquidation at December 31, 2004 $2,424,275 ========== See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (LIQUIDATION BASIS) 2005 2004 --------- --------- INCOME Rental $ 474,057 $ 432,097 Interest 68,115 27,871 Other, primarily tenant expense reimbursements 155,829 124,426 --------- --------- Total income 698,001 584,394 --------- --------- EXPENSES Interest 156,532 135,397 Real estate taxes 83,421 96,388 Repairs and maintenance 170,924 104,324 Management fees (Note 5) 37,411 30,293 Other property operating 31,600 60,143 Bad debt expense (recovery) 27,084 33,240 General and administrative 162,138 315,205 --------- --------- Total expenses 669,110 774,990 --------- --------- Income (loss) before minority interest and gain on sale 28,891 (190,596) Gain on sale of property 1,189,925 -- ---------- --------- Income (loss) before minority interest 1,218,816 (190,596) Minority interest's share of Sabal Palm's net (income) loss (570,328) 52,820 --------- --------- Net income (loss) $ 648,488 $(137,776) ========= ========= Net income (loss) allocated to the General Partners $ 6,485 $ (1,377) ========= ========= Net income (loss) allocated to the Limited Partners $ 642,003 $(136,399) ========= ========= Net income (loss) per Limited Partnership Interest (9,914.5 units outstanding) $ 64.75 $ (13.76) ========= ========= See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 5 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2005 and 2004 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The financial statements consolidate the accounts of Brauvin Real Estate Fund L.P. 5 (the "Partnership") and joint ventures in which the Partnership has a 50% interest or greater. Additionally, the Partnership had a 42% interest in another joint venture which, prior to its sale in 2001, was accounted for using the equity method of accounting. Brauvin Real Estate Fund L.P. 5 (the "Partnership") was organized on June 28, 1985. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. On August 8, 1997, Mr. Cezar M. Froelich 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 Partnership filed a Registration Statement on Form S-11 with the Securities and Exchange Commission, which became effective on March 1, 1985. 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 June 28, 1985. The Partnership's offering closed on February 28, 1986. A total of $9,914,500 of Units were subscribed for and issued between March 1, 1985 and February 28, 1986 pursuant to the Partnership's public offering. Properties owned either directly or indirectly with affiliates of the Partnership from January 1, 2001 and subsequent transactions are (a) Crown Point (which was sold in July 2002), (b) Strawberry Fields (which was sold in July 2001) and (c) 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 the assets are presented at estimated net realizable amounts and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of financial statements on the liquidation basis of accounting 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 December 31, 2005. Accounting Method The accompanying consolidated financial statements have been prepared using the accrual method of accounting. 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. Consolidation of Joint Venture Partnership The Partnership owns a 53% interest in the Sabal Palm Joint Venture, which owned the Sabal Palm Shopping Center, prior to its sale in December 2005. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Sabal Palm Joint Venture. The minority interest of the consolidated joint venture is adjusted for the respective joint venture partner's share of income or loss and any cash contributions from or distributions to the joint venture partner Brauvin Real Estate Fund L.P. 4 ("BREF 4"). All significant intercompany balances and transactions have been eliminated. 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 is making every effort to collect the remaining receivables from the Sabal Palm tenants. 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. All of the Partnership's properties were subject to liens under first mortgages (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 that, 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. 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 $53,038 at December 31, 2005 is based on specific identification of uncollectible accounts and the Partnership's historical collection experience. 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 judgment 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 December 31, 2005, 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, assets were adjusted to net realizable value and liabilities were adjusted to estimated settlement amounts, which approximates their fair value at December 31, 2005. 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. The Partnership had no derivatives in 2005 and 2004. 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 is not anticipated to 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 is 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. (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 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 Adjusted Investment, as such term is defined in the Agreement (the "Preferential Distribution"). 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 years, then the Limited Partners shall be paid such excess Operating Cash Flow until they have 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. The Preferential Distribution Deficiency at December 31, 2005 equaled $18,018,135. (4) MORTGAGE NOTES PAYABLE Sabal Palm Square Shopping Center Prior to its sale, Sabal Palm Square Shopping Center served as collateral under its respective limited recourse debt obligation. On April 29, 2003, the Sabal Palm joint venture closed on a $3,250,000 mortgage with AmSouth Bank (subject to a reduction not to exceed $500,000 if certain conditions of the loan are not met). The joint venture repaid the prior outstanding first mortgage loan on the property in the amount of $2,957,941, accrued interest of $22,100 and paid loan costs and fees of approximately $46,100 at closing. The AmSouth loan bore interest at LIBOR plus 2.85% and was payable interest only monthly until maturity (May 3, 2005, extended to February 3, 2006) at which time all unpaid interest and principal was to be due. The loan was secured by a first mortgage lien on the property and collateral assignment of rents and leases as well as the management agreement. The partners of the joint venture each guaranteed the repayment of 50% of the joint venture obligations under the loan documents and the manager agreed to subordinate payment of the management fee to the payment of the loan obligations. Additionally, the lender required that $1,000,000 in aggregate unencumbered liquid assets be maintained (but not pledged) during the term of the loan as well as requiring the Partnership and BREF 4 to maintain a minimum combined tangible net worth of not less than $1,000,000. In January 2004, Sabal Palm was not in compliance with the net operating income requirement established in the loan and as a result the lender had a right to require a repayment of principal from the joint venture in an amount not to exceed $500,000. In the second quarter of 2004, pursuant to the existing loan agreement, the lender requested repayment of principal in the amount of $250,000. The lender agreed to allow for this payment to be made from the $1,000,000 on deposit with the lender and further agreed to reduce the liquidity requirement to $500,000. Additionally, the lender agreed to fund from the deposit with the lender certain improvements (up to $245,000) that the joint venture was contemplating making in order to facilitate the sale of the property. Due to the fact that damage caused by the hurricanes in 2004 was being repaired in the first and second quarter of 2005, the joint venture did not believe it would be able to repay the loan in May 2005. Therefore, the joint venture requested an extension of the mortgage loan. On April 13, 2005, the joint venture and the lender agreed to terms for a nine-month extension of the then current mortgage note. The lender required that the joint venture make a principal reduction in the amount of $400,000, which the lender agreed to allow for this payment to be made from the cash deposit held by the lender. Additionally, the joint venture was required to pay an extension fee in the amount of $5,000. Further, as part of the extension, the lender agreed to release the unencumbered liquid asset requirement of the mortgage loan. All other terms and conditions remained the same. 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 is making every effort to collect the remaining receivables from the Sabal Palm tenants. (5) TRANSACTIONS WITH AFFILIATES Fees and other expenses paid or payable to the General Partners or their affiliates for the years ended December 31, 2005 and 2004 were as follows: 2005 2004 ------- ------- Management fees $37,411 $30,293 Reimbursable office expenses 96,600 88,309 As of December 31, 2005, the Partnership had made all payments to affiliates, except for management fees of $593. (6) COMMITMENTS AND CONTINGENCIES In late February 2006, the Internal Revenue Service informed the Partnership that it was being assessed penalties in the amount of $188,800 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 has appealed these penalties. The Partnership believes its appeal will be granted and the penalties ultimately waived or reduced and accordingly, no provision has been made in the accompanying financial statements for such penalties, however, the Partnership has not received any further correspondence from the Internal Revenue Service. EXHIBIT INDEX Exhibit (21) Subsidiaries of the Registrant Exhibit 21 Name of Subsidiary State of Formation Brauvin Sabal Palm Joint Venture Florida