-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5zqQZl5+G9HPn+e3cTtKmc5Rv9wVwRKqebhTJZV8vwkXQyx76H8haCEd8BjJSJy jf8J1JqUcVT2EJuhYAUV/g== 0000317969-97-000007.txt : 19970329 0000317969-97-000007.hdr.sgml : 19970329 ACCESSION NUMBER: 0000317969-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 3 CENTRAL INDEX KEY: 0000768890 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942940208 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14187 FILM NUMBER: 97567987 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29802 10-K 1 FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period.........to......... Commission file number 0-14187 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 (Exact name of registrant as specified in its charter) California 94-2940208 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Limited Partnership Units (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] 342,429 of the partnership's 383,033 Limited Partnership Units ("Units") are held by non-affiliates. The aggregate market value of Units held by non- affiliates is not determinable since there is no public trading market for Units and transfers of Units are subject to certain restrictions. PART I ITEM 1. DESCRIPTION OF BUSINESS Consolidated Capital Institutional Properties/3 (the "Registrant" or "Partnership") was organized on May 23, 1984, as a limited partnership under the California Uniform Limited Partnership Act. On July 23, 1985, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-97664) and commenced a public offering for sale of $200 million of Units. The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units terminated on May 15, 1987, with 383,033 units sold for $250 each, or gross proceeds of approximately $95.7 million to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0-14187). The General Partner of the Partnership is ConCap Equities, Inc. ("CEI" or the "General Partner"), a Delaware corporation. The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was formed, for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners"), to lend funds to ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5 ("EP/3", "EP/4" and "EP/5", respectively). EP/3, EP/4 and EP/5 represent California limited partnerships in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former corporate general partner of the Partnership. Through December 31, 1994, the Partnership had made twelve (12) specific loans against a Master Loan agreement and advanced a total of $67.3 million. EP/3 used $17.3 million of the loaned funds to purchase two (2) apartment complexes and one (1) office building. EP/4 used $34.7 million of the loaned funds to purchase four (4) apartment complexes and one (1) office building, which was subsequently sold in 1989. EP/5 used $15.3 million of the loaned funds to purchase two (2) apartment complexes and two (2) office buildings. Through a series of transactions, the partnership has acquired all of EP/3, EP/4 and EP/5's properties in full settlement of their liability under the Master Loan. For a brief description of the properties owned by the partnership refer to Item 2 - Description of Properties. As of December 31, 1996, the Partnership's working capital reserves are greater than 5% of Net Invested Capital as required by the Partnership Agreement. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of Partnership liquidity and capital resources. Also, see "Item 8 - Financial Statements and Supplementary Data," for the amounts of revenue and operating profit or loss generated by the Partnership's operations for its last three years. Prior to 1989, the Partnership had loaned $17.3 million to EP/3, $34.7 million to EP/4 and $15.3 million to EP/5, subject to non-recourse notes with participation interests (collectively referred to as the "Master Loan"), pursuant to a Master Loan Agreement dated February 26, 1986, between the Partnership and EP/3, EP/4 and EP/5. The Partnership secured the Master Loan with deeds of trust or mortgages on real properties and by the assignment and pledge of promissory notes from the partners of EP/3, EP/4 ad EP/5. In November 1994, the Partnership entered into an agreement with EP/3 whereby one property was deeded in lieu of foreclosure to the Partnership and foreclosure proceedings were instituted by the Partnership on the other asset which collateralized the Master Loan. The Partnership assumed a note payable of approximately $1.2 million in exchange for full settlement of EP/3's liability under the Master Loan. During 1992, the Partnership foreclosed on the last remaining EP/4 apartment complex in full settlement of EP/4's liability under the Master Loan. Previously, the Partnership foreclosed on three of EP/4's apartment complexes and EP/4's interest in one note receivable secured by the office building sold in 1989, and acquired EP/5's two apartment complexes and two office buildings through a transfer of ownership in full settlement of EP/5's liability under the Master Loan. During 1993, the major tenant who occupied 95% of the Sutter D Office Building, one of the three EP/3 properties collateralizing the Master Loan, did not renew its lease and vacated the building. EP/3 was unable to replace the tenant under terms that were economically viable for the property and defaulted on the approximately $2.1 million third party mortgage debt secured by the Sutter D Office Building. During 1994, the Sutter D Office Building serving as collateral for the Master Loan was posted for foreclosure by the first lienholder. This foreclosure had no gain or loss effect to the Partnership. In November 1994, the Partnership entered into a settlement with EP/3 whereby the Williamsburg Manor Apartments were deeded in lieu of foreclosure to the Partnership and foreclosure proceedings were initiated by the Partnership on the Sandpiper I and II Apartments, the remaining properties collateralizing the Master Loan. The Partnership also assumed a note payable of approximately $1.2 million in exchange for full settlement of EP/3's liability for the Master Loan and recognized a net loss of approximately $413,000 on the settlement of the Master Loan at December 31, 1994. As a result of the fact that: (1) EP/3 had no equity in the Sandpiper I & II Apartments, considering the then estimated fair value of the property; (2) proceeds for repayment of the portion of the Master Loan collateralized by the Sandpiper I & II Apartments were expected to come only from the operations or sale of the property; and (3) EP/3 effectively abandoned control of the Sandpiper I & II Apartments when EP/3 and the Partnership executed the settlement agreement in November 1994, whereby EP/3 agreed to transfer to the Partnership the full and unrestricted right to possession, management, and control of the property and not to contest, hinder or delay a judicial foreclosure action initiated by the Partnership, CCIP/3 deemed the Sandpiper I & II Apartments in-substance foreclosed at November 30, 1994. Accordingly, the net Master Loan receivable collateralized by the Sandpiper I & II Apartments is presented as "Net real estate assets of property in-substance foreclosed" in the accompanying financial statements for 1994. Foreclosure proceedings were initiated in 1994 and completed in 1995. As a result of the transactions described above, the Master Loan was settled in full during 1994. At December 31, 1996, the Partnership owned eight apartment complexes located in Florida, North Carolina, Washington, Michigan, Utah and Colorado, one office building located in Florida and one shopping center in California, which range in age from 10 to 27 years old. These properties are hereinafter referred to as the "Partnership Properties". The Partnership had two notes payable that matured in January 1995, which were extended to June 1995. The Lamplighter Park Apartments, located in Bellevue, Washington, secured approximately $4.6 million of first mortgage debt that matured in June of 1995. On June 30, 1995, an extension agreement was reached which extended the maturity of this mortgage debt to June 30, 1997. The Tamarac Village Apartments, located in Denver, Colorado, secured approximately $2.8 million of mortgage debt that matured in June of 1995. This indebtedness was paid in full in December of 1995. These two property's debt were refinanced in November of 1996, along with three other of the Partnership's investment properties (see "Note F" of the Notes to Financial Statements for details of this refinancing). Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan, CEI acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As part of the Insignia Transaction, the Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity. Additionally, a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 7." of this Form 10-K. The Registrant has no employees. Management and administrative services are performed by ConCap Equities, Inc., the General Partner, and by affiliates of Insignia. The real estate business in which the Partnership is engaged is highly competitive and the Partnership is not a significant factor in this industry. The Registrant's property is subject to competition from similar properties in the vicinity in which the property is located. In addition, various limited partnerships have been formed by the General Partners and/or their affiliates to engage in businesses which may be competitive with the Registrant. ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the Registrant's investment in properties:
Date of Property Purchase Type of Ownership Use Cedar Rim 4/12/91 Fee ownership subject Apartment Renton, Washington to first mortgage. 104 units City Heights 4/13/90 Fee ownership subject Apartment Seattle, Washington to first mortgage. 105 units Corporate Center 4/13/90 Fee ownership. Commercial Tampa, Florida 107,670 s.f. Hidden Cove by the Lake 3/23/90 Fee ownership subject Apartment Belleville, Michigan to first mortgage. 120 units Lamplighter Park 4/12/91 Fee ownership subject Apartment Bellevue, Washington to first mortgage. 174 units Park Capitol 4/13/90 Fee ownership subject Apartment Salt Lake City, Utah to first mortgage. 135 units Tamarac Village 6/10/92 Fee ownership subject Apartment I,II,III,IV to first mortgage. 564 units Denver, Colorado Williamsburg Manor 11/30/94 Fee ownership subject Apartment Cary, North Carolina to first mortgage. 183 units Sandpiper I & II 11/30/94 Fee ownership subject Apartment St. Petersburg, Florida to first mortgage. 276 units South City Business Center 2/14/96 Fee ownership. Commercial Chula Vista, California . 165,687 s.f.
SCHEDULE OF PROPERTY: (dollar amounts in thousands)
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis Cedar Rim $ 4,706 $1,428 3-20 yrs S/L $ 4,846 City Heights 4,806 1,480 3-20 yrs S/L 4,843 Corporate Center 3,424 1,254 5-20 yrs S/L 3,810 Hidden Cove 5,314 1,925 3-20 yrs S/L 4,335 Lamplighter Park 7,818 1,699 3-20 yrs S/L 6,892 Park Capitol 2,859 1,041 5-20 yrs S/L 2,351 Tamarac Village 14,122 2,591 5-20 yrs S/L 12,321 Williamsburg Manor 6,756 522 5-22 yrs S/L 6,329 Sandpiper I & II 7,634 586 5-22 yrs S/L 7,156 South City 4,382 108 14-25 yrs S/L 4,330 $61,821 $12,634
See "Note A" of the Notes to Financial Statements included in "Item 8." for a description of the Partnership's depreciation policy. SCHEDULE OF MORTGAGES: (dollar amounts in thousands) Principal Principal Balance At Stated Balance December 31, Interest Maturity Due At Property 1996 Rate Date Maturity Lamplighter Park $ 3,500 7.33% 11/01/03 $3,500 Park Capitol 2,725 6.95% 12/01/05 2,725 Tamarac Village 9,400 7.33% 11/01/03 9,400 Williamsburg Manor 4,150 6.95% 12/01/05 4,150 Sandpiper I & II 3,950 6.95% 12/01/05 3,950 Cedar Rim 2,000 7.33% 11/01/03 2,000 City Heights 2,600 7.33% 11/01/03 2,600 Hidden Cove 2,200 7.33% 11/01/03 2,200 $30,525 Accrued interest 183 $30,708 The mortgage loans on each of the properties mature at various times with balloon payments due at maturity. SCHEDULE OF RENTAL RATES AND OCCUPANCY: (dollar amounts in thousands) Average Annual Average Annual Rental Rates Occupancy Property 1996 1995 1996 1995 Cedar Rim $8,837/unit $8,512/unit 94% 89% City Heights 9,591/unit 9,430/unit 96% 85% Corporate Center 5.68/sq.ft. 5.42/sq.ft. 94% 99% Hidden Cove 8,258/unit 7,716/unit 94% 95% Lamplighter Park 7,925/unit 7,639/unit 96% 95% Park Capitol 7,276/unit 7,007/unit 98% 96% Tamarac Village 6,659/unit 6,332/unit 94% 86% Williamsburg Manor 8,200/unit 7,900/unit 95% 96% Sandpiper I & II 6,736/unit 6,873/unit 91% 87% South City 5.38/sq.ft. (1) 88% (1) (1) The South City Business Center was foreclosed on by the Partnership in February of 1996. Rental rate and occupancy information for 1995 are not available. The General Partner attributes the increase in occupancy at Cedar Rim to property improvements and increased leasing efforts combined with a strong local economy. The increase in occupancy at City Heights Apartments is attributed to a stronger employment market in the area and to water damage to six units which negatively impacted 1995 occupancy levels. The increase in occupancy at Tamarac Apartments is attributed to property improvements and increased leasing efforts combined with a strong local economy. The occupancy increase at Sandpiper I & II is due to interior renovations and increased leasing incentive programs. The occupancy decrease at Corporate Center is due to the move-out of a tenant who had leased 4,800 square feet. As noted under "Item 1. Description of Business," the real estate industry is highly competitive. The Partnership's properties are subject to competition from other residential apartment complexes and commercial buildings in the area. The General Partner believes that all of the properties are adequately insured. The multifamily residential properties' lease terms are for one year or less. No residential tenant leases 10% or more of the available rental space. The following is a schedule of lease expirations for the years 1997 - 2006: Corporate Number of % of Gross Center Expirations Square Feet Annual Rent Annual Rent (in thousands) 1997 2 4,740 $ 26 4.7% 1998 9 38,340 211 37.9% 1999 7 29,920 169 30.2% 2000 5 15,950 90 16.2% 2001 1 4,800 30 5.4% 2002 - 2006 0 0 0 0 South City 1997 28 48,052 $ 289 35.1% 1998 6 8,202 61 7.4% 1999 9 20,174 155 18.8% 2000 2 10,085 55 6.7% 2001 2 3,467 27 3.2% 2002 - 2006 0 0 0 0 No tenant at South City occupies 10% or more of the leasable sq. feet at South City. The following schedule reflects information on tenants occupying 10% or more of the leasable square feet for Corporate Center: Nature of Square Footage Annual Rent Lease Business Leased Per Sq. Ft. Expiration Retailer 12,000 $5.15 10/31/98 Soil Testing 11,940 4.82 02/28/99 SCHEDULE OF REAL ESTATE TAXES AND RATES: (dollar amounts in thousands) 1996 1996 Taxes Rate Cedar Rim $ 68 1.42% City Heights 75 1.31% Corporate Center 57 2.56% Hidden Cove 64 4.58% Lamplighter Park 80 1.24% Park Capitol 41 1.55% Tamarac Village 155 8.12% Williamsburg Manor 75 1.21% Sandpiper I & II 178 2.46% South City 73 1.16% ITEM 3. LEGAL PROCEEDINGS The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Partnership believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended December 31, 1996, no matter was submitted to a vote of the Unit holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS As of December 31, 1996, the number of holders of record of Limited Partnership Units was 18,875. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The Partnership made distributions of cash generated from operations of approximately $4,821,000 and $3,644,000 and $3,530,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The Partnership also made a distribution of cash from surplus funds of approximately $2,457,000 for the year ended December 31, 1996. Calculations are based upon the weighted average number of Units outstanding. Future distributions will depend on the levels of cash generated from operations, refinancings, property sales and the availability of cash reserves. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in "Item 8 - Financial Statements and Supplementary Data."
FOR THE YEARS ENDED DECEMBER 31, STATEMENTS OF OPERATIONS 1996 1995 1994 1993 1992 (in thousands, except per unit data) Revenues $ 13,881 $ 12,569 $ 10,704 $ 10,441 $ 8,306 Costs and expenses (12,728) (14,175) (10,819) (11,381) (6,801) Income (loss) from operations 1,153 (1,606) (115) (940) 1,505 Net gain (loss) on sales of securities -- -- (1) -- 48 Net gain (loss) on acquisition of real estate -- -- (413) -- 1,943 Net loss on disposition of real estate -- -- -- -- (2,177) Settlement costs -- -- -- (201) -- Income (loss) before extraordinary item 1,153 (1,606) (529) (1,141) 1,319 Extraordinary item -- (18) -- -- 2,177 Net income (loss) $ 1,153 $ (1,624) $ (529)$ (1,141)$ 3,496 Net income (loss) per Limited Partnership Unit: Income (loss) from operations $ 2.98 $ (4.15) $ (.30)$ (2.43)$ 3.89 Net gain on sale of securities -- -- -- -- .12 Net gain (loss) on acquisition of real estate -- -- (1.07) -- 5.03 Net loss on disposition of real estate -- -- -- -- (5.63) Settlement costs -- -- -- (.52) -- Income (loss) before extraordinary item 2.98 (4.15) (1.37) (2.95) 3.41 Extraordinary item -- (.05) -- -- 5.63 Net income (loss) $ 2.98 $ (4.20) $ (1.37)$ (2.95)$ 9.04 Distributions per Limited Partnership Unit $ 18.98 $ 9.42 $ 9.12 $ 7.20 $ 10.81 Limited Partnership Units outstanding 383,033 383,033 383,033 383,033 383,033
AS OF DECEMBER 31, BALANCE SHEETS 1996 1995 1994 1993 1992 (in thousands) Total assets $ 69,537 $ 62,863 $ 61,910 $ 65,628 $ 69,709 Notes payable $ 30,708 $ 18,029 $ 12,318 $ 11,541 $ 11,994
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 1996 Compared with 1995 The Partnership realized net income for the year ended December 31, 1996, of $1,153,000 compared to a net loss of $1,624,000 for the year ended December 31, 1995. The increase in net income is primarily attributable to the write-down recorded in 1995 of the note receivable between the Partnership and Lincoln South City Business Center Limited Partnership. This note receivable was subsequently foreclosed on in February 1996. In addition, rental income increased due to improved occupancy and increased rental rates at several properties. Also contributing was a casualty gain of $114,000 relating to fire damages at the Lamplighter Park Apartments. The October fire damaged 12 units in one building at the complex. General and administrative expenses decreased due to lower expense reimbursements related to the combined efforts of the Dallas and Greenville partnership administration staffs during the transition period in 1995. The increased costs related to the transition efforts were incurred to minimize any disruption in the year-end reporting function including the financial reporting and K-1 preparation and distribution. Offsetting these changes were increases in operating and depreciation expenses, which are due in part to the acquisition of South City Business Center. The increase in operating expenses was also impacted by increased repair and maintenance expenditures resulting from efforts to increase the curb appeal of several of the Partnership's properties. Depreciation expense increased due to an increase in the depreciable asset base at several of the Partnership's properties from capital additions of approximately $1,883,000 and $1,401,000 during 1996 and 1995, respectively and the addition of South City as a depreciable asset. The decrease in other income resulted primarily from no interest income being recognized on the South City note receivable in 1996 while $275,000 of interest income was recorded in 1995. The increase in interest expense is due primarily to the refinancing of Williamsburg Manor, Park Capitol and Sandpiper I and II, whose debt balances increased approximately $6,000,000 through the refinancings, partially offset by the retirement of the third mortgage secured by Tamarac Village in December 1995. Included in operating expense is approximately $1,060,000 of major repairs and maintenance comprised primarily of interior and exterior renovations, major landscaping, parking lot rehabilitations and exterior painting for the year ended December 31, 1996. 1995 Compared to 1994 The Partnership realized a net loss of $1,624,000 for the year ended December 31, 1995, compared to a net loss of $529,000 for the year ended December 31, 1994. The increased net loss for 1995 is primarily attributable to the previously mentioned $3,255,000 write-down of the South City Business Center note receivable during 1995. During 1995, it was determined that this note receivable's collateral was impaired, and, accordingly, the note was written down to the estimated value of the property. Also contributing to the increase in net loss was an increase in operating expenses, depreciation expense and interest expense, primarily due to the addition of Williamsburg Manor Apartments and Sandpiper I and II. Williamsburg Manor Apartments was acquired through a deed-in-lieu of foreclosure transaction, and Sandpiper I and II was acquired through in-substance foreclosure in November 1994. The final foreclosure of Sandpiper was completed on June 16, 1995. As a result of the transactions described above, the Master Loan was settled in full in 1994. Accordingly, no related income was earned in 1995, which, along with the default on the South City note receivable, caused the decrease in interest and other income. General and administrative expenses increased for 1995, compared to 1994 due to combined efforts of the Dallas and Greenville offices during the transition period that ended June 30, 1995. Mitigating the increased expenses noted above was an increase in overall revenues for 1995. This increase is primarily due to the acquisition of Williamsburg Manor and Sandpiper. In addition, the provision for possible losses of $2,557,000 during December 31, 1994, resulted from the write-down of three investment properties, Cedar Rim, City Heights and Lamplighter Park due to declines in their estimated net realizable values due to regional economic factors. In November 1994, the Partnership entered into a settlement agreement with Equity Partners/3 ("EP/3") whereby the Williamsburg Manor Apartments were deeded in lieu of foreclosure to the Partnership and foreclosure proceedings were initiated by the Partnership on the Sandpiper I and II Apartments, the remaining properties which collateralized the Master Loan. The final foreclosure on Sandpiper I and II was completed on June 16, 1995. The Partnership assumed a note payable of approximately $1.2 million in exchange for full settlement of EP/3's liability for the Master Loan. The Partnership realized a net loss of approximately $413,000 on the settlement of the Master Loan during December 1994. In 1991, the Partnership (and simultaneously each of the Affiliated Partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark's activities while it exercised control (directly, or indirectly through its affiliates) over the Partnership. The Bankruptcy Court set the Partnership's and the Affiliated Partnership's allowed claim at $11 million, in aggregate. In March 1994, the Partnership received $67,791 in cash, 1,237 shares of Southmark Corporation Redeemable Series A Preferred Stock and 9,406 shares of New Common Stock with an aggregate market value of $9,104 on the date of receipt representing the Partnership's share of the recovery, based on its pro-rata share of the claims filed. In December 1995, three of the Partnership's properties, Williamsburg Manor, Sandpiper I and II, and Park Capitol, were successfully refinanced. The extraordinary loss on refinancing of approximately $18,000 resulted from a prepayment penalty charged for the early payoff of the original debt secured by Park Capitol. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. The following table summarizes the sources of Master Loan payments received from EP/3 and EP/4 during the year ended December 31, 1994: FOR THE YEAR ENDED DECEMBER 31, 1994 (in thousands) Funds provided by property operations $ 3,019 Funds used for property operations (includes administrative expenses) (1,632) Debt service payments on underlying notes payable (241) Total funds from operations 1,146 Cash transferred in property transfer (26) Net funds provided 1,120 Cash remitted in excess of (less than) funds from operations of EP/3 properties 177 $ 1,297 Master Loan Activity: Interest income 1,297 $ 1,297 Liquidity and Capital Resources At December 31, 1996, the Partnership held unrestricted cash of approximately $15,813,000 compared to approximately $9,871,000 at December 31, 1995. Net cash provided by operations decreased primarily due to increased operating expenses, interest payments and reduced interest income mitigated by higher rental revenue collections and lower general and administrative expenses. Net cash used in investing activities increased due to fewer maturities of long-term investments as the partnership invested in primarily short-term cash equivalents during 1996, as well as increased property improvements and replacements and deposits to restricted escrows in 1996. Net cash provided by financing activities increased due to greater proceeds from refinancing in 1996 than in 1995, offset by increased distributions to partners during 1996 compared to 1995. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Partnership. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The notes payable of $30,708,000 have maturity dates ranging from 2003 to 2005 at which time the individual properties will be refinanced or sold. Distributions of approximately $7,318,000 and $3,644,000 were made to the partners during 1996 and 1995, respectively. Future cash distributions will depend on the levels of net cash generated from operations, property sales, and the availability of cash reserves. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital as defined in the Partnership Agreement. In the event expenditures are made from this reserve, operating revenue shall be allocated to such reserve to the extent necessary to maintain the foregoing level. Reserves, including cash and securities available for sale, totalling approximately $16.4 million at December 31, 1996, were greater than the reserve requirement of approximately $3.9 million. In November of 1996, five of the Partnership's investment properties, Cedar Rim, City Heights, Hidden Cove, Lamplighter Park and Tamarac Village, obtained initial financing or refinanced existing notes. Proceeds from this transaction totaled $19,700,000. The debt accrues interest at a rate of 7.33% per year, matures on November 1, 2003, and requires balloon payments at maturity for the full principal amount. Throughout the mortgage term, interest-only payments are made. Loan costs of $579,000 were incurred by the properties as a result of the refinancings, and are included in other assets on the balance sheet. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 LIST OF FINANCIAL STATEMENTS Reports of Independent Auditors Balance Sheets - December 31, 1996 and 1995 Statements of Operations - Years Ended December 31, 1996, 1995 and 1994 Statements of Changes in Partners' Capital (Deficit) - Years Ended December 31, 1996, 1995 and 1994 Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Institutional Properties/3 We have audited the accompanying balance sheets of Consolidated Capital Institutional Properties/3 as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' capital (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Capital Institutional Properties/3 as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Greenville, South Carolina February 3, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Consolidated Capital Institutional Properties/3: We have audited the accompanying statements of operations, partners' capital (deficit), and cash flows of Consolidated Capital Institutional Properties/3 (a California limited partnership) for the year ended December 31, 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations, changes in partners' capital (deficit), and cash flows of Consolidated Capital Institutional Properties/3 for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Arthur Andersen, LLP Dallas, Texas March 23, 1995 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 BALANCE SHEETS (in thousands, except unit data) Years Ended December 31, 1996 1995 Assets Cash and cash equivalents: Unrestricted $ 15,813 $ 9,871 Restricted - tenant security deposits 432 349 Note receivable -- 4,400 Investments 109 109 Restricted escrows 2,174 1,188 Other assets 1,822 1,069 Investment properties: Land 12,371 10,365 Buildings and related personal property 49,450 45,470 61,821 55,835 Less accumulated depreciation (12,634) (9,958) 49,187 45,877 $ 69,537 $ 62,863 Liabilities and Partners' Capital (Deficit) Liabilities Mortgage notes payable and accrued interest $ 30,708 $ 18,029 Accounts payable and accrued expenses 916 857 Tenant security deposits 434 339 Accrued taxes 183 177 32,241 19,402 Partners' Capital (Deficit) General partner (443) (407) Limited partners (383,033 units outstanding) 37,739 43,868 37,296 43,461 $ 69,537 $ 62,863 See Accompanying Notes to Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF OPERATIONS (in thousands, except per unit data)
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Revenues: Rental income $ 12,815 $ 11,223 $ 8,431 Interest and other income 952 1,346 2,273 Gain on casualty event 114 -- -- Total revenues 13,881 12,569 10,704 Expenses: Operating 7,796 6,489 4,520 General and administrative 618 714 573 Provision for possible losses -- -- 2,557 Depreciation 2,741 2,505 2,090 Interest 1,573 1,212 1,079 Write-down of note receivable -- 3,255 -- Total expenses 12,728 14,175 10,819 Income (loss) from operations 1,153 (1,606) (115) Loss on sales of securities -- -- (1) Loss on settlement of Master Loan -- -- (413) Income (loss) before extraordinary item 1,153 (1,606) (529) Extraordinary item-loss from refinancing -- (18) -- Net income (loss) $ 1,153 $ (1,624) $ (529) Net income (loss) allocated to general partner (1%) $ 12 $ (16) $ (6) Net income (loss) allocated to limited partners (99%) 1,141 (1,608) (523) $ 1,153 $ (1,624) $ (529) Net income (loss) per Limited Partnership Unit: Income (loss) from operations $ 2.98 $ (4.15) $ (.30) Loss on settlement of Master Loan -- -- (1.07) Income (loss) before extraordinary item 2.98 (4.15) (1.37) Extraordinary item -- (.05) -- Net income (loss) $ 2.98 $ (4.20) $ (1.37) See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) For the Years Ended December 31, 1996, 1995 and 1994 (in thousands, except unit data)
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL Original capital contributions 383,033 $ 1 $ 95,758 $ 95,759 Balance at December 31, 1993 383,033 $ (314) $ 53,102 $ 52,788 Net loss -- (6) (523) (529) Distributions -- (35) (3,495) (3,530) Balance at December 31, 1994 383,033 (355) 49,084 48,729 Net loss -- (16) (1,608) (1,624) Distributions -- (36) (3,608) (3,644) Balance at December 31, 1995 383,033 (407) 43,868 43,461 Net income -- 12 1,141 1,153 Distributions -- (48) (7,270) (7,318) Balance at December 31, 1996 383,033 $ (443) $ 37,739 $ 37,296 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF CASH FLOWS (in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Cash flows from operating activities: Net income (loss) $ 1,153 $(1,624) $ (529) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,741 2,505 2,090 Amortization of lease commissions and loan costs 68 34 -- Loss on sales of investments -- -- 1 Gain on casualty event (114) -- -- Receipt of Southmark stock -- -- (9) Loss on settlement of Master Loan -- -- 413 Loss on disposal of property 149 11 -- Write-down of note receivable -- 3,255 -- Interest reduction on note receivable -- 46 -- Provision for possible losses -- -- 2,557 Changes in accounts: Restricted cash (83) (349) -- Other assets 38 (404) 58 Interest, taxes, accounts payable and tenant security deposit liability (32) 544 (438) Due from (to) affiliates -- 59 (16) Net cash provided by operating activities 3,920 4,077 4,127 Cash flows from investing activities: Property improvements and replacements (1,699) (1,401) (198) Deposits to restricted escrows (1,634) (1,188) -- Receipts from restricted escrows 648 -- -- Purchase of investments -- (11,251) (1,704) Proceeds from sales of investments -- 14,318 3,896 Net cash received in foreclosure 74 -- -- Net cash (used in) provided by investing activities $(2,611) $ 478 $ 1,994 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 Cash flows from financing activities: Payments on mortgage notes payable $ (158) $ (448) $ (389) Proceeds from refinancing 19,700 10,825 -- Repayment of mortgage debt (7,012) (4,699) -- Loan cost paid (579) (360) -- Partners' distributions (7,318) (3,644) (3,530) Net cash provided by (used in) financing activities 4,633 1,674 (3,919) Net increase in cash and cash equivalents 5,942 6,229 2,202 Cash and cash equivalents at beginning of year 9,871 3,642 1,440 Cash and cash equivalents at end of year $15,813 $ 9,871 $ 3,642 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,372 $ 1,139 $ 1,030 At December 31, 1996, in connection with a fire at Lamplighter Park, investment properties, other assets and accounts payable were adjusted $134,000, $265,000 and $269,000, respectively for non-cash activity. Also, Notes Receivable and property improvements and replacements were adjusted by $4,400,000 and $4,383,000 to reflect the acquisition of South City through foreclosure of the note receivable. See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 NOTE A - ORGANIZATION OF SIGNIFICANT ACCOUNTING POLICIES Organization: Consolidated Capital Institutional Properties/3 (the "Registrant" or "Partnership"), a California limited partnership, was formed on May 23, 1984, to lend funds through non-recourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5, ("EP/3", "EP/4", and "EP/5", respectively), California limited partnerships in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"). The Partnership entered into a Master Loan Agreement with EP/3, EP/4, and EP/5, pursuant to which the aggregate principal would not exceed the net amount raised by the Partnership's offering of approximately $96 million. Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partner- ships and replaced CCEC as managing general partner in all 16 partnerships. All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As part of the Insignia Transaction, the Insignia affiliate also acquired all of the outstanding stock of Partnership Services, Inc., an asset management entity. Additionally, a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property management entity. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, the Insignia affiliate exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. At December 31, 1996, Insignia and affiliates own 39,947 Units of the Partnership. The Partnership operates eight apartment properties and two commercial properties located throughout the United States. The principal place of business for the Partnership and for the General Partner is One Insignia Financial Plaza, Greenville, South Carolina, 29602. Cash and Cash Equivalents Unrestricted: Unrestricted cash includes cash on hand and in banks and money market funds and certificates of deposit with original maturities of three months or less. Restricted Cash-Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease with such deposits being considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Restricted Escrows: As a result of the refinancing of Williamsburg Manor, Sandpiper I & II and Park Capitol in 1995 and Lamplighter Park, Tamarac Village, Lake Villa, Cedar Rim, and City Heights in 1996, the following reserves were established: Capital Improvement Reserve - As part of the refinancings, the properties deposited $1,416,000 in 1996 and $843,000 in 1995 with the mortgage company to establish a Capital Reserve designated for certain capital improvements. At December 31, 1996, this reserve totalled approximately $1,945,000. Replacement Reserve - As part of the 1995 refinancing, each property deposits per unit between $225 and $325 per year with the mortgage company to establish and maintain a Replacement Reserve designated for repairs and replacements at the properties. As part of the 1996 refinancings approximately $27,000 was deposited with the mortgage company and has been designated for certain repairs and replacements at the respective properties. At December 31, 1996, this reserve totalled approximately $228,000. Net Investment in Master Loan: According to generally accepted accounting principles, lending arrangements that qualify as real estate acquisition, development, and construction ("ADC") loans are subject to certain rules for financial statement presentation and income recognition. Pursuant to these rules, the Master Loan Agreement (herein so called) was classified as an investment in an ADC loan as of December 31, 1993, primarily because the Partnership was entitled to receive, according to the provisions of the Master Loan Agreement, in excess of 50% of the residual profits from the sale or refinancing of the properties securing the Master Loan Agreement. Under the accounting rules, the Investment in Master Loan was accounted for by the cost method, whereby income from the investment was recognized as interest to the extent of payments received, and losses in the net realizable value of the investment were recognized in the period they were identified. Interest contractually accruing according to the terms of the Master Loan Agreement in excess of payments received was deferred. As of December 31, 1993, such cumulative deferred interest, which was not included in the balance of the Investment in Master Loan, totaled $8.3 million. During 1994, the Sutter D Office Building which secured the third party mortgage debt and served as collateral for the Master Loan was foreclosed upon by the first lienholder. In November 1994, the Partnership entered into a settlement agreement with EP/3 whereby the Williamsburg Manor Apartments were transferred to the Partnership under a deed-in-lieu of foreclosure to the Partnership and foreclosure proceedings were initiated by the Partnership on the Sandpiper I & II Apartments, the remaining property which collateralized the Master Loan. Additionally, the Partnership assumed a first-lien note payable of approximately $1.2 million collateralized by the Sandpiper I & II Apartments in exchange for full settlement of EP/3's liability, including deferred interest, under the Master Loan. The final foreclosure on Sandpiper I & II was completed on June 16, 1995. As a result of the above transactions, the Master Loan was considered settled in full during 1994. Provision for Possible Losses: Provision to reduce the carrying cost of the note receivable and real estate investments are provided when it is probable that their reasonably estimable net realizable values are less than the recorded carrying cost of such investments. Losses that result from the ongoing periodic evaluation of the net realizable value of the note receivable and real estate investments are charged to expense in the period in which they are identified. Note Receivable In-Substance Foreclosed: The portion of the Master Loan secured by the Sandpiper I & II Apartments was deemed in-substance foreclosed as of November 30, 1994. The portion of the Master Loan secured by Sandpiper I & II was deemed in-substance foreclosed because control of the property effectively rested with CCIP/3 and the debtor was unable to pay debt service according to the note terms. The note receivable in-substance foreclosed was recorded at the estimated fair value of the collateral property. Note Receivable Impairment: In 1995, the Company adopted "FASB Statement No. 114, Accounting By Creditors for Impairment of a Loan." Under the new standard, the provision for credit losses, related to loans that are identified for evaluation in accordance with FASB Statement No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. During 1995, it was determined that the note secured by the South City Business Center was impaired. Accordingly, during 1995, the Partnership recorded a write-down of $3,255,000 ($1,500,000 in the fourth quarter) on the note receivable to adjust the note balance to the estimated net realizable value of the collateral. Investment Properties: Investment properties which consist of eight apartment properties and two commercial properties are stated at cost. Costs of properties that have been permanently impaired have been reduced to the estimated fair market value. During 1995, the Partnership adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of "FASB No. 121" did not have a material effect on the Partnership's financial statements. Depreciation: Buildings and improvements are depreciated using the straight- line method over the estimated useful lives of the assets, ranging from 3 to 25 years. Leases: The Partnership leases its residential properties under short-term operating leases. Lease terms are generally one year or less in duration. The Partnership expects that in the normal course of business these leases will be renewed or replaced by other leases. The Partnership leases certain commercial space to tenants under various lease terms. For leases containing fixed rental increases during their term, rents are recognized on a straight-line basis over the terms of the lease. For all other leases, rents are recognized over the terms of the leases as collected. Interest Recognition on Notes Receivable: The Partnership's policy is to cease accruing interest on notes receivable that have been delinquent for 60 days or more. In addition, interest income is only accrued to the extent collateralized by the net realizable value of the subject property. Loan Costs: Loan costs of approximately $579,000 and $360,000 were capitalized in 1996 and 1995, respectively (in conjunction with property refinancings). At December 31, 1996 and 1995, a total of $939,000 and $360,000 less accumulated amortization of $51,000 and zero, respectively are included in other assets. Loan costs are amortized on a straight-line basis over the life of the loans. Income Taxes: No provision has been made in the financial statements for Federal income taxes because, under current law, no Federal income taxes are paid directly by the Partnership. The partners are responsible for their respective shares of Partnership net income or loss. The tax basis of the Partnership's assets and liabilities is approximately $20 million greater than the assets and liabilities as reported in the financial statements. Allocation of Net Income and Net Loss: The Partnership Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the general partner. Fair Value: In 1995, the Partnership implemented "Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $292,000, $273,000, and $186,000 during the years ended December 31, 1996, 1995 and 1994, respectively. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 information to conform to the 1996 presentation. NOTE B - RELATED PARTY TRANSACTIONS The Partnership has paid property management fees based on collected gross rental revenues for property management services in each of the three years ended December 31, 1996. A portion of such property management fees, equal to 4% of Rental Revenues, has been paid to the property management companies performing day-to-day property management services and a portion equal to 1% of Rental Revenues was paid to Partnership Services, Inc. ("PSI") or its predecessor for advisory services related to day-to-day property operations until December 1994. In late December 1994, an affiliate of Insignia began to perform property management services under the same management fee arrangement as the unaffiliated management companies. Property management fees of approximately $658,000, $572,000 and $260,000 were paid to PSI and Insignia for the years ending December 31, 1996, 1995 and 1994, respectively. The Partnership Agreement also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with administration of Partnership activities. Reimbursements for services of affiliates of approximately $403,000, $429,000 and $282,000 were paid to the General Partner and affiliates for the years ended December 31, 1996, 1995 and 1994. Additionally, the Partnership paid $32,000 and $14,000 during the years ended December 31, 1996 and 1995, to an affiliate of the General Partner for lease commissions at the Partnership's commercial properties. These lease commissions are included in other assets and amortized over the term of the respective leases. The partnership also paid $98,000 to affiliates of Insignia for reimbursements of costs related to the loan refinancings in November of 1996. These costs were capitalized as loan costs and are being amortized over the term of the loans. In July 1995, the Partnership began insuring its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The agent assumed the financial obligations to the affiliate of the General Partner who receives payments on these obligations from the agent. The amount of the partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. A director of Insignia Financial Group, Inc. is affiliated with a professional legal association that received fees in connection with the 1996 refinancing of certain of the Partnership's properties (see "Note F"). These fees totalled $60,000 and have been capitalized as loan costs. NOTE C - SECURITIES AVAILABLE FOR SALE In 1994, the Partnership adopted "Statements of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities." As the fair value of securities available for sale ("securities") approximate their cost, any unrealized gains or losses are immaterial and, therefore, have not been recorded in the accompanying financial statements. Any such adjustment would be recorded directly to Partners' Capital (Deficit) and would not be reflected in the Statement of Operations. The cost of Securities sold is determined using the specific identification method. Investments stated at cost, consisted of the following at December 31, 1996 and 1995, (dollar amounts in thousands): DESCRIPTION COST MATURITY Commercial Paper $100 May 1998 Equity Securities 9 $109 NOTE D - NET INVESTMENT IN MASTER LOAN EP/3 Settlement: During 1994, Sutter D Office Building which collateralized a third party first-lien mortgage and served as collateral for the Master Loan was foreclosed upon by the first-lien holder. The foreclosure had no gain or loss effect to the Partnership. In November 1994, the Partnership entered into a settlement agreement with EP/3 whereby the Williamsburg Manor Apartments was deeded- in-lieu of foreclosure to the Partnership and foreclosure proceedings were initiated by the Partnership on the Sandpiper I & II Apartments, the remaining property which collateralized the Master Loan. Additionally, the Partnership assumed a first lien note payable of approximately $1.2 million collateralized by the Sandpiper I & II Apartments. The Partnership recognized the deed-in-lieu of foreclosure of the Williamsburg Manor Apartments, the in- substance foreclosure of the Sandpiper I & II Apartments and the assumption of the related underlying first lien mortgage in exchange for full settlement of EP/3's liability, including deferred interest, under the Master Loan. The Partnership recognized a net loss of approximately $413,000 during 1994 on the settlement of the Master Loan. As a result of the fact that: (1) EP/3 had no equity in the Sandpiper I & II Apartments, considering the then estimated fair value of the property; (2) proceeds for repayment of the portion of the Master Loan collateralized by the Sandpiper I & II Apartments were expected to come only from the operations or sale of the property; and (3) EP/3 effectively abandoned control of the Sandpiper I & II Apartments when EP/3 and the Partnership executed the settlement agreement in November 1994, whereby EP/3 agreed to transfer to the Partnership the full and unrestricted right to possession, management, and control of the property and not to contest, hinder or delay a judicial foreclosure action initiated by the Partnership, CCIP/3 deemed the Sandpiper I & II Apartments in-substance foreclosed as of November 30, 1994. Accordingly, the net Master Loan receivable collateralized by the Sandpiper I & II Apartments is presented as "Net real estate assets of property in-substance foreclosed" in the accompanying financial statements for 1994. Foreclosure proceedings were completed on June 16, 1995. EP/4 Settlement: In accordance with EP/4's bankruptcy, the Partnership pursued foreclosure on EP/4's properties and note receivable collaterally securing EP/4's portion of the Master Loan since the agreement was finalized in 1990. As of May 1992, the Partnership had foreclosed upon three of EP/4's properties and a note receivable. The Partnership completed foreclosure upon the last EP/4 property in June 1992, and recognized a $1.9 million gain on the transaction for the year ended December 31, 1992. Gains or losses upon foreclosure of the EP/4 properties were deferred in previous years until the EP/4 Master Loan was retired in connection with the 1992 foreclosure of the last EP/4 property. Accrued settlement costs of $275,000 related to EP/4's bankruptcy proceeding were netted against the gain on foreclosure in 1992. Additional settlement costs of $201,000 were accrued in 1993. All remaining settlement costs were paid in February 1994. Summary of Operations of EP/3 and EP/4 Sources of income from the Partnership's Investment in Master Loan and cash payments related to EP/3 and EP/4 totaled approximately $1.3 million during the year ended December 31, 1994. Following is a summary of operations of EP/3 and EP/4 for the year ended December 31, 1994 (dollar amounts in thousands): Funds provided by property operations $ 3,019 Funds used for property operations (1,632) Debt service payments on underlying notes payable (241) Total funds from operations 1,146 Cash transferred in property foreclosure (26) Net funds provided 1,120 Cash remitted in excess of (less than) funds from operations of EP/3 properties 177 $ 1,297 Master Loan Activity: Interest income $ 1,297 NOTE E - NOTES AND INTEREST RECEIVABLE The note receivable at December 31, 1996 and 1995, consist of the following: AS OF DECEMBER 31, 1996 1995 (in thousands) Current note $ -- $ 4,400 This note receivable related to South City Business Center which was foreclosed upon in February, 1996. The borrower on the note receivable secured by the South City Business Center placed the property under Chapter 11 protection in September 1992. In April 1993, the Bankruptcy Court approved the borrower's reorganization plan pursuant to which the General Partner and the borrower agreed to a restructure agreement. According to the restructure agreement, deferred interest totaling approximately $1 million was added to the principal balance of the note, the Partnership funded a principal advance of $200,000 to a property improvement escrow account, and the borrower funded $120,000 into the property improvement escrow account and paid past due interest totaling approximately $357,000 to bring the note current. The Partnership had final approval over disbursements from the property improvement escrow account. The General Partner approved disbursements of substantially all of the funds held in escrow to be utilized for roof replacement and exterior repairs. Additionally, the note terms were modified as follows: (i) the interest rate was reduced from 10% to 7.18%, (ii) the maturity date of the note, originally January 1994, was extended to May 1998; and (iii) principal payments equal to Net Property Cash Flow, as defined in the restructured note, were due annually. No gain or loss was recognized on the restructure of the South City Note. As of December 31, 1994, the note receivable on sold real estate represented a note for which payments were made in accordance with the terms and the corresponding interest income was accrued according to the restructured note terms as described above. During 1995, the debtor stopped making note payments on the South City note in June and officially defaulted on the note in August. The Partnership obtained an appraisal of the collateral and it was determined that this note receivable was impaired. Accordingly, during 1995, the Partnership recorded a write-down of $3,255,000 ($1,500,000 in the fourth quarter) related to South City Business Center to adjust the note balance to the estimated net realizable value of the collateral. An affiliate of the General Partner was appointed receiver in September 1995, and the foreclosure proceedings were finalized during the first quarter of 1996. NOTE F - MORTGAGE NOTES PAYABLE Notes payable at December 31, 1996, consist of the following (in thousands): Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1996 Interest Rate Date Maturity Lamplighter Park $ 3,500 $ 21 7.33% 11/01/03 $ 3,500 Park Capitol 2,725 16 6.95% 12/01/05 2,725 Tamarac Village 9,400 57 7.33% 11/01/03 9,400 Williamsburg Manor 4,150 24 6.95% 12/01/05 4,150 Sandpiper I & II 3,950 23 6.95% 12/01/05 3,950 Cedar Rim 2,000 12 7.33% 11/01/03 2,000 City Heights 2,600 16 7.33% 11/01/03 2,600 Hidden Cove 2,200 14 7.33% 11/01/03 2,200 30,525 $ 183 Accrued interest 183 Total $30,708 In December 1995, three of the Partnership's investment properties, Williamsburg Manor, Park Capitol, and Sandpiper I and II, obtained refinancing. Total proceeds from the refinancings totalled $10,825,000. This debt accrues interest at a rate of 6.95% per year, matures on December 1, 2005, and requires balloon payments at maturity for the full principal amount. Throughout the mortgage term, interest only payments are made. Loan costs of approximately $360,000 were incurred by the properties as a result of the refinancings, and are included in other assets on the balance sheet. Park Capitol was charged a prepayment penalty due to the early payoff of the old debt which resulted in the extraordinary loss on refinancing of $18,000 for December 31, 1995. During 1995, the Partnership had two notes payable, originally maturing in January 1995, which were extended to June 1995. Lamplighter Park Apartments secured approximately $4.6 million, and Tamarac Village secured approximately $2.8 million. On June 30, 1995, an extension agreement was reached on the indebtedness secured by Lamplighter Park Apartments, which extended the maturity of this mortgage debt to June 30, 1997. This property's debt was refinanced in November of 1996. In December 1995, the indebtedness secured by Tamarac Village was paid in full. In November of 1996, five of the Partnership's investment properties, Cedar Rim, City Heights, Hidden Cove, Lamplighter Park and Tamarac Village, obtained initial financing or refinanced existing notes. Proceeds from this transaction totaled $19,700,000. The debt accrues interest at a rate of 7.33% per year, matures on November 1, 2003, and requires balloon payments at maturity for the full principal amount. Throughout the mortgage term, interest-only payments are made. Loan costs of $579,000 were incurred by the properties as a result of the refinancings, and are included in other assets on the balance sheet. The estimated fair values of the Partnership's aggregate debt approximates its carrying amount. This estimate represents a general approximation of possible value and is not necessarily indicative of the amounts the Partnership might pay in actual market transactions. The mortgage notes payable are non-recourse and are secured by pledge of the respective properties. Also, all notes require prepayment penalties if repaid prior to maturity and prohibit resale of the properties subject to existing indebtedness. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1996, are as follows (in thousands): 1997 $ -- 1998 -- 1999 -- 2000 -- 2001 -- Thereafter 30,525 Total $ 30,525 NOTE G - SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITY The following tables set forth the Partnership's noncash investing and financing activities during the years ended December 31, 1994, with respect to the EP/3 property deeded-in-lieu of foreclosure and EP/3 property recorded as in- substance foreclosure in 1994 and the Partnership's foreclosure of South City during 1996. There was no significant noncash investing or financing activity during the year ended December 31, 1995. (dollar amounts in thousands)
Master Loan Notes and Net Gain (Loss) For the Year Net Real In-Substance Interest On Property Ended December 31, 1994 Estate Foreclosed Payable Foreclosure Property deemed in- substance Foreclosed $ 7,314 $ 6,849 $ (1,166) $ (701) Property Deeded in-lieu of Foreclosure 6,405(A) 6,117(B) -- 288 $ 13,719 $ 12,966 $ (1,166) $ (413) (A) Amount represents the estimated fair value of the properties based upon an analysis of current market conditions and current property operations. (B) Amount represents the Master Loan balance extinguished net of the allowance for loss and collection reserve.
On February 14, 1996, the Partnership foreclosed on South City Business Center, the investment property collateralizing the note receivable between the Partnership and Lincoln South City Business Center Limited Partnership. In connection with this transaction, the following accounts were adjusted by the amounts noted in 1996 (dollar amounts in thousands): Receipt of cash $ 74 Accounts receivable 15 Security deposit liability (72) Investment properties 4,383 Note receivable (4,400) No gain or loss was recorded upon the foreclosure due to the carrying value of the note receivable being adjusted to the value of the underlying collateral during 1995. NOTE H - ALLOWANCE FOR POSSIBLE LOSSES (dollar amounts in thousands)
MASTER REAL LOAN ESTATE TOTAL Balance at December 31, 1993 $ 4,360 $ 1,100 $ 5,460 Provision for possible losses/(charge-offs) (4,360)(a) 2,557 (b) (1,803) Balance at December 31, 1994 -- 3,657 3,657 (Charge-offs) -- (3,657)(c) (3,657) Balance at December 31, 1995 $ -- $ -- $ -- (a) This charge-off reflects the amount of allowance for losses relating to the EP/3 property foreclosure in November 1994. (b) The provision for possible losses is included in operations for the year ended December 31, 1994, and reflects a decline in the estimated fair value of certain properties due to regional economic factors. (c) This charge off reflects the write-down of several investment properties to net realizable value ($1,100 during 1993 and $2,557 during 1994). The write-down has been allocated to the appropriate fixed assets at December 31, 1995.
NOTE I - OTHER INCOME In 1991, the Partnership (and simultaneously other affiliated partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark's activities while it exercised control (directly, or indirectly through its affiliates) over the Partnership. The U.S. Bankruptcy Court set the Partnership's and the affiliated partnerships' allowed claim at $11 million, in aggregate. In March 1994, the Partnership received $67,791 in cash, 1,237 shares of Southmark Corporation Redeemable Series A Preferred Stock and 9,406 shares of Southmark Corporation New Common Stock, with an aggregate market value on the date of receipt of $9,104, representing the Partnership's share of the recovery based on its pro rata portion of claims filed. NOTE J - COMMITMENT AND CONTINGENCIES The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. Reserves, including cash and securities available for sale, totaling approximately $16.4 million, were greater than the reserve requirement of $3.9 million at December 31, 1996. The Partnership is not a party to, nor is the Partnership's property the subject of, any material pending legal proceedings, other than ordinary litigation routine to the Partnership's business. NOTE K - PARTNERS' EQUITY (DEFICIT) Net profits, net losses, and distributions of "distributable cash from operations" (as determined by the general partner) are allocated 99% to the Limited Partners and 1% to the general partner. Distributions of approximately $7,318,000, $3,644,000 and $3,530,000 were made to the partners during 1996, 1995 and 1994, respectively. NOTE L - OPERATING LEASES Tenants of the Partnership's commercial properties are responsible for payment of their proportionate share of real estate taxes. Insurance, common area maintenance expenses and a portion of the real estate taxes are paid directly by the Partnership. The Partnership is then reimbursed by the tenants for their proportionate share of the real estate taxes. The future minimum rental payments to be received under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of December 31, 1996, are as follows (in thousands): 1997 $ 793 1998 750 1999 374 2000 104 2001 29 $2,050 NOTE M - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (Amounts in thousands)
Initial Cost To Partnership Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Description Encumbrances Land Property Acquisition Cedar Rim $ 2,000 $ 778 $ 4,322 $ 728 Renton, Washington (1,122) City Heights 2,600 1,197 4,238 530 Seattle, Washington (1,159) Corporate Center -- 1,071 2,949 504 Tampa, Florida (1,100) Hidden Cove by the Lake 2,200 184 4,416 759 Belleville, Michigan (45) Lamplighter Park 3,500 2,458 5,167 551 Bellevue, Washington (358) Park Capitol 2,725 280 2,100 479 Salt Lake City, Utah Tamarac Village I, II, 9,400 2,464 10,536 1,225 III, & IV (103) Denver, Colorado Williamsburg Manor 4,150 1,281 5,124 351 Cary, North Carolina Sandpiper I & II 3,950 1,463 5,851 320 St. Petersburg, Florida South City Business Center -- 2,006 2,376 -- Chula Vista, California Totals $30,525 $13,182 $47,079 $ 1,560 Accrued interest 183 $30,708
Gross Amount At Which Carried at December 31, 1996 (in thousands) Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Cedar Rim $ 618 $ 4,088 $ 4,706 $ 1,428 1980 4/12/91 3 - 20 City Heights 942 3,864 4,806 1,480 1985 4/13/90 3 - 20 Corporate Center 782 2,642 3,424 1,254 1982 4/13/90 5 - 20 Hidden Cove 184 5,130 5,314 1,925 1972 3/23/90 3 - 20 Lamplighter Park 2,351 5,467 7,818 1,699 1968 4/12/91 3 - 20 Park Capitol 280 2,579 2,859 1,041 1974 4/13/90 5 - 20 Tamarac Village 2,464 11,658 14,122 2,591 1978 6/10/92 5 - 20 Williamsburg Manor 1,281 5,475 6,756 522 1970 11/30/94 5 - 22 Sandpiper 1,463 6,171 7,634 586 1976/1985 11/30/94 5 - 22 South City 2,006 2,376 4,382 108 1974/1976 2/14/96 14 - 25 $12,371 $49,450 $61,821 $12,634
Reconciliation of "Investment Properties and Accumulated Depreciation":
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 (in thousands) REAL ESTATE: Balance at beginning of year $ 55,835 $ 58,109 $ 44,192 Additions 1,833 1,401 198 Acquisition through foreclosure 4,383 -- 6,405 Allocation of valuation reserve -- (3,657) -- Acquisition through in-substance foreclosure -- -- 7,314 Disposal of property (230) (18) -- Balance at end of year $61,821 $ 55,835 $ 58,109 ACCUMULATED DEPRECIATION: Balance at beginning of year $ 9,958 $ 7,459 $ 5,369 Depreciation of real estate 2,741 2,505 2,090 Disposal of property (65) (6) -- Balance at end of year $12,634 $ 9,958 $ 7,459
The aggregate cost (in thousands) for Federal income tax purposes is: 1996 $57,213 1995 $53,180 1994 $44,886 PART III ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE As reported in the Partnership's Form 8-K filed May 10, 1995, as of May 3, 1995, Arthur Andersen L.L.P., the independent accountant previously engaged as the principal accountant to audit the financial statements of the Partnership was dismissed. As of the same date, the firm of Ernst & Young L.L.P. was engaged to provide that service for the Partnership. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Registrant has no officers or directors. The General Partner manages and controls the Registrant and has general responsibility and authority in all matters affecting its business. The names of the directors and executive officers of ConCap Equities, Inc. ("CEI"), the Partnership's Managing General Partner as of December 31, 1996, their ages and the nature of all positions with CEI presently held by them are set forth below: Name Age Position William H. Jarrard, Jr. 50 President Ronald Uretta 41 Vice President/Treasurer Martha L. Long 37 Controller John K. Lines, Esq. 37 Vice President/Secretary Kelley M. Buechler 39 Assistant Secretary William H. Jarrard, Jr. has been President of CEI since December 1996 and Managing Director-Partnership Administration for Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration and Asset Management for Insignia from July 1994 until January 1996. Ronald Uretta has been Vice President/Treasurer of CEI since December 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Insignia's Chief Operating Officer. He has also served as Insignia's Secretary from January 1992 to June 1994 and as Insignia's Chief Financial Officer from January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as the Chief Financial Officer and Controller of Metropolitan Asset Group. Martha L. Long has been Controller of CEI since December 1996 and Senior Vice President - Finance and Controller of Insignia since January 1997. In June 1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior Vice President - Finance in January 1997. Prior to that time, she was Senior Vice President and Controller of The First Savings Bank, FSB in Greenville, SC. John K. Lines has been Secretary of CEI since December 1994 and General Counsel and Secretary of Insignia since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an associate with Squire Sanders & Dempsey in Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of CEI since December 1994 and Assistant Secretary of Insignia since January 1991. During the five years prior to joining Insignia in 1991, she served in a similar capacity for U.S. Shelter. Market Ventures, L.L.C. ("Ventures") and Liquidity Assistance, L.L.C. ("Liquidity") delinquently reported 15 and 13 transactions, respectively, as of December 31, 1996 on a Form 5 filed in January 1997, with respect to the entities' purchases of Units of Limited Partner Interest of the Partnership. Each of Insignia Financial Group, Inc., Insignia Commercial Group, Inc. and Andrew L. Farkas also delinquently reported the same transactions on a Form 5 by virtue of their status as affiliates of Ventures and Liquidity, through which they may be deemed to be beneficial owners of the securities owned by such entities. ITEM 11. EXECUTIVE COMPENSATION No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1996, nor was any direct compensation paid or payable by the Partnership to directors or officers of the General Partner for the year ended December 31, 1996. The Partnership has no plans to pay any such remuneration to any directors or officers of the General Partner in the future. See "Item 8 - Financial Statements and Supplementary Data", "Note B - Related Party Transactions", for amounts of compensation and reimbursement of salaries paid by the Partnership to the General Partner and its affiliates and the former corporate general partner and former affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of March 1997, no person was known to CEI to own of record or beneficially more than 5 percent (5%) of the Units of the Partnership: NUMBER OF PERCENT NAME AND ADDRESS UNITS OF TOTAL Insignia affiliates 40,604 10.6% One Insignia Financial Plaza Greenville, SC 29602 The Units above are held by Insignia Properties, L.P. who holds 40,066 units (10.46% of outstanding units) and other affiliated entities who hold nominal amounts of units. (b) Beneficial Owners of Management Except as described in Item 12(a) above, neither CEI nor any of the directors, officers or associates of CEI own any Units of the Partnership of record or beneficially. (c) Changes in Control Beneficial Owners of CEI As of March 1997, the following persons were known to CEI to be the beneficial owners of more than 5 percent (5%) of its common stock: NUMBER OF PERCENT NAME AND ADDRESS CEI SHARES OF TOTAL GII Realty, Inc. 100,000 100% One Insignia Financial Plaza Greenville, SC 29602 GII Realty, Inc. is owned by an affiliate of Insignia (see "Item 1"). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Current Management and Others Except for the transactions described below, neither CEI nor any of its directors, officers or associates, or any associates of any of them, has had any interest in any other transaction to which the Partnership is a party. Please refer to "Item 8 - Financial Statements and Supplementary Data, Note B - Related Party Transactions," for the amounts and items of permissible compensation and fees paid to the General Partner and its affiliates and other related parties for the last three years. The Partnership has paid property management fees based on collected gross rental revenues for property management services in each of the three years ended December 31, 1996. A portion of such property management fees equal to 4% of Rental Revenues has been paid to the property management companies performing day-to-day property management services and a portion equal to 1% of Rental Revenues was paid to Partnership Services, Inc. ("PSI") or its predecessor for advisory services related to day-to-day property operations until December, 1994. In late December 1994, an affiliate of Insignia began to perform property management services under the same management fee arrangement as the unaffiliated management companies. Property management fees of approximately $658,000, $572,000 and $260,000 were paid to PSI and Insignia for the years ending December 31, 1996, 1995 and 1994, respectively. The Partnership Agreement also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with administration of Partnership activities. Reimbursements for services of affiliates of approximately $403,000, $429,000 and $282,000 were paid to the General Partner and affiliates for the years ended December 31, 1996, 1995 and 1994. Additionally, the Partnership paid $32,000 and $14,000 during the years ended December 31, 1996 and 1995, to an affiliate of the General Partner for lease commissions at the Partnership's commercial properties. These lease commissions are included in other assets and amortized over the term of the respective leases. The partnership also paid $98,000 to affiliates of Insignia for reimbursements of costs related to the loan refinancings in November of 1996. These costs were capitalized as loan costs and are being amortized over the term of the loans. All of the above-referenced agreements with affiliates of CEI and related parties of the Partnership are subject to the conditions and limitations imposed by the Partnership Agreement. Litigation with Former Related Parties In 1991, the Partnership (and simultaneously each of the Affiliated Partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark's activities while it exercised control (directly, or indirectly through its affiliates) over the Partnership. The Bankruptcy Court set the Partnership's and the Affiliated Partnership's allowed claim at $11 million, in aggregate. In March 1994, the Partnership received $67,791 in cash, 1,237 shares of Southmark Corporation Redeemable Series A Preferred Stock and 9,406 shares of New Common Stock with an aggregate market value of $9,104 on the date of receipt representing the Partnership's share of the recovery, based on its pro rata share of the claims filed. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Balance Sheets as of December 31, 1996 and 1995 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 Statements of Changes in Partners' Capital (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 Notes to Financial Statements 2. Schedules All schedules are omitted because they are not required, are not applicable or the financial information is included in the financial statements or notes thereto. 3. Exhibits S-K REFERENCE NUMBER DOCUMENT DESCRIPTION 3 Certificates of Limited Partnership, as amended. 10.3 Participating Note Master Loan Agreement (Incorporated by reference to Registration Statement of Partner- ship (File No. 2-97664) filed July 23, 1985). 10.4 Participating Note Security Agreement (Incorporated by reference to Registra- tion Statement of Partnership (File No. 2-97664) filed July 23, 1985). 10.5 Form of Deed of Trust and Rider (Incorporated by reference to Registra- tion Statement of Partnership (File No. 2-97664) filed July 23, 1985). 10.6 Severable Promissory Notes (Incor- porated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985). 10.7 Property Management Agreement No. 101 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.8 Property Management Agreement No. 301 dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.9 Property Management Agreement No. 315 dated April 12, 1991, by and between the Partnership and CCMLP. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.10 Bill of Sale and Assignment dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.11 Assignment and Assumption dated October 23, 1990, by and between CCEC and ConCap Management Limited Partnership ("CCMLP") (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.12 Assignment and Agreement as to Certain Property Management Services dated October 23, 1990, by and between CCMLP and ConCap Capital Company (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.13 Assignment and Agreement as to Certain Property Management Services dated April 12, 1991, by and between CCMLP and ConCap Capital Company. (Incorporated by reference to the 1991 Annual Report on Form 10-K for the year ended December 31, 1991). 10.14 Assignment and Agreement dated October 23, 1990, by and between CCMLP and The Hayman Company (100 Series of Property Management Contracts) (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.15 Assignment and Agreement dated October 23, 1990, by and between CCMLP and Metro ConCap, Inc. (300 Series of Property Management Contracts) (Incor- porated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.16 Construction Management Cost Reim- bursement Agreement dated January 1, 1991, by and between the Partnership and Metro ConCap, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.17 Construction Management Cost Reim- bursement Agreement dated April 12, 1991, by and between the Partnership and Metro ConCap, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.18 Construction Management Cost Reim- bursement Agreement dated January 1, 1991, by and between the Partnership and The Hayman Company. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.19 Investor Services Agreement dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.20 Assignment and Assumption Agreement (Investor Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Services Company (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1990). 10.21 Letter of Notice dated December 20, 1991, from Partnership Services, Inc. ("PSI") to the Partnership regarding the change in ownership and dissolution of ConCap Services Company whereby PSI assumed the Investor Services Agreement. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.22 Financial Services Agreement dated October 23, 1990, by and between the Partnership and CCEC (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.23 Assignment and Assumption Agreement (Financial Services Agreement) dated October 23, 1990, by and between CCEC and ConCap Capital Company (Incorpor- ated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.24 Letter of Notice dated December 20, 1991, from PSI to the Partnership regarding the change in ownership and dissolution of ConCap Capital Company whereby PSI assumed the Financial Services Agreement. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991). 10.25 Joint Application for Approval of Settlement Agreement dated August 10, 1990, between James W. Cunningham (EP/4's Trustee) and the Partnership (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1990). 10.26 Property Management Agreement No. 415 dated May 13, 1993, by and between the Partnership and Coventry Properties, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.27 Assignment and Assumption Agreement (Property Management Agreement No. 415) dated May 13, 1993, by and between Coventry Properties, Inc., R&B Apartment Management Company Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.28 Assignment and Agreement as to Certain Property Management Services as related to Property Management Agreement No. 415 dated May 13, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.29 Property Management Agreement No. 425 dated May 13, 1993, by and between the Partnership and Coventry Properties, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.30 Assignment and Assumption Agreement (Property Management Agreement No. 425) dated May 13, 1993, by and between Coventry Properties, Inc., R&B Apartment Management Company Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.31 Assignment and Agreement as to Certain Property Management Services as related to Property Management Agreement No. 425 dated May 13, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. (Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993) 10.32 Property Management Agreement No. 509 dated June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.33 Assignment and Assumption Agree- ment as to Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.34 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.35 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.36 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc.. 10.37 Multifamily Note dated November 1, 1996 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. 10.38 Multifamily Note dated November 1, 1996 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. 10.39 Multifamily Note dated November 1, 1996 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. 10.40 Multifamily Note dated November 1, 1996 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. 10.41 Multifamily Note dated November 1, 1996 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. 11 Statement regarding computation of Net Income per Limited Partnership Unit (Incorporated by reference to Note 8 of Item 8 - Financial State- ments of this Form 10-K) 16 Letter, Dated August 12, 1992, from Ernst & Young to the Securities and Exchange Commission regarding change in certifying accountant. (Incorporated by reference to Form 8-K dated August 6, 1992) 27 Financial Data Schedule. 28.1 Fee Owner's General Partnership Agreement (Incorporated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985). 28.2 Fee Owner's Certificate of Partnership (Incorporated by reference to Regi- stration Statement of Partnership (File No. 2-97664) filed July 23, 1985). (b) Reports on Form 8-K, filed during the fourth quarter of 1996: None. SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 By: CONCAP EQUITIES, INC. It's General Partner, By: /s/William H. Jarrard, Jr. William H. Jarrard, President By: /s/Ronald Uretta Ronald Uretta Vice President/Treasurer Date: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated. /s/William H. Jarrard, Jr. President William H. Jarrard, Jr. /s/Ronald Uretta Vice President/Treasurer Ronald Uretta EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Institutional Properties 3 1996 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000768890 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 3 1,000 12-MOS DEC-31-1996 DEC-31-1996 15,813 109 0 0 0 0 61,821 12,634 69,537 0 30,708 0 0 0 37,296 69,537 0 13,881 0 0 12,728 0 1,573 0 0 0 0 0 0 1,153 2.98 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-10.37 3 Exhibit 10.37 Loan No.734133626 City Heights MULTIFAMILY NOTE US $2,600,000.00 New York, New York As of November 1, 1996 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, or order, the principal sum of Two Million Six Hundred Thousand and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 7.33 percent per annum. Interest only shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Fifteen Thousand Eight Hundred Eighty-One and 67/100 Dollars (US $15,881.67) on the first day of each month beginning December 1, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on November 1, 2003. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of the date hereof, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of interest due hereunder within ten (10) calendar days after such installment of interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust securing this Note, within thirty (30) calendar days of the date such installment is due. IN WITNESS WHEREOF, Borrower has executed this Note or has caused the same to be executed by its representatives thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, a California limited partnership By: ConCap Equities, Inc., a Delaware corporation, its general partner By: /s/ William H. Jarrard, Jr. Name: William H. Jarrard, Jr. Title: Vice President PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This first day of November, 1996. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., a Delaware corporation By:/s/ Larry J. Kravetz Name: Larry J. Kravetz Title: Authorized Signatory EX-10.38 4 Exhibit 10.38 Loan No.734133618 Cedar Rim MULTIFAMILY NOTE US $2,000,000.00 New York, New York As of November 1, 1996 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, or order, the principal sum of Two Million and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 7.33 percent per annum. Interest only shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Twelve Thousand Two Hundred Sixteen and 67/100 Dollars (US $15,881.67) on the first day of each month beginning December 1, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on November 1, 2003. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of the date hereof, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of interest due hereunder within ten (10) calendar days after such installment of interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust securing this Note, within thirty (30) calendar days of the date such installment is due. IN WITNESS WHEREOF, Borrower has executed this Note or has caused the same to be executed by its representatives thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, a California limited partnership By: ConCap Equities, Inc., a Delaware corporation, its general partner By: /s/ William H. Jarrard, Jr. Name: William H. Jarrard, Jr. Title: Vice President PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This first day of November, 1996. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., a Delaware corporation By:/s/ Larry J. Kravetz Name: Larry J. Kravetz Title: Authorized Signatory EX-10.39 5 Exhibit 10.39 Loan No.734105843 Lake Villa MULTIFAMILY NOTE US $2,200,000.00 New York, New York As of November 1, 1996 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, or order, the principal sum of Two Million Two Hundred Thousand and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 7.33 percent per annum. Interest only shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Thirteen Thousand Four Hundred Thirty-Eight and 33/100 Dollars (US $13,438.33) on the first day of each month beginning December 1, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on November 1, 2003. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of the date hereof, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of interest due hereunder within ten (10) calendar days after such installment of interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust securing this Note, within thirty (30) calendar days of the date such installment is due. IN WITNESS WHEREOF, Borrower has executed this Note or has caused the same to be executed by its representatives thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, a California limited partnership By: ConCap Equities, Inc., a Delaware corporation, its general partner By: /s/ William H. Jarrard, Jr. Name: William H. Jarrard, Jr. Title: Vice President PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This first day of November, 1996. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., a Delaware corporation By:/s/ Larry J. Kravetz Name: Larry J. Kravetz Title: Authorized Signatory EX-10.40 6 Exhibit 10.40 Loan No.734133642 Tamarac Village MULTIFAMILY NOTE US $9,400,000.00 New York, New York As of November 1, 1996 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, or order, the principal sum of Nine Million Four Hundred Thousand and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 7.33 percent per annum. Interest only shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Fifty-Seven Thousand Four Hundred Eighteen and 33/100 Dollars (US $57,418.33) on the first day of each month beginning December 1, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on November 1, 2003. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of the date hereof, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of interest due hereunder within ten (10) calendar days after such installment of interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust securing this Note, within thirty (30) calendar days of the date such installment is due. IN WITNESS WHEREOF, Borrower has executed this Note or has caused the same to be executed by its representatives thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, a California limited partnership By: ConCap Equities, Inc., a Delaware corporation, its general partner By: /s/ William H. Jarrard, Jr. Name: William H. Jarrard, Jr. Title: Vice President PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This first day of November, 1996. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., a Delaware corporation By:/s/ Larry J. Kravetz Name: Larry J. Kravetz Title: Authorized Signatory EX-10.41 7 Exhibit 10.41 Loan No.734133634 Lamplighter Park MULTIFAMILY NOTE US $3,500,000.00 New York, New York As of November 1, 1996 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., 3 World Financial Center, New York, New York 10285, or order, the principal sum of Three Million Five Hundred Thousand and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 7.33 percent per annum. Interest only shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Twenty-One Thousand Three Hundred Seventy-Nine and 17/100 Dollars (US $21,379.17) on the first day of each month beginning December 1, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on November 1, 2003. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of the date hereof, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of interest due hereunder within ten (10) calendar days after such installment of interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust securing this Note, within thirty (30) calendar days of the date such installment is due. IN WITNESS WHEREOF, Borrower has executed this Note or has caused the same to be executed by its representatives thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, a California limited partnership By: ConCap Equities, Inc., a Delaware corporation, its general partner By: /s/ William H. Jarrard, Jr. Name: William H. Jarrard, Jr. Title: Vice President PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This first day of November, 1996. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., a Delaware corporation By:/s/ Larry J. Kravetz Name: Larry J. Kravetz Title: Authorized Signatory -----END PRIVACY-ENHANCED MESSAGE-----