Note 6 - Real Estate Held for Investment (Restated)

6 Months Ended

Jun. 30, 2011

Real Estate Held For Investment Disclosure [Text Block]

NOTE 6 - REAL ESTATE HELD FOR INVESTMENT (RESTATED)

Real estate held for investment is comprised of the following properties as of June 30, 2011 and December 31, 2010:

	2011		2010
Light industrial building, Paso Robles, California	$	1,520,827	$	1,544,866
Commercial buildings, Roseville, California		605,575		617,768
Retail complex, Greeley, Colorado (held within 720 University, LLC)		12,434,760		12,627,695
Undeveloped residential land, Madera County, California		720,000		720,000
Manufactured home subdivision development, Lake Charles, Louisiana (held within Dation, LLC)		—		2,048,643
Undeveloped residential land, Marysville, California		403,200		403,200
Golf course, Auburn, California (held within DarkHorse Golf Club, LLC)		1,925,624		1,843,200
75 improved residential lots, Auburn, California, (held within Baldwin Ranch Subdivision, LLC)		5,913,600		5,913,600
Undeveloped industrial land, San Jose, California		2,044,800		2,044,800
Undeveloped commercial land, Half Moon Bay, California		1,468,800		1,468,800
Storage facility/business, Stockton, California		5,079,685		5,141,275
Two improved residential lots, West Sacramento, California		510,944		510,944
Undeveloped residential land, Coolidge, Arizona		2,099,816		2,099,816
Eight townhomes, Santa Barbara, California (held within Anacapa Villas, LLC)		10,060,619		10,232,525
Marina with 30 boat slips and 11 RV spaces, Oakley, California (held within The Last Resort and Marina, LLC)		454,011		459,580
Nineteen condominium units, San Diego, California (held within 33rd Street Terrace, LLC)		1,652,044		1,669,318
Golf course, Auburn, California (held within Lone Star Golf, LLC)		1,997,795		2,015,683
133 condominium units, Phoenix, Arizona (held within 54th Street Condos, LLC)		5,688,639		5,760,719
Medical office condominium complex, Gilbert, Arizona (held within AMFU, LLC)		4,987,605		4,990,566
61 condominium units, Lakewood, Washington (held within Phillips Road, LLC)		6,505,298		6,536,677
Apartment complex, Ripon, California (held within 550 Sandy Lane, LLC)		4,302,810		4,359,070
45 condominium units, Oakland, California (held within 1401 on Jackson, LLC)		8,789,049		8,924,607
Industrial building, Chico, California		8,990,869		—
168 condominium units, Miami, Florida (held within TOTB Miami, LLC)		21,830,776		—
	$	109,987,147	$	81,933,352

The balances of land and the major classes of depreciable property for real estate held for investment as of June 30, 2011 and December 31, 2010 are as follows:

	2011			2010
Land	$	36,143,489		$	30,450,217
Buildings and improvements		80,842,902			57,339,490
Other		—			31,555
		116,986,391			87,821,262
Less: Accumulated depreciation		(6,999,244	)		(5,887,910	)
	$	109,987,147		$	81,933,352

The acquisition of certain real estate properties through foreclosure (including real estate held for sale- see Note 5) resulted in the following non-cash activity for the six months ended June 30, 2011 and 2010, respectively:

	2011			2010
Increases:
Real estate held for sale and investment	$	43,733,719		$	5,040,000
Noncontrolling interests		(14,020,191			—
Accounts payable and accrued liabilities		(2,980,871			—
Decreases:
Loans secured by trust deeds, net of allowance for loan losses		(24,194,517			(4,603,768	)
Interest and other receivables		(2,538,140	)		(436,232	)

It is the Partnership’s intent to sell the majority of its real estate properties held for investment, but expected sales are not probable to occur within the next year.

Depreciation expense was approximately $734,000 and $378,000 for the three months ended June 30, 2011 and 2010, respectively, and $1,421,000 and $721,000 for the six months ended June 30, 2011 and 2010, respectively.

During the quarter ended June 30, 2011, the Partnership recorded an impairment loss of approximately $292,000 on the condominium complex located in Phoenix, Arizona (held within 54th Street Condos, LLC), based on contracts executed during the quarter to complete unfinished units within the complex. The aggregate contract amounts are higher than previously estimated at the time of foreclosure of the related loan in December 2009. The additional impairment is reflected in losses on real estate properties in the accompanying consolidated statements of income.

During the six months ended June 30, 2011, the Partnership foreclosed on a first mortgage loan secured by an industrial building located in Chico, California in the amount of $8,500,000 and obtained the property via the trustee’s sale.  In addition, advances made on the loan (for items such as legal fees and delinquent property taxes) in the total amount of approximately $588,000 were capitalized to the basis of the property. The carrying value of this property of $9,088,000 at the time of foreclosure approximated its then current fair value less estimated selling costs. The property is classified as held for investment as a sale is not expected in the next one year period.

During the six months ended June 30, 2011, the Partnership foreclosed on a participated, first mortgage loan secured by a condominium complex located in Miami, Florida with a principal balance to the Partnership of approximately $26,257,000 and obtained an undivided interest in the properties with the other two lenders (which included the General Partner) via the trustee’s sale. The Partnership and other lenders formed a new limited liability company, TOTB Miami, LLC (“TOTB”), to own and operate the complex. The complex consists of three buildings, two of which have been renovated and are being leased, and in which 168 units remain unsold (the “Point” and “South” buildings), and one which contains 160 vacant units that have not been renovated (the “North” building). Based on a new appraisal obtained in September 2010, it was determined that the fair value of the property was lower than the Partnership’s total investment in the loan (including a previously established loan loss allowance of $10,188,000) and an additional charge to provision for loan losses of approximately $450,000 was recorded at the time of foreclosure during the first quarter of 2011 (total charge-off of $10,638,000). The Point and South building units are classified as held for investment as sales are not expected in the next one year period. The North building is classified as held for sale as it is being actively marketed and a sale is expected within the next year (see Note 5). See further details below under TOTB Miami, LLC.

During the quarter ended June 30, 2010, the Partnership obtained a deed in lieu of foreclosure from the borrower on a first mortgage loan secured by a medical office condominium complex located in Gilbert, Arizona in the amount of approximately $9,592,000 and obtained the property. It was determined that the fair value of the property was lower than the Partnership’s investment in the loan and a specific loan allowance was established for this loan in the total amount of approximately $4,914,000 as of March 31, 2010. This amount was then recorded as a charge-off against the allowance for loan losses at the time of foreclosure in May 2010, along with an additional charge to bad debt expense of approximately $74,000 for additional delinquent property taxes paid.  The property is classified as held for investment as a sale is not expected to be completed in the next one year period. The Partnership formed a new, wholly-owned limited liability company, AMFU, LLC, to own and operate the complex.

720 University, LLC

The Partnership has an investment in a limited liability company, 720 University, LLC (“720 University”), which owns a commercial retail property located in Greeley, Colorado. The Partnership receives 65% of the profits and losses in 720 University after priority return on partner contributions is allocated at the rate of 10% per annum. The assets, liabilities, income and expenses of 720 University have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.

The net operating (loss) income to the Partnership from 720 University was approximately $(6,000) and $27,000 (including depreciation and amortization of $112,000 and $139,000) for the three months ended June 30, 2011 and 2010, respectively, and $7,000 and $35,000 (including depreciation and amortization of $230,000 and $275,000) for the six months ended June 30, 2011 and 2010, respectively. The noncontrolling interest of the joint venture partner of approximately $8,000 and $16,000 as of June 30, 2011 and December 31, 2010, respectively, is reported in the accompanying consolidated balance sheets. The Partnership’s investment in 720 University real property and improvements was approximately $12,435,000 and $12,628,000 as of June 30, 2011 and December 31, 2010, respectively.

DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (“DarkHorse”) is a California limited liability company formed for the purpose of operating the DarkHorse golf course located in Auburn, California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.  The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $112,000 and $88,000 to DarkHorse during the three months ended June 30, 2011 and 2010, respectively, for operations and improvements. The net operating loss to the Partnership from DarkHorse was approximately $72,000 and $93,000 (including depreciation of $42,000 and $30,000) for the three months ended June 30, 2011 and 2010, respectively, and $259,000 and $307,000 (including depreciation of $85,000 and $63,000) for the six months ended June 30, 2011 and 2010, respectively. Continued operation of DarkHorse may result in additional losses to the Partnership and may require the Partnership to provide funds for operations and capital improvements.

Lone Star Golf, LLC

Lone Star Golf, LLC (“Lone Star”) is a California limited liability company formed for the purpose of owning and operating a golf course and country club located in Auburn, California, which was acquired by the Partnership via foreclosure in June 2009. The Partnership is the sole member in Lone Star. The assets, liabilities, income and expenses of Lone Star have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership.  The golf course is being operated and managed by an unrelated company.

The Partnership advanced approximately $94,000 and $101,000 to Lone Star during the three months ended June 30, 2011 and 2010, respectively, for operations. The net operating loss to the Partnership from Lone Star was approximately $15,000 and $4,000 (including depreciation of $12,000 and $11,000) for the three months ended June 30, 2011 and 2010, respectively, and $125,000 and $106,000 (including depreciation of $23,000 and $22,000) for the six months ended June 30, 2011 and 2010, respectively. Continued operation of Lone Star may result in additional losses to the Partnership and may require the Partnership to provide funds for operations and capital improvements.

TOTB Miami, LLC (Restated)

TOTB Miami, LLC (“TOTB”) is a Florida limited liability company formed for the purpose of owning and operating 168 condominium units and a 160 unit apartment building in a complex located in Miami, Florida which were acquired by the Partnership, the General Partner and Potomac Capital (who were co-lenders in the subject loan) via foreclosure in February 2011. Pursuant to the Operating Agreement, the Partnership is to receive an allocation of the profits and losses of TOTB based on the allocation of the distribution priorities contained in the agreement (approximately 57% as of June 30, 2011). The assets, liabilities, income and expenses of TOTB have been consolidated into the accompanying consolidated balance sheet and statement of operations of the Partnership. The noncontrolling interests of the other members of TOTB totaled approximately $14,641,000 as of June 30, 2011.

The net operating loss to the Partnership from TOTB was approximately $469,000 and $731,000 (including depreciation of $150,000 and $249,000) for the three and six months ended June 30, 2011, respectively.

The approximate net operating income (loss) from Partnership real estate properties held within wholly-owned limited liability companies and other investment properties with significant operating results, for the six months ended June 30, 2011 and 2010 were as follows:

	2011			2010
Anacapa Villas, LLC	$	(108,000	)	$	(136,000	)
Baldwin Ranch Subdivision, LLC		(44,000	)		(98,000	)
The Last Resort and Marina, LLC		(16,000	)		(12,000	)
33rd Street Terrace, LLC		9,000			(1,000	)
54th Street Condos, LLC		(193,000	)		(184,000	)
Wolfe Central, LLC		199,000			187,000
AMFU, LLC		22,000			(39,000	)
Phillips Road, LLC		54,000			—
550 Sandy Lane, LLC		92,000			—
1401 on Jackson, LLC		(10,000	)		—
Light industrial building, Paso Robles, California		104,000			117,000
Undeveloped industrial land, San Jose, California		(68,000	)		(70,000	)
Office condominium complex, Roseville, California		(53,000	)		(61,000	)
Storage facility/business, Stockton, California		118,000			29,000
Industrial building, Chico, California		(218,000	)		—

Certain of the Partnership’s real estate properties held for sale and investment are leased to tenants under noncancellable leases with remaining terms ranging from one to fifteen years. Certain of the leases require the tenant to pay all or some operating expenses of the properties. The future minimum rental income from noncancellable operating leases due within the five years subsequent to June 30, 2011 and thereafter is as follows:

Year ending June 30:
2012	$	4,635,622
2013		2,160,041
2014		1,789,809
2015		1,438,424
2016		1,214,526
Thereafter (through 2026)		4,221,605
	$	15,460,027