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Note 1 - Organizational and General
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Dec. 31, 2011
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| Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
NOTE 1
– ORGANIZATIONAL AND GENERAL
Redwood
Mortgage Investors VIII, a California Limited Partnership,
was organized in 1993. The partnership was organized to
engage in business as a mortgage lender for the primary
purpose of making loans secured by deeds of trust on
California real estate. Loans are arranged and serviced by
Redwood Mortgage Corp., a California corporation
(“RMC”).
The
rights, duties and powers of the general and limited partners
of the partnership are governed by the limited partnership
agreement and Sections 15611 et seq. of the California
Corporations Code.
The
general partners of the partnership are RMC and its
wholly-owned subsidiary, Gymno LLC, a California limited
liability company originally incorporated as Gymno
Corporation (“Gymno”), and Michael R. Burwell
(“Burwell”), an individual. Prior to September
30, 2011, The Redwood Group, Ltd., a California corporation
(“Redwood Group”), owned all of the outstanding
shares of RMC, and, as of September 30, 2011, acquired all of
the outstanding shares of Gymno Corporation in exchange for
shares of Redwood Group’s common stock. Redwood Group
then merged with and into its wholly-owned subsidiary RMC,
which resulted in Gymno becoming a wholly-owned subsidiary of
RMC. Gymno Corporation converted into Gymno LLC, a California
limited liability company, with Burwell, the majority owner
and president of RMC, as its manager.
The
general partners are responsible for managing the
partnership business, subject to the voting rights of the
limited partners on specified matters. Any one of the
general partners acting alone has the power and authority
to act for and bind the partnership. The general partners
jointly or severally contributed, in accordance with the
partnership agreement, 1/10 of 1% of limited
partners’ contributions in cash contributions as
proceeds from the offerings were received from the limited
partners.
A
majority of the outstanding limited partnership interests
may, without the permission of the general partners, vote to:
(i) terminate the partnership, (ii) amend the limited
partnership agreement, (iii) approve or disapprove the sale
of all or substantially all of the assets of the partnership
and (iv) remove or replace one or all of the general
partners.
The
approval of all the limited partners is required to elect a
new general partner to continue the partnership business
where there is no remaining general partner after a general
partner ceases to be a general partner other than by
removal.
Profits
and losses are allocated among the limited partners according
to their respective capital accounts monthly after 1% of the
profits and losses are allocated to the general partners. The
monthly results are subject to subsequent adjustment as a
result of quarterly and year-end accounting and
reporting.
Election
to receive monthly, quarterly or annual distributions
At
the time of their subscription for units, partners elect to
have distributed to them their monthly, quarterly or annual
allocation of profits, or to have profits allocated to their
capital accounts to compound. Subject to certain limitations,
those electing compounding may subsequently change their
election. A partner’s election to have cash
distributions is irrevocable.
Liquidity,
capital withdrawals and early withdrawals
There
are substantial restrictions on transferability of units and
accordingly an investment in the partnership is non-liquid.
Limited partners have no right to withdraw from the
partnership or to obtain the return of their capital account
for at least one year from the date of purchase of
units.
In
order to provide a certain degree of liquidity to the limited
partners after the one-year period, limited partners may
withdraw all or part of their capital accounts from the
partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in
which the notice of withdrawal is given, subject to a 10%
early withdrawal penalty. The 10% penalty is applicable to
the amount withdrawn as stated in the notice of withdrawal
and will be deducted from the capital account.
Once
a limited partner has been in the partnership for the minimum
five-year period, no penalty is imposed if withdrawal is made
in twenty quarterly installments or longer. Notwithstanding
the minimum withdrawal period, the general partners, at their
discretion may liquidate all or part of a limited
partner’s capital account in four quarterly
installments beginning on the last day of the calendar
quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time
when such sums could have been withdrawn without
penalty.
The
partnership does not establish a reserve from which to fund
withdrawals and, accordingly, the partnership’s
capacity to return a limited partner’s capital is
restricted to the availability of partnership cash flow.
Furthermore, no more than 20% of the total limited
partners’ capital accounts outstanding at the beginning
of any year, may be liquidated during any calendar
year.
In
March 2009, in response to economic conditions then existing,
as to the financial-market crisis, the dysfunction of the
credit markets, the distress in the real estate markets, and
the expected cash needs of the partnership, the partnership
suspended capital liquidations and is not accepting new
liquidation requests until further notice. The partnership
entered into an amended and restated loan agreement (dated
October 2010) which includes additional restrictions on
liquidations and distributions of partners’
capital. The bank loan is scheduled to be paid off
in June 2012.
Partnership
offerings
At
December 31, 2008, the partnership had completed its sixth
offering stage. Of approved aggregate offerings of
$300,000,000, total partnership units sold were
$299,813,000.
A
recap of the offerings by the partnership follows.
No
additional offerings are contemplated at this time.
Sales
commissions - formation loans
Sales
commissions are not paid directly by the partnership out of
the offering proceeds. Instead, the partnership loans to RMC,
one of the general partners, amounts to pay all sales
commissions and amounts payable in connection with
unsolicited orders. This loan is unsecured and
non-interest bearing and is referred to as the
“formation loan,” and is being repaid equally
over a ten year period commencing the year after the close of
a partnership offering. The formation loan has been deducted
from limited partners’ capital in the consolidated
balance sheets. As payments on the formation loan are
received from RMC, the deduction from capital will be
reduced. Interest has been imputed at the market rate of
interest in effect in the years the offering closed. If the
general partners are removed and TMC is no longer receiving
payments for services rendered, the formation loan is
forgiven.
The
formation loans made in conjunction with the offerings are as
follows.
For
the offerings, sales commissions paid to brokers ranged from
0% (units sold by general partners) to 9% of gross
proceeds. The partnership had anticipated the
sales commissions would approximate 7.6% based on the
assumption that 65% of investors will elect to reinvest
profits, thus generating full 9% commissions. The actual
sales commission percentage for all six offerings combined
was 7.5%.
Income
taxes and Partners’ capital – tax basis
Income
taxes – federal and state – are the obligation of
the partners, if and when taxes apply, other than for the
minimum annual California franchise tax paid by the
partnership.
A
reconciliation of partners’ capital in the consolidated
financial statements to the tax basis of partners’
capital at December 31 is presented in the following table ($
in thousands).
Term
of the partnership
The
partnership is scheduled to terminate in 2032, unless sooner
terminated as provided in the partnership agreement.
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