[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
California
|
94-3158788
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
900 Veterans Blvd., Suite 500, Redwood City, CA
|
94063
|
(Address of principal executive offices)
|
(Zip Code)
|
Not Applicable
|
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
|
Smaller reporting company [X]
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS | ||||||||
Cash and cash equivalents
|
$
|
8,302
|
$
|
7,054
|
||||
Loans
|
||||||||
Secured by deeds of trust, net of discount of $2,881 at December 31, 2010
|
||||||||
Principal
|
177,707
|
202,134
|
||||||
Advances
|
18,693
|
18,190
|
||||||
Accrued interest
|
11,887
|
13,119
|
||||||
Unsecured
|
155
|
85
|
||||||
Allowance for loan losses
|
(79,230
|
)
|
(89,200
|
)
|
||||
Net loans
|
129,212
|
144,328
|
||||||
Real estate owned (REO)
|
||||||||
Held for sale
|
33,717
|
54,206
|
||||||
Held as investment, net
|
123,866
|
115,411
|
||||||
REO, net
|
157,583
|
169,617
|
||||||
Receivable from affiliate
|
—
|
18
|
||||||
Other assets, net
|
1,061
|
971
|
||||||
Total assets
|
$
|
296,158
|
$
|
321,988
|
LIABILITIES AND CAPITAL | ||||||||
Liabilities
|
||||||||
Bank loan, secured
|
$
|
35,000
|
$
|
50,000
|
||||
Mortgages payable
|
30,834
|
36,270
|
||||||
Accounts payable
|
2,424
|
2,609
|
||||||
Deferred revenue
|
—
|
109
|
||||||
Payable to affiliate
|
1,804
|
973
|
||||||
Total liabilities
|
70,062
|
89,961
|
||||||
Capital
|
||||||||
Partners’ capital
|
||||||||
Limited partners’ capital, subject to redemption, net
|
222,845
|
228,193
|
||||||
General partners’ capital (deficit), net
|
(780
|
)
|
(734
|
)
|
||||
Total partners’ capital
|
222,065
|
227,459
|
||||||
Non-controlling interest
|
4,031
|
4,568
|
||||||
Total capital
|
226,096
|
232,027
|
||||||
Total liabilities and capital
|
$
|
296,158
|
$
|
321,988
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue, net
|
||||||||||||||||
Interest income
|
||||||||||||||||
Loans
|
$ | 542 | $ | 1,944 | $ | 1,300 | $ | 5,018 | ||||||||
Imputed interest on formation loan
|
79 | 142 | 204 | 289 | ||||||||||||
Other interest income
|
1 | 16 | 2 | 39 | ||||||||||||
Total interest income
|
622 | 2,102 | 1,506 | 5,346 | ||||||||||||
Interest expense
|
||||||||||||||||
Bank loan, secured
|
630 | 893 | 1,360 | 1,810 | ||||||||||||
Mortgages payable
|
773 | 286 | 1,325 | 331 | ||||||||||||
Amortization of discount on formation loan
|
79 | 142 | 204 | 289 | ||||||||||||
Total interest expense
|
1,482 | 1,321 | 2,889 | 2,430 | ||||||||||||
Net interest income/(expense)
|
(860 | ) | 781 | (1,383 | ) | 2,916 | ||||||||||
Late fees
|
1 | 4 | 4 | 28 | ||||||||||||
Other
|
2 | 3 | 4 | 7 | ||||||||||||
Total revenues, net
|
(857 | ) | 788 | (1,375 | ) | 2,951 | ||||||||||
Provision/(recovery) for loan losses
|
(1,262 | ) | 12,001 | (1,262 | ) | 12,302 | ||||||||||
Operating Expenses
|
||||||||||||||||
Mortgage servicing fees
|
1,091 | 303 | 1,273 | 886 | ||||||||||||
Asset management fees
|
240 | 306 | 487 | 610 | ||||||||||||
Costs from Redwood Mortgage Corp.
|
456 | 112 | 566 | 224 | ||||||||||||
Professional services
|
398 | 420 | 522 | 782 | ||||||||||||
REO
|
||||||||||||||||
Rental operations, net
|
(224 | ) | 274 | (817 | ) | 134 | ||||||||||
Holding costs
|
455 | 278 | 805 | 333 | ||||||||||||
Loss on disposal
|
54 | 338 | 54 | 561 | ||||||||||||
Impairment loss
|
1,593 | — | 1,593 | 89 | ||||||||||||
Other
|
(3 | ) | 61 | 14 | 100 | |||||||||||
Total operating expenses
|
4,060 | 2,092 | 4,497 | 3,719 | ||||||||||||
Net income (loss)
|
$ | (3,655 | ) | $ | (13,305 | ) | $ | (4,610 | ) | $ | (13,070 | ) | ||||
Net income (loss)
|
||||||||||||||||
Limited partners (99%)
|
$ | (3,619 | ) | $ | (13,172 | ) | $ | (4,564 | ) | $ | (12,939 | ) | ||||
General partners (1%)
|
(36 | ) | (133 | ) | (46 | ) | $ | (131 | ) | |||||||
$ | (3,655 | ) | $ | (13,305 | ) | $ | (4,610 | ) | $ | (13,070 | ) | |||||
Net income (loss) per $1,000 invested by limited partners for entire period
|
||||||||||||||||
Where income is reinvested
|
$ | (13 | ) | $ | (40 | ) | $ | (17 | ) | $ | (39 | ) | ||||
Where partner receives income in monthly distributions
|
$ | (14 | ) | $ | (41 | ) | $ | (18 | ) | $ | (40 | ) |
Limited Partners
|
||||||||||||||||
Capital
|
Total
|
|||||||||||||||
Account
|
Unallocated
|
Formation
|
Limited
|
|||||||||||||
Limited
|
Syndication
|
Loan,
|
Partners’
|
|||||||||||||
Partners
|
Costs
|
Gross
|
Capital
|
|||||||||||||
Balance, December 31, 2010
|
$
|
238,581
|
$
|
(1,016
|
)
|
$
|
(9,372
|
)
|
$
|
228,193
|
||||||
Formation loan payments received
|
—
|
—
|
582
|
582
|
||||||||||||
Net income (loss)
|
(4,564
|
)
|
—
|
—
|
(4,564
|
)
|
||||||||||
Allocation of syndication costs
|
(174
|
)
|
174
|
—
|
—
|
|||||||||||
Withdrawals
|
(1,366
|
)
|
—
|
—
|
(1,366
|
)
|
||||||||||
Early withdrawal penalties
|
—
|
—
|
—
|
—
|
||||||||||||
Balance, June 30, 2011
|
$
|
232,477
|
$
|
(842
|
)
|
$
|
(8,790
|
)
|
$
|
222,845
|
General Partners
|
||||||||||||||||
Capital/
|
Total
|
|||||||||||||||
(Deficit)
|
General
|
|||||||||||||||
Account
|
Unallocated
|
Partners’
|
Total
|
|||||||||||||
General
|
Syndication
|
Capital/
|
Partners’
|
|||||||||||||
Partners
|
Costs
|
(Deficit)
|
Capital
|
|||||||||||||
Balance, December 31, 2010
|
$
|
(724
|
)
|
$
|
(10
|
)
|
$
|
(734
|
)
|
$
|
227,459
|
|||||
Formation loan payments received
|
—
|
—
|
—
|
582
|
||||||||||||
Net income (loss)
|
(46
|
)
|
—
|
(46
|
)
|
(4,610
|
)
|
|||||||||
Allocation of syndication costs
|
(2
|
)
|
2
|
—
|
—
|
|||||||||||
Withdrawals
|
—
|
—
|
—
|
(1,366
|
)
|
|||||||||||
Early withdrawal penalties
|
—
|
—
|
—
|
—
|
||||||||||||
Balance, June 30, 2011
|
$
|
(772
|
)
|
$
|
(8
|
)
|
$
|
(780
|
)
|
$
|
222,065
|
2011
|
2010
|
|||||||
Cash flows from operating activities
|
||||||||
Net income (loss)
|
$
|
(4,610
|
)
|
$
|
(13,070
|
)
|
||
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
|
||||||||
Amortization of borrowings-related origination costs
|
552
|
86
|
||||||
Imputed interest on formation loan
|
(204
|
)
|
(289
|
)
|
||||
Amortization of discount on formation loan
|
204
|
289
|
||||||
Provision/(recovery) for loan losses
|
(1,262
|
)
|
12,302
|
|||||
Depreciation from rental operations
|
831
|
615
|
||||||
REO-loss on disposal
|
54
|
—
|
||||||
REO-impairment loss
|
1,593
|
89
|
||||||
Change in operating assets and liabilities
|
||||||||
Accrued interest
|
54
|
(1,261
|
)
|
|||||
Advances on loans
|
(1,502
|
)
|
(733
|
)
|
||||
Receivable from affiliate
|
18
|
(133
|
)
|
|||||
Other assets
|
(620
|
)
|
(556
|
)
|
||||
Accounts payable
|
(926
|
)
|
(152
|
)
|
||||
Deferred revenue
|
(109
|
)
|
—
|
|||||
Payable to affiliate
|
831
|
(938
|
)
|
|||||
Net cash provided by (used in) operating activities
|
(5,096
|
)
|
(3,751
|
)
|
||||
Cash flows from investing activities
|
||||||||
Loans originated
|
(60
|
)
|
(943
|
)
|
||||
Principal collected on loans
|
9,052
|
18,026
|
||||||
Refund/(payments) for development of real estate
|
(114
|
)
|
(4,822
|
)
|
||||
Proceeds from disposition of real estate
|
26,857
|
5,385
|
||||||
Net cash provided by (used in) investing activities
|
35,735
|
17,646
|
||||||
Cash flows from financing activities
|
||||||||
Payments on bank loan
|
(15,000
|
)
|
(25,500
|
)
|
||||
Mortgages taken
|
—
|
19,600
|
||||||
Payments on mortgages
|
(13,070
|
)
|
(1,452
|
)
|
||||
Partners’ withdrawals
|
(1,366
|
)
|
(1,952
|
)
|
||||
Formation loan payments received
|
582
|
971
|
||||||
Increase/(decrease) in non-controlling interest
|
(537
|
)
|
340
|
|||||
Net cash provided by (used in) financing activities
|
(29,391
|
)
|
(7,993
|
)
|
||||
Net increase (decrease) in cash and cash equivalents
|
1,248
|
5,902
|
||||||
Cash and cash equivalents, beginning of year
|
7,054
|
11,161
|
||||||
Cash and cash equivalents, end of period
|
$
|
8,302
|
$
|
17,063
|
2011
|
2010
|
|||||||
Supplemental disclosures of cash flow information
|
||||||||
Non-cash investing activities
|
||||||||
Real estate acquired through foreclosure/settlement on loans,
net of liabilities assumed
|
$
|
8,812
|
$
|
34,872
|
||||
Cash paid for interest
|
$
|
2,685
|
$
|
2,055
|
Formation loan made
|
$
|
22,567
|
||
Unamortized discount on imputed interest
|
(1,205
|
)
|
||
Formation loan made, net
|
21,362
|
|||
Repayments to date
|
(13,134
|
)
|
||
Early withdrawal penalties applied
|
(643
|
)
|
||
Formation loan, net
|
7,585
|
|||
Unamortized discount on imputed interest
|
1,205
|
|||
Balance, June 30, 2011
|
$
|
8,790
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Chargeable by RMC
|
$ | 1,636 | $ | 517 | $ | 1,909 | $ | 1,392 | ||||||||
Waived by RMC
|
(545 | ) | (214 | ) | (636 | ) | (506 | ) | ||||||||
Charged
|
$ | 1,091 | $ | 303 | $ | 1,273 | $ | 886 |
Six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Principal, beginning of year
|
$
|
202,134
|
$
|
268,445
|
||||
New loans added
|
60
|
943
|
||||||
Borrower repayments
|
(8,997
|
)
|
(18,026
|
)
|
||||
Foreclosures
|
(15,490
|
)
|
(11,309
|
)
|
||||
Principal, end of period
|
$
|
177,707
|
$
|
240,053
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Number of secured loans
|
64
|
79
|
||||||
Secured loans – principal
|
$
|
177,707
|
$
|
202,134
|
||||
Secured loans – interest rates range (fixed)
|
4.75-12.00
|
%
|
2.75-12.00
|
%
|
||||
Average secured loan – principal
|
$
|
2,777
|
$
|
2,559
|
||||
Average principal as percent of total principal
|
1.56
|
%
|
1.27
|
%
|
||||
Average principal as percent of partners’ capital
|
1.25
|
%
|
1.12
|
%
|
||||
Average principal as percent of total assets
|
0.94
|
%
|
0.79
|
%
|
||||
Largest secured loan – principal
|
$
|
37,923
|
$
|
37,923
|
||||
Largest principal as percent of total principal
|
21.34
|
%
|
18.76
|
%
|
||||
Largest principal as percent of partners’ capital
|
17.08
|
%
|
16.67
|
%
|
||||
Largest principal as percent of total assets
|
12.80
|
%
|
11.78
|
%
|
||||
Smallest secured loan – principal
|
$
|
79
|
$
|
79
|
||||
Smallest principal as percent of total principal
|
0.04
|
%
|
0.04
|
%
|
||||
Smallest principal as percent of partners’ capital
|
0.04
|
%
|
0.03
|
%
|
||||
Smallest principal as percent of total assets
|
0.03
|
%
|
0.02
|
%
|
||||
Number of counties where security is located (all California)
|
24
|
27
|
||||||
Largest percentage of principal in one county
|
30.25
|
%
|
28.80
|
%
|
||||
Number of secured loans in foreclosure status
|
16
|
13
|
||||||
Secured loans in foreclosure – principal
|
$
|
116,008
|
$
|
55,146
|
||||
Number of secured loans with an interest reserve
|
—
|
—
|
||||||
Interest reserves
|
$
|
—
|
$
|
—
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||||||
Loans
|
Principal
|
Percent
|
Loans
|
Principal
|
Percent
|
|||||||||||||||||||
San Francisco
|
9 | $ | 53,781 | 30 | % | 11 | $ | 58,233 | 29 | % | ||||||||||||||
San Francisco Bay Area (1)
|
27 | 66,237 | 38 | 33 | 77,555 | 38 | ||||||||||||||||||
Northern California (1)
|
13 | 50,519 | 28 | 16 | 55,567 | 28 | ||||||||||||||||||
Southern California
|
15 | 7,170 | 4 | 19 | 10,779 | 5 | ||||||||||||||||||
Total secured loans
|
64 | $ | 177,707 | 100 | % | 79 | $ | 202,134 | 100 | % |
|
(1)
|
Excludes line(s) above
|
Complete Construction
|
Rehabilitation
|
|||||||
Disbursed funds
|
$
|
—
|
$
|
17,000
|
||||
Undisbursed funds
|
$
|
—
|
$
|
—
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||||||
Loans
|
Principal
|
Percent
|
Loans
|
Principal
|
Percent
|
|||||||||||||||||||
First trust deeds
|
29 | $ | 70,129 | 40 | % | 37 | $ | 85,535 | 43 | % | ||||||||||||||
Second trust deeds
|
33 | 107,073 | 60 | 40 | 116,091 | 57 | ||||||||||||||||||
Third trust deeds
|
2 | 505 | — | 2 | 508 | — | ||||||||||||||||||
Total secured loans
|
64 | 177,707 | 100 | % | 79 | 202,134 | 100 | % | ||||||||||||||||
Liens due other lenders at loan closing
|
213,255 | 232,081 | ||||||||||||||||||||||
Total debt
|
$ | 390,962 | $ | 434,215 | ||||||||||||||||||||
Appraised property value at loan closing
|
$ | 591,277 | $ | 688,494 | ||||||||||||||||||||
Percent of total debt to appraised
values (LTV) at loan closing (2)
|
66.12 | % | 63.07 | % |
|
(2)
|
Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last two years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||||||
Loans
|
Principal
|
Percent
|
Loans
|
Principal
|
Percent
|
|||||||||||||||||||
Single family
|
51 | $ | 137,203 | 77 | % | 63 | $ | 155,241 | 77 | % | ||||||||||||||
Multi-family
|
3 | 4,611 | 3 | 5 | 8,135 | 4 | ||||||||||||||||||
Commercial
|
9 | 35,348 | 20 | 10 | 38,212 | 19 | ||||||||||||||||||
Land
|
1 | 545 | — | 1 | 546 | — | ||||||||||||||||||
Total secured loans
|
64 | $ | 177,707 | 100 | % | 79 | $ | 202,134 | 100 | % |
Scheduled maturities
|
Loans
|
Principal
|
Percent
|
|||||||||
2011
|
9 | $ | 9,786 | 6 | ||||||||
2012
|
16 | 52,307 | 29 | |||||||||
2013
|
13 | 4,644 | 3 | |||||||||
2014
|
2 | 2,531 | 1 | |||||||||
2015
|
8 | 1,947 | 1 | |||||||||
Thereafter
|
4 | 2,195 | 1 | |||||||||
Total future maturities
|
52 | 73,410 | 41 | |||||||||
Matured at June 30, 2011
|
12 | 104,297 | 59 | |||||||||
Total secured loans
|
64 | $ | 177,707 | 100 | % |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Secured loans past maturity
|
||||||||
Number of loans (3) (4)
|
12
|
13
|
||||||
Principal
|
$
|
104,297
|
$
|
95,264
|
||||
Advances
|
18,191
|
14,424
|
||||||
Accrued interest
|
7,613
|
8,040
|
||||||
Loan balance
|
$
|
130,101
|
$
|
117,728
|
||||
Percent of loans
|
59
|
%
|
47
|
%
|
|
(3)
|
The secured loans past maturity include nine and ten loans as of June 30, 2011 and December 31, 2010, respectively, also included in the secured loans in non-accrual status.
|
|
(4)
|
The secured loans past maturity include 12 and 11 loans as of June 30, 2011 and December 31, 2010, respectively, also included in the secured loans delinquency category.
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
30-89 days past due
|
$
|
7,628
|
$
|
8,083
|
||||
90-179 days past due
|
6,138
|
2,511
|
||||||
180 or more days past due
|
146,354
|
156,866
|
||||||
Total past due
|
160,120
|
167,460
|
||||||
Current
|
17,587
|
34,674
|
||||||
Total secured loans
|
$
|
177,707
|
$
|
202,134
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Secured loans in nonaccrual status
|
||||||||
Number of loans
|
25
|
28
|
||||||
Principal
|
$
|
157,456
|
$
|
167,500
|
||||
Advances
|
18,644
|
18,153
|
||||||
Accrued interest
|
10,990
|
11,971
|
||||||
Loan balance
|
$
|
187,090
|
$
|
197,624
|
||||
Foregone interest
|
$
|
6,751
|
$
|
12,012
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Principal
|
$ | 161,818 | $ | 180,242 | ||||
Recorded investment (5)
|
$ | 192,079 | $ | 211,236 | ||||
Impaired loans without allowance
|
$ | 35,838 | $ | 39,354 | ||||
Impaired loans with allowance
|
$ | 156,241 | $ | 171,882 | ||||
Allowance for loan losses, impaired loans
|
$ | 75,701 | $ | 87,364 |
|
(5)
|
Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Average recorded investment
|
$ | 201,658 | $ | 192,706 | ||||
Interest income recognized
|
$ | 289 | $ | 1,379 | ||||
Interest income received in cash
|
$ | 153 | $ | 1,521 |
Six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Balance, beginning of year
|
$
|
89,200
|
$
|
23,086
|
||||
Provision/(recovery) for loan losses
|
(1,262
|
)
|
12,302
|
|||||
Charge-offs, net
|
||||||||
Charge-offs
|
(8,708
|
)
|
(570
|
)
|
||||
Recoveries
|
—
|
—
|
||||||
Charge-offs, net
|
(8,708
|
)
|
(570
|
)
|
||||
Balance, June 30
|
$
|
79,230
|
$
|
34,818
|
||||
Specific reserves
|
$
|
75,701
|
$
|
31,169
|
||||
General reserves
|
3,529
|
3,649
|
||||||
Balance, June 30
|
$
|
79,230
|
$
|
34,818
|
||||
Ratio of charge-offs, net during the period to average
|
||||||||
secured loans outstanding during the period
|
4.43
|
%
|
0.23
|
%
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||
Allowance for loan losses
|
||||||||||||||||
Secured loans by property type
|
||||||||||||||||
Single family
|
$ | 71,150 | 77 | % | $ | 78,802 | 77 | % | ||||||||
Multi-family
|
1,060 | 3 | 1,760 | 4 | ||||||||||||
Commercial
|
7,010 | 20 | 8,628 | 19 | ||||||||||||
Land
|
10 | — | 10 | — | ||||||||||||
Total for secured loans
|
$ | 79,230 | 100 | % | $ | 89,200 | 100 | % | ||||||||
Unsecured loans
|
$ | — | 100 | % | $ | — | 100 | % | ||||||||
Total allowance for loan losses
|
$ | 79,230 | 100 | % | $ | 89,200 | 100 | % |
Six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
REO held for sale, beginning of year
|
$ | 54,206 | $ | 8,102 | ||||
Acquisitions
|
— | 7,188 | ||||||
Dispositions
|
(18,664 | ) | (5,385 | ) | ||||
Improvements/betterments/(refunds)
|
(75 | ) | 9 | |||||
Charge-offs
|
— | (245 | ) | |||||
Changes in net realizable values
|
(1,750 | ) | (89 | ) | ||||
REO, held for sale, June 30,
|
$ | 33,717 | $ | 9,580 |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Number of properties
|
7 | 10 | ||||||
Property type
|
||||||||
Single family
|
$ | 7,461 | $ | 7,099 | ||||
Multi-family
|
14,556 | 32,777 | ||||||
Commercial
|
11,700 | 14,330 | ||||||
Total REO, held for sale
|
$ | 33,717 | $ | 54,206 |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Rental income
|
$ | 164 | $ | 146 | $ | 540 | $ | 226 | ||||||||
Operating expenses
|
||||||||||||||||
Property taxes
|
27 | 87 | 91 | 89 | ||||||||||||
Management, administration and insurance
|
94 | 15 | 259 | 9 | ||||||||||||
Utilities, maintenance and other
|
45 | 27 | 118 | 51 | ||||||||||||
Advertising and promotions
|
(1 | ) | 1 | 1 | 1 | |||||||||||
Total operating expenses
|
165 | 130 | 469 | 150 | ||||||||||||
Net operating income
|
(1 | ) | 16 | 71 | 76 | |||||||||||
Depreciation
|
— | — | — | — | ||||||||||||
Rental operations, net(1)
|
$ | (1 | ) | $ | 16 | $ | 71 | $ | 76 |
|
(1)
|
Interest expense on the mortgages securing the rental property was $321,000 and $84,000 for the three month periods ended June 30, 2011 and 2010, respectively, and $533,000 and $129,000 for the six month periods ended June 30, 2011 and 2010, respectively.
|
Net Realizable Value
|
Accumulated Depreciation
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Balance, beginning of year
|
$
|
115,411
|
$
|
102,833
|
$
|
1,807
|
$
|
507
|
||||||||
Acquisitions
|
17,187
|
31,108
|
—
|
—
|
||||||||||||
Dispositions
|
(8,247
|
)
|
—
|
(40
|
)
|
—
|
||||||||||
Improvements/betterments
|
189
|
1,391
|
—
|
—
|
||||||||||||
Designated REO, held for sale
|
—
|
—
|
—
|
—
|
||||||||||||
Changes in net realizable values
|
157
|
—
|
—
|
—
|
||||||||||||
Depreciation
|
(831
|
)
|
(617
|
)
|
831
|
617
|
||||||||||
Balance, June 30
|
$
|
123,866
|
$
|
134,715
|
$
|
2,598
|
$
|
1,124
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Number of properties
|
17 | 13 | ||||||
Property type
|
||||||||
Single family
|
$ | 11,613 | $ | 9,399 | ||||
Multi-family
|
90,942 | 86,813 | ||||||
Commercial
|
16,281 | 14,170 | ||||||
Land
|
5,030 | 5,029 | ||||||
Total REO, held as investment, net
|
$ | 123,866 | $ | 115,411 |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Number of properties
|
11 | 6 | 11 | 6 | ||||||||||||
Rental income
|
$ | 1,804 | $ | 1,512 | $ | 3,601 | $ | 2,496 | ||||||||
Operating expenses
|
||||||||||||||||
Property taxes
|
274 | 232 | 510 | 406 | ||||||||||||
Management, administration and insurance
|
528 | 379 | 838 | 572 | ||||||||||||
Utilities, maintenance and other
|
332 | 918 | 658 | 1,098 | ||||||||||||
Advertising and promotions
|
9 | 4 | 18 | 15 | ||||||||||||
Total operating expenses
|
1,143 | 1,533 | 2,024 | 2,091 | ||||||||||||
Net operating income
|
661 | (21 | ) | 1,577 | 405 | |||||||||||
Depreciation
|
436 | 269 | 831 | 615 | ||||||||||||
Rental operations, net(1)
|
$ | 225 | $ | (290 | ) | $ | 746 | $ | (210 | ) |
|
(1)
|
Interest expense on the mortgages securing the rental property was $452,000 and $202,000 for the three months ended June 30, 2011 and 2010, respectively, and $792,000 and $202,000 for the six months ended June 30, 2011 and 2010, respectively.
|
|
-
|
Condominium units (3) in an eight unit building in San Francisco, California. The recorded investment was approximately $1,362,000. Two of the units are subject to separate mortgages with an aggregate amount owed of $830,000, each with variable interest rates, currently between 2.8% and 3.9%.
|
|
-
|
Condominium units (32) in a 81 unit complex, in Hayward, California. The recorded investment was approximately $5,000,000. An independent management firm has been engaged to oversee rental operations of the units.
|
|
-
|
Multi-family complex in Santa Clara, California (The Element, LLC). The recorded investment was approximately $8,130,000. The property was subject to an interest-only mortgage loan with a balance at acquisition of approximately $6,800,000 and an interest rate of 6.25%. In June 2011, the Element, LLC was sold for $8,800,000.
|
|
-
|
Condominium units (9) in a 37 unit complex, in Yuba City, California (Lincoln Village LLC). The recorded investment was approximately $495,000. An independent management firm has been engaged to oversee rental operations of the units.
|
|
-
|
Recreation property (45.7 acres) in Pine Grove, California (Pine Acres LLC). The recorded investment was approximately $2,200,000. An independent management firm has been engaged to oversee rental operations of the units.
|
June 30,
|
December 31,
|
|||||||
Lender
|
2011
|
2010
|
||||||
Chase
|
$
|
436
|
$
|
—
|
||||
Interest rate 2.83%
|
||||||||
Matures July 1, 2033
|
||||||||
Monthly payment $2,726
|
||||||||
GMAC
|
393
|
—
|
||||||
Interest rate 3.88%
|
||||||||
Matures August 1, 2034
|
||||||||
Monthly payment $2,055
|
||||||||
First National Bank of Northern California
|
2,419
|
2,437
|
||||||
Interest rate 7.00%
|
||||||||
Matures September 1, 2011
|
||||||||
Monthly payment $17,043
|
||||||||
Business Partners
|
7,625
|
7,789
|
||||||
Interest rate 6.53%
|
||||||||
Matures May 1, 2015
|
||||||||
Monthly payment (1) $78,767
|
||||||||
NorthMarq Capital
|
19,233
|
19,436
|
||||||
Interest rate 2.99%
|
||||||||
Matures July 1, 2015
|
||||||||
Monthly payment (1) $123,247
|
||||||||
PNC Bank
|
—
|
5,869
|
||||||
Interest rate 4.16%
|
||||||||
Matures May 1, 2017
|
||||||||
Monthly payment (1) $43,748
|
||||||||
Wells Fargo Bank
|
385
|
392
|
||||||
Interest rate 3.00%
|
||||||||
Matures October 1, 2032
|
||||||||
Monthly payment $2,038
|
||||||||
Wells Fargo Bank (Wachovia Mortgage)
|
343
|
347
|
||||||
Interest rate 5.26%
|
||||||||
Matures September 15, 2032
|
||||||||
Monthly payment $2,240
|
||||||||
Total mortgages payable
|
$
|
30,834
|
$
|
36,270
|
|
(1)
|
monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.
|
Costs incurred
|
$
|
5,010
|
||
Early withdrawal penalties applied
|
(190
|
)
|
||
Allocated to date
|
(3,970
|
)
|
||
June 30, 2011 balance
|
$
|
850
|
Fair Value Measurement at Report Date Using
|
||||||||||||||||
Quoted Prices
|
Significant
|
|||||||||||||||
in Active
|
Other
|
Significant
|
||||||||||||||
Markets for
|
Observable
|
Unobservable
|
||||||||||||||
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||
Item
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
||||||||||||
Impaired loans
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
REO, held for sale
|
$
|
—
|
$
|
—
|
$
|
33,717
|
$
|
33,717
|
||||||||
REO, held as investment, net
|
$
|
—
|
$
|
—
|
$
|
9,044
|
$
|
9,044
|
Fair Value Measurement at Report Date Using
|
||||||||||||||||
Quoted Prices
|
Significant
|
|||||||||||||||
in Active
|
Other
|
Significant
|
||||||||||||||
Markets for
|
Observable
|
Unobservable
|
||||||||||||||
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||
Item
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
||||||||||||
Impaired loans
|
$
|
—
|
$
|
—
|
$
|
211,236
|
$
|
211,236
|
||||||||
REO, held for sale
|
$
|
—
|
$
|
—
|
$
|
54,206
|
$
|
54,206
|
||||||||
REO, held as investment, net
|
$
|
—
|
$
|
—
|
$
|
19,002
|
$
|
19,002
|
|
(a)
|
Cash and cash equivalents. The carrying amount equals fair value. All amounts, including interest bearing accounts, are subject to immediate withdrawal.
|
|
(b)
|
Secured loans. The fair value of the non-impaired loans of $15,836,000 and $22,019,000 at June 30, 2011 and December 31, 2010, respectively, was estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. For impaired loans in which a specific allowance is established based on the fair value of the collateral, the collateral fair value is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers opinion of values, and publicly available information on in-market transactions (Level 2 inputs). Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required (Level 3 inputs).
|
|
(c)
|
Unsecured loans. Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.
|
|
(d)
|
Real estate owned (REO), net. Real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions. However, in recent years, due to the low number of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants - and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types is required.
|
|
(e)
|
Bank loan. The partnership has a bank loan, evidenced by a promissory note, in an outstanding amount of $35,000,000 at June 30, 2011. The interest rate of 1.5 points above the prime rate, or 4.75%, with a floor of 5.0% is deemed to be a market rate and the other terms and conditions are deemed to be customary for a well collateralized note with a 21-month loan term.
|
|
(f)
|
Mortgages payable. The partnership has mortgages payable (see Note 8 for details). The interest rates are deemed to be at market rates, and the other terms and conditions are deemed to be customary for the secured properties.
|
Changes during the three months ended June 30, 2011 versus 2010
|
Changes during the six months ended June 30, 2011 versus 2010
|
|||||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||||
Revenue, net
|
||||||||||||||||||
Interest income
|
||||||||||||||||||
Loans
|
$ | (1,402 | ) | (72 | ) | % | $ | (3,718 | ) | (74 | ) | % | ||||||
Imputed interest on formation loan
|
(63 | ) | (44 | ) | (85 | ) | (29 | ) | ||||||||||
Other interest income
|
(15 | ) | (94 | ) | (37 | ) | (95 | ) | ||||||||||
Total interest income
|
(1,480 | ) | (70 | ) | (3,840 | ) | (72 | ) | ||||||||||
Interest expense
|
||||||||||||||||||
Bank loan, secured
|
(263 | ) | (29 | ) | (450 | ) | (25 | ) | ||||||||||
Mortgages payable
|
487 | 170 | 994 | 300 | ||||||||||||||
Amortization of discount on imputed interest
|
(63 | ) | (44 | ) | (85 | ) | (29 | ) | ||||||||||
Total interest expense
|
161 | 12 | 459 | 19 | ||||||||||||||
Net interest income/(expense)
|
(1,641 | ) | (210 | ) | (4,299 | ) | (147 | ) | ||||||||||
Late fees
|
(3 | ) | (75 | ) | (24 | ) | (86 | ) | ||||||||||
Other
|
(1 | ) | (33 | ) | (3 | ) | (43 | ) | ||||||||||
Total revenues, net
|
(1,645 | ) | (209 | ) | (4,326 | ) | (147 | ) | ||||||||||
Provision for loan losses
|
(13,263 | ) | (111 | ) | (13,564 | ) | (110 | ) | ||||||||||
Operating expenses
|
||||||||||||||||||
Mortgage servicing fees
|
788 | 260 | 387 | 44 | ||||||||||||||
Asset management fees
|
(66 | ) | (22 | ) | (123 | ) | (20 | ) | ||||||||||
Costs from Redwood Mortgage Corp.
|
344 | 307 | 342 | 153 | ||||||||||||||
Professional services
|
(22 | ) | (5 | ) | (260 | ) | (33 | ) | ||||||||||
REO
|
||||||||||||||||||
Rental operations, net
|
(498 | ) | (182 | ) | (951 | ) | (710 | ) | ||||||||||
Holding costs
|
177 | 64 | 472 | 142 | ||||||||||||||
Loss on disposal
|
(284 | ) | (84 | ) | (507 | ) | (90 | ) | ||||||||||
Impairment loss
|
1,593 | — | 1,504 | 1,690 | ||||||||||||||
Other
|
(64 | ) | (105 | ) | (86 | ) | (86 | ) | ||||||||||
Total operating expenses, net
|
1,968 | 94 | 778 | 21 | ||||||||||||||
Net income (loss)
|
$ | 9,650 | (73 | ) | % | $ | 8,460 | (65 | ) | % |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||
Average
|
Stated
|
Average
|
Stated
|
|||||||||||||||||||||
Secured
|
Average
|
Effective
|
Secured
|
Average
|
Effective
|
|||||||||||||||||||
Loan
|
Yield
|
Yield
|
Loan
|
Yield
|
Yield
|
|||||||||||||||||||
Balance
|
Rate
|
Rate
|
Balance
|
Rate
|
Rate
|
|||||||||||||||||||
2010
|
$ | 243,267 | 8.77 | % | 3.20 | % | $ | 252,336 | 8.81 | % | 3.98 | % | ||||||||||||
2011
|
$ | 189,771 | 8.46 | % | 1.14 | % | $ | 196,425 | 8.46 | % | 1.32 | % |
Six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Balance, beginning of year
|
$
|
89,200
|
$
|
23,086
|
||||
Provision/(recovery) for loan losses
|
(1,262
|
)
|
12,302
|
|||||
Charge-offs, net
|
||||||||
Charge-offs
|
(8,708
|
)
|
(570
|
)
|
||||
Recoveries
|
— | — | ||||||
Charge-offs, net
|
(8,708
|
)
|
(570
|
)
|
||||
Balance, June 30
|
$
|
79,230
|
$
|
34,818
|
||||
Specific reserves
|
$
|
75,701
|
$
|
31,169
|
||||
General reserves
|
3,529
|
3,649
|
||||||
Balance, June 30
|
$
|
79,230
|
$
|
34,818
|
||||
Ratio of charge-offs, net during the period to average
secured loans outstanding during the period
|
4.43
|
%
|
0.23
|
%
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Principal
|
$ | 161,818 | $ | 180,242 | ||||
Recorded investment (1)
|
$ | 192,079 | $ | 211,236 | ||||
Impaired loans without allowance
|
$ | 35,838 | $ | 39,354 | ||||
Impaired loans with allowance
|
$ | 156,241 | $ | 171,882 | ||||
Allowance for loan losses, impaired loans
|
$ | 75,701 | $ | 87,364 |
|
(1)
|
Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.
|
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Average recorded investment
|
$ | 201,658 | $ | 192,706 | ||||
Interest income recognized
|
$ | 289 | $ | 1,379 | ||||
Interest income received in cash
|
$ | 153 | $ | 1,521 |
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Rental income
|
$ | 1,968 | $ | 1,658 | $ | 4,141 | $ | 2,722 | ||||||||
Operating expenses
|
||||||||||||||||
Property taxes
|
301 | 319 | 601 | 495 | ||||||||||||
Management, administration and insurance
|
622 | 394 | 1,097 | 581 | ||||||||||||
Utilities, maintenance and other
|
377 | 945 | 776 | 1,149 | ||||||||||||
Advertising and promotions
|
8 | 5 | 19 | 16 | ||||||||||||
Total operating expenses
|
1,308 | 1,663 | 2,493 | 2,241 | ||||||||||||
Earnings/(loss) before depreciation
|
660 | (5 | ) | 1,648 | 481 | |||||||||||
Depreciation
|
436 | 269 | 831 | 615 | ||||||||||||
Rental operations, net(1)
|
$ | 224 | $ | (274 | ) | $ | 817 | $ | (134 | ) |
|
(1)
|
Interest expense on the mortgages securing the rental property was $773,000 and $1,325,000 for the three and six month periods ended June 30, 2011, respectively.
|
Contractual Obligation
|
More than
|
|||||||||||||||
(principal only)
|
Total
|
Less than 1 Year
|
1-3 Years
|
3 Years
|
||||||||||||
Bank loan, secured
|
$
|
35,000
|
$
|
35,000
|
$
|
—
|
$
|
—
|
||||||||
Mortgages payable
|
30,834
|
3,249
|
1,776
|
25,809
|
||||||||||||
Construction contracts
|
200
|
200
|
—
|
—
|
||||||||||||
HOA special assessment
|
123
|
123
|
—
|
—
|
||||||||||||
Construction loans
|
—
|
—
|
—
|
—
|
||||||||||||
Rehabilitation loans
|
—
|
—
|
—
|
—
|
||||||||||||
Total
|
$
|
66,157
|
$
|
38,572
|
$
|
1,776
|
$
|
25,809
|
ITEM 1. | Legal Proceedings |
In the normal course of business, the partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions would typically be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.
|
|
ITEM 1A. | Risk Factors |
Not included as the partnership is a smaller reporting company.
|
|
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not Applicable.
|
|
ITEM 3. | Defaults Upon Senior Securities |
Not Applicable.
|
|
ITEM 4. | (Removed and Reserved) |
ITEM 5. | Other Information |
None.
|
|
ITEM 6. | Exhibits |
31.1 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.3 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.3 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS* XBRL Instance Document
|
|
101.SCH* XBRL Taxonomy Extension Schema Document
|
|
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
|
|
* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement of Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
|
REDWOOD MORTGAGE INVESTORS VIII
|
Signature
|
Title
|
Date
|
/S/ Michael R. Burwell
|
||||
Michael R. Burwell
|
General Partner
|
August 15, 2011
|
/S/ Michael R. Burwell
|
||||
Michael R. Burwell
|
President of Gymno Corporation,
(Principal Executive Officer); Director
of Gymno Corporation
Secretary/Treasurer of Gymno
Corporation (Principal Financial and
Accounting Officer)
|
August 15, 2011
|
/S/ Michael R. Burwell
|
||||
Michael R. Burwell
|
President, Secretary/Treasurer of
Redwood Mortgage Corp. (Principal
Financial and Accounting Officer);
Director of Redwood Mortgage Corp.
|
August 15, 2011
|
|
I, Michael R. Burwell, certify that:
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VIII, a California Limited Partnership (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s forth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, General Partner
|
||||
August 15, 2011
|
|
I, Michael R. Burwell, certify that:
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VIII, a California Limited Partnership (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s forth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, President, and
|
||||
Chief Financial Officer of Gymno | ||||
Corporation, General Partner
|
||||
August 15, 2011
|
I, Michael R. Burwell, certify that:
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors VIII, a California Limited Partnership (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have:
|
|
(a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s forth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, President,
|
||||
Redwood Mortgage Corp.,
|
||||
General Partner
|
||||
August 15, 2011
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the partnership at the dates and for the periods indicated.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, General Partner
|
||||
August 15, 2011
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the partnership at the dates and for the periods indicated.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, President, and
|
||||
Chief Financial Officer of Gymno | ||||
Corporation, General Partner
|
||||
August 15, 2011
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the partnership at the dates and for the periods indicated.
|
/s/ Michael R. Burwell
|
||||
Michael R. Burwell, President,
|
||||
Redwood Mortgage Corp.,
|
||||
General Partner
|
||||
August 15, 2011
|
Consolidated Balance Sheets (Parentheticals) (USD $)
In Thousands |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Loan discount | $ 2,881 | $ 2,881 |
Consolidated Statements of Operations (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Revenue, net | Â | Â | Â | Â |
Loans | $ 542 | $ 1,944 | $ 1,300 | $ 5,018 |
Imputed interest on formation loan | 79 | 142 | 204 | 289 |
Other interest income | 1 | 16 | 2 | 39 |
Total interest income | 622 | 2,102 | 1,506 | 5,346 |
Interest expense | Â | Â | Â | Â |
Bank loan, secured | 630 | 893 | 1,360 | 1,810 |
Mortgages payable | 773 | 286 | 1,325 | 331 |
Amortization of discount on formation loan | 79 | 142 | 204 | 289 |
Total interest expense | 1,482 | 1,321 | 2,889 | 2,430 |
Net interest income/(expense) | (860) | 781 | (1,383) | 2,916 |
Late fees | 1 | 4 | 4 | 28 |
Other | 2 | 3 | 4 | 7 |
Total revenues, net | (857) | 788 | (1,375) | 2,951 |
Provision/(recovery) for loan losses | (1,262) | 12,001 | (1,262) | 12,302 |
Operating Expenses | Â | Â | Â | Â |
Mortgage servicing fees | 1,091 | 303 | 1,273 | 886 |
Asset management fees | 240 | 306 | 487 | 610 |
Costs from Redwood Mortgage Corp. | 456 | 112 | 566 | 224 |
Professional services | 398 | 420 | 522 | 782 |
REO | Â | Â | Â | Â |
Rental operations, net | (224) | 274 | (817) | 134 |
Holding costs | 455 | 278 | 805 | 333 |
Loss on disposal | 54 | 338 | 54 | 561 |
Impairment loss | 1,593 | Â | 1,593 | 89 |
Other | (3) | 61 | 14 | 100 |
Total operating expenses | 4,060 | 2,092 | 4,497 | 3,719 |
Net income (loss) | (3,655) | (13,305) | (4,610) | (13,070) |
Net income (loss) | Â | Â | Â | Â |
Limited partners (99%) | (3,619) | (13,172) | (4,564) | (12,939) |
General partners (1%) | (36) | (133) | (46) | (131) |
[ProfitLoss] | $ (3,655) | $ (13,305) | $ (4,610) | $ (13,070) |
Where Income IsReinvested [Member]
|
 |  |  |  |
Net income (loss) per $1,000 invested by limited partners for entire period | Â | Â | Â | Â |
Net income (loss) per $1,000 invested by limited partners for entire period | (13) | (40) | (17) | (39) |
Where Partner Receives Income InMonthly Distributions [Member]
|
 |  |  |  |
Net income (loss) per $1,000 invested by limited partners for entire period | Â | Â | Â | Â |
Net income (loss) per $1,000 invested by limited partners for entire period | (14) | (41) | (18) | (40) |
Document And Entity Information
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Document and Entity Information [Abstract] | Â |
Entity Registrant Name | REDWOOD MORTGAGE INVESTORS VIII |
Document Type | 10-Q |
Current Fiscal Year End Date | --12-31 |
Entity Common Stock, Shares Outstanding | 0 |
Amendment Flag | false |
Entity Central Index Key | 0000889123 |
Entity Current Reporting Status | Yes |
Entity Voluntary Filers | No |
Entity Filer Category | Smaller Reporting Company |
Entity Well-known Seasoned Issuer | No |
Document Period End Date | Jun. 30, 2011 |
Document Fiscal Year Focus | 2011 |
Document Fiscal Period Focus | Q2 |
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Note 6 - Real Estate Owned (REO), Held for Sale
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Owned [Text Block] |
NOTE 6
– REAL ESTATE OWNED (REO), HELD FOR SALE
REO,
held for sale activity and changes in the net realizable
values are summarized in the following table ($ in
thousands).
REO,
held for sale summarized by property type is presented in the
following table ($ in thousands).
The
results of operations for rental properties in REO, held for
sale is presented in the following table ($ in
thousands).
The
increase in rental operations for the three and six month
periods ended June 30, 2011 compared to the same periods in
2010 is attributable to the partnership’s acquisition,
since June 30, 2010, of seven additional properties, which
the general partners determined, at the time of acquisition,
would best serve the partnership at such time to be rented
rather than sold (one was sold in February 2011, and another
in April 2011, as the market for these properties had
improved). The properties range from a single condominium
unit up to a 126 unit condominium complex, along with a
detached single-family residence and commercial property.
Independent, professional management firms were engaged to
oversee operations at each of the larger or complex
properties.
|
Note 11 - Commitments and Contingencies, Other Than Loan Commitments
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Commitments and Contingencies Disclosure [Text Block] |
NOTE 11
– COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN
COMMITMENTS
Legal
proceedings
In
the normal course of business, the partnership may become
involved in various legal proceedings such as assignment of
rents, bankruptcy proceedings, appointment of receivers,
unlawful detainers, judicial foreclosure, etc., to enforce
provisions of the deeds of trust, collect the debt owed under
promissory notes, or to protect, or recoup its investment
from real property secured by the deeds of trust and to
resolve disputes between borrowers, lenders, lien holders and
mechanics. None of these actions typically would be of any
material importance. As of the date hereof, the partnership
is not involved in any legal proceedings other than those
that would be considered part of the normal course of
business.
|
Note 2 - Summary of Significant Accounting Policies
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Significant Accounting Policies [Text Block] |
NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of presentation
The
partnership’s consolidated financial statements include
the accounts of its 100%-owned subsidiaries, Altura, LLC,
Borrette Property Company, LLC, Broadway Property Company
LLC, Diablo Villa Property Company, LLC, Diamond Heights
Winery, LLC, The Element, LLC, Fremont Investment Property
Company, LLC, Grand Villa Glendale, LLC, Howard Street
Property Investors LLC, Lincoln Village LLC, Pine Acres LLC,
Richmond Eddy Property Management, LLC, SF Dore LLC,
Winchester Property Company LLC, and the partnership’s
72.5%-owned subsidiary, Larkin Property Company, LLC. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Reclassifications
Certain
reclassifications, not affecting previously reported net
income or total partner capital, have been made to the
previously issued consolidated financial statements to
conform to the current year presentation.
Management
estimates
The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions about the reported amounts of assets and
liabilities, and disclosures of contingent assets and
liabilities, at the dates of the financial statements and the
reported amounts of revenues and expenses during the reported
periods. Such estimates relate principally to the
determination of the allowance for loan losses, including the
valuation of impaired loans, (which itself requires
determining the fair value of the collateral), and the
valuation of real estate held for sale and held as
investment, at acquisition and subsequently. Actual results
could differ significantly from these estimates.
Collateral
fair values are reviewed quarterly and the protective equity
for each loan is computed. As used herein, “protective
equity” is the arithmetic difference between the fair
value of the collateral, net of any senior liens, and the
loan balance, where “loan balance” is the sum of
the unpaid principal, advances and the recorded interest
thereon. This computation is done for each loan (whether
impaired or performing), and while loans secured by
collateral of similar property type are grouped, there is
enough distinction and variation in the collateral that a
loan-by-loan, collateral-by-collateral analysis is
appropriate.
The
fair value of the collateral is determined by exercise of
judgment based on management’s experience informed by
appraisals (by licensed appraisers), brokers’ opinion
of values, and publicly available information on in-market
transactions. Historically, it has been rare for
determinations of fair value to be made without substantial
reference to current market transactions. However, in recent
years, due to the low levels of real estate transactions, and
the rising number of transactions that are distressed (i.e.,
that are executed by an unwilling seller – often
compelled by lenders or other claimants – and/or
executed without broad exposure or with market exposure but
with few, if any, resulting offers), more interpretation,
judgment and interpolation/extrapolation within and across
property types is required.
Appraisals
of commercial real property generally present three
approaches to estimating value: 1) market comparables or
sales approach; 2) cost to replace and 3) capitalized cash
flows or investment approach. These approaches may or may not
result in a common, single value. The
market-comparables approach may yield several different
values depending on certain basic assumptions, such as,
determining highest and best use (which may or may not be the
current use); determining the condition (e.g. as-is,
when-completed, or for land when-entitled); and determining
the unit of value (e.g. as a series of individual unit sales
or as a bulk disposition). Further complicating this process
already subject to judgment, uncertainty and imprecision are
the current low transaction volumes in the residential,
commercial and land markets, and the variability that has
resulted. This exacerbates the imprecision in the process,
and requires additional considerations and inquiries as to
whether the transaction was entered into by a willing seller
in a functioning market or the transaction was completed in a
distressed market, in which the predominant number of sellers
are surrendering properties to lenders in partial settlement
of debt (as is currently prevalent in the residential markets
and is occurring more frequently in commercial markets)
and/or participating in “arranged sales” to
achieve partial settlement of debts and claims and to
generate tax advantage. Either way, the present market is at
historically low transaction volumes with neither potential
buyers nor sellers willing to transact. In certain asset
classes the time elapsed between transactions – other
than foreclosures – was 12 or more months.
The
uncertainty in the process is exacerbated by the tendency in
distressed market for lesser-quality properties to transact
while upper echelon properties remain off the market –
or come on and off the market – because these owners
often believe in the intrinsic value of their properties (and
the recoverability of that value) and are unwilling to accept
non-economic offers from opportunistic – often all cash
– acquirers taking advantage of distressed markets.
This accounts for the ever lower transaction volumes for
higher quality properties which exacerbate the perception of
a broadly declining market in which each succeeding
transaction establishes a new low.
Management
has the requisite familiarity with the markets the
partnership lends in generally and of the collateral
properties specifically to analyze sales-comparables and
assess their suitability/applicability. Management is
acquainted with market participants – investors,
developers, brokers, lenders – that are useful,
relevant secondary sources of data and information regarding
valuation and valuation variability. These secondary sources
may have familiarity with and perspectives on pending
transactions, successful strategies to optimize value, and
the history and details of specific properties - on and off
the market – that enhance the process and analysis that
is particularly and principally germane to establishing value
in distressed markets and/or property types (such as land
held for development and for units in a condominium
conversion). Multiple inputs from different sources often
collectively provide the best evidence of fair value. In
these cases expected cash flows would be considered alongside
other relevant information. Management’s
analysis of these secondary sources, as well as the analysis
of comparable sales, assists management in preparing its
estimates regarding valuations, such as collateral fair
value. However, such estimates are inherently
imprecise and actual results could differ significantly from
such estimates.
Cash
and cash equivalents
The
partnership considers all highly liquid financial instruments
with maturities of three months or less at the time of
purchase to be cash equivalents. Periodically, partnership
cash balances in banks exceed federally insured
limits.
Loans,
advances and interest income
Loans
generally are stated at the unpaid principal balance
(principal). Management has discretion to pay amounts
(advances) to third parties on behalf of borrowers to protect
the partnership’s interest in the loan. Advances
include, but are not limited to, the payment of interest and
principal on a senior lien to prevent foreclosure by the
senior lien holder, property taxes, insurance premiums, and
attorney fees. Advances generally are stated at the principal
balance and accrue interest until repaid by the
borrower.
The
partnership may fund a specific loan origination net of an
interest reserve to insure timely interest payments at the
inception (one to two years) of the loan. As monthly interest
payments become due, the partnership funds the payments into
the affiliated trust account.
If
based upon current information and events, it is probable the
partnership will be unable to collect all amounts due
according to the contractual terms of the loan agreement; a
loan may be designated as impaired. Impaired loans are
included in management’s periodic analysis of
recoverability. Any subsequent payments on impaired loans are
applied to late fees and then to reduce first the accrued
interest, then advances, and then unpaid principal.
The
partnership may on occasion negotiate and enter into
contractual workout agreements with borrowers whose loans are
past maturity or who are delinquent in making payments which
can delay and/or alter the loan’s cash flow and
delinquency status.
Interest
is accrued daily based on the unpaid principal balance of the
loans. An impaired loan continues to accrue as long as the
loan is in the process of collection and is considered to be
well-secured. Loans are placed on non-accrual status at the
earlier of management’s determination that the primary
source of repayment will come from the foreclosure and
subsequent sale of the collateral securing the loan (which
usually occurs when a notice of sale is filed) or when the
loan is no longer considered well-secured. When a loan is
placed on non-accrual status, the accrual of interest is
discontinued; however, previously recorded interest is not
reversed. A loan may return to accrual status when all
delinquent interest and principal payments become current in
accordance with the terms of the loan agreement.
Allowance
for loan losses
Loans
and the related accrued interest and advances are analyzed on
a periodic basis for ultimate recoverability. Delinquencies
are identified and followed as part of the loan system.
Delinquencies are determined based upon contractual terms.
For impaired loans, a provision is made for loan losses to
adjust the allowance for loan losses to an amount considered
by management to be adequate, with due consideration to
collateral values, such that the net carrying amount (unpaid
principal balance, plus advances, plus accrued interest less
the specific allowance) is reduced to the present value of
future cash flows discounted at the loan’s effective
interest rate, or, if a loan is collateral dependent, to the
estimated fair value of the related collateral net of any
senior loans, which would include costs to sell in arriving
at net realizable value if planned disposition of the asset
securing a loan is by way of sale.
The
fair value estimates are derived from information available
in the real estate markets including similar property, and
may require the experience and judgment of third parties such
as commercial real estate appraisers and brokers.
The
partnership charges off uncollectible loans and related
receivables directly to the allowance account once it is
determined the full amount is not collectible.
Loans
determined not to be individually impaired are grouped by the
property type of the underlying collateral, and for each loan
and for the total by property type, the amount of protective
equity or amount of exposure to loss (i.e., the
dollar amount of the deficiency of the fair value of the
underlying collateral to the loan balance) is computed. Based
on its knowledge of the borrowers and their historical (and
expected) performance, and the exposure to loss as indicated
in the analysis, management estimates an appropriate reserve
by property type for probable credit losses in the portfolio.
Because the partnership is an asset-based lender and because
specific regions, neighborhoods and even properties within
the same neighborhoods, vary significantly as to real estate
values and transaction activity, general market trends, which
may be indicative of a change in the risk of a loss, are
secondary to the condition of the property, the property type
and the neighborhood/region in which the property is located,
and do not enter substantially into the determination of the
amount of the non-specific (i.e. general) reserves.
Real
estate owned (REO), held for sale
REO,
held for sale includes real estate acquired in full or
partial settlement of loan obligations generally through
foreclosure that is being marketed for sale. REO, held for
sale is recorded at acquisition at the lower of the recorded
investment in the loan, plus any senior indebtedness, or at
the property’s net realizable value, which is the fair
value less estimated costs to sell, as applicable. Any excess
of the recorded investment in the loan over the net
realizable value is charged against the allowance for loan
losses. The fair value estimates are derived from information
available in the real estate markets including similar
property, and often require the experience and judgment of
third parties such as commercial real estate appraisers and
brokers. The estimates figure materially in calculating the
value of the property at acquisition, the level of charge to
the allowance for loan losses and any subsequent valuation
reserves. After acquisition, costs incurred relating to the
development and improvement of property are capitalized to
the extent they do not cause the recorded value to exceed the
net realizable value, whereas costs relating to holding and
disposition of the property are expensed as incurred. After
acquisition, REO, held for sale is analyzed periodically for
changes in fair values and any subsequent write down is
charged to operating expenses. Any recovery in the fair value
subsequent to such a write down is recorded – not to
exceed the net realizable value at acquisition – as an
offset to operating expenses. Gains or losses on sale of the
property are recorded in other income or expense. Recognition
of gains on the sale of real estate is dependent upon the
transaction meeting certain criteria related to the nature of
the property and the terms of the sale including potential
seller financing.
Real
estate owned (REO), held as investment, net
REO,
held as investment, net includes real estate acquired in full
or partial settlement of loan obligations generally through
foreclosure that is not being marketed for sale and is either
being operated, such as rental properties; is being managed
through the development process, including obtaining
appropriate and necessary entitlements, permits and
construction; or are idle properties awaiting more favorable
market conditions. REO, held as investment, net is recorded
at acquisition at the lower of the recorded investment in the
loan, plus any senior indebtedness, or at the
property’s estimated fair value, less estimated costs
to sell, as applicable. After acquisition, costs incurred
relating to the development and improvement of the property
are capitalized, whereas costs relating to operating or
holding the property are expensed. Subsequent to acquisition,
management periodically compares the carrying value of real
estate to expected undiscounted future cash flows for the
purpose of assessing the recoverability of the recorded
amounts. If the carrying value exceeds future undiscounted
cash flows, the assets are reduced to estimated fair
value.
Recently
issued accounting pronouncements
The
FASB has issued ASU 2011-02 (April 2011), “A
Creditor’s Determination of Whether Restructuring is a
Troubled Debt Restructuring,” providing guidance to
lenders for evaluating where a modification or restructuring
of a loan as a Troubled Debt Restructuring (TDR). ASU 2011-02
provides expanded guidance on whether: 1) the
lender has granted a “concession” and 2) whether
the borrower is experiencing “financial
difficulties.” The ASU is effective for the first
interim or annual period beginning after June 15, 2011 (i.e.
the third quarter of 2011) and is required to be applied
retroactively for all modifications and restructuring
activities in 2011. The partnership adopted ASU 2011-02
effective January 1, 2011.
The
FASB issued ASU 2011-04 “Fair Value Measurement (Topic
820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and
IFRs”. The ASU is effective for interim and
annual periods beginning after December 15, 2011 with
prospective application. The company is evaluating
the effect of the ASU.
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Note 8 - Borrowings
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Jun. 30, 2011
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Debt Disclosure [Text Block] |
NOTE 8
– BORROWINGS
Bank
loan, secured
The
partnership’s bank loan/line of credit matured on June
30, 2010, which maturity date was subsequently extended to
October 18, 2010. The partnership and the banks entered into
an amended and restated loan agreement. The significant terms
and conditions in the amended loan agreement
include: 1) an extended maturity date of June 30,
2012; with continuing scheduled pay downs of the loan amount
to maturity; 2) an interest rate of Prime plus 1.5% subject
to a floor of 5.0%; 3) an annual facility fee (payable
quarterly) of 0.5%; 4) required remittance to the banks of
70% of net proceeds from the sale or refinance of REO and/or
net proceeds from loan payoffs in excess of $5 million; 5)
required remittance of cash balances in excess of $12
million; 6) restrictions on use of cash including no new
loans with the exception of refinance of existing loans, no
expenditures in the ordinary course of business to preserve,
maintain, repair, or operate property in excess of $1 million
without prior written consent (subject to exclusions for
funds set aside for REO projects and servicing of senior
liens designated in the loan agreement), limitations on
distributions to electing limited partners of an amount not
to exceed a distribution rate of 2.1%; 7) a collateral
covenant, and 8) a financial covenant.
The
bank loan balance was $35,000,000 and $50,000,000, at June
30, 2011 and December 31, 2010, respectively.
The
required minimum principal payments are $16,500,000 for the
remainder of 2011 and $18,500,000 for 2012.
Mortgages
payable
Mortgages
payable are summarized in the following table (mortgage
balance $ in thousands).
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Note 9 - Syndication Costs
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6 Months Ended | ||||||||||||||||||||
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Jun. 30, 2011
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Stockholders' Equity Note Disclosure [Text Block] |
NOTE 9
– SYNDICATION COSTS
The
partnership bears its own syndication costs, other than
certain sales commissions, including legal and accounting
expenses, printing costs, selling expenses and filing
fees. Syndication costs are charged against
partners’ capital and are being allocated to individual
partners consistent with the partnership agreement.
Syndication
costs of $5,010,000 had been incurred by the partnership with
the following distribution through June 30, 2011, ($ in
thousands).
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Note 7 - Real Estate Owned (REO), Held as Investment, Net
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Jun. 30, 2011
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Real Estate Disclosure [Text Block] |
NOTE 7
– REAL ESTATE OWNED (REO), HELD AS INVESTMENT,
NET
For
REO, held as investment, the activity and changes in the
impairment reserves are summarized in the following table for
the six months ended June 30 ($ in thousands).
REO,
held as investment, summarized by property type is presented
in the following table ($ in thousands).
At
June 30, 2011, the partnership was holding three properties
classified as Land until such time as the distressed market
improves. Three Single family residences with a carrying
value of $7,907,000 were under construction and/or
rehabilitation. At December 31, 2010, three
properties with a carrying value of $7,537,000 were under
construction and/or rehabilitation.
The
results of operations for rental properties in REO, held as
investment are presented in the following table for the three
and six months ended June 30 ($ in thousands).
In
the second quarter of 2011, the partnership acquired
properties at two locations through foreclosure.
In
the first quarter of 2011, the partnership acquired three
properties through foreclosure.
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Note 3 - General Partners and Related Parties
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Jun. 30, 2011
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Related Party Transactions Disclosure [Text Block] |
NOTE 3
– GENERAL PARTNERS AND RELATED PARTIES
The
general partners are entitled to one percent of the profits
and losses, which amounted to $(36,000) and $(133,000) for
the three months ended and $(46,000) and $(131,000) for the
six months ended June 30, 2011 and 2010, respectively.
Formation
loan
Formation
loan transactions are presented in the following table at
June 30, 2011 ($ in thousands).
During
the three months ended June 30, 2011 and 2010, $79,000, and
$142,000, respectively, was recorded related to amortization
of the discount on imputed interest, and for the six months
ended June 30, 2011 and 2010, $204,000, and $289,000,
respectively, was recorded.
The
following commissions and fees are paid by borrowers to the
general partners.
Brokerage
commissions, loan originations
There
were no loan brokerage commissions paid by the borrowers in
the three and six months ended June 30, 2011 and 2010.
Other
fees
Other
fees totaled $755 and $3,080 for the three month periods
ended June 30, 2011 and 2010, respectively, and $1,205 and
$4,310 for the six month periods ended June 30, 2011 and
2010, respectively.
The
following fees are paid by the partnership to RMC.
Mortgage
servicing fees
RMC
may earn mortgage servicing fees of up to 1.5% annually of
the unpaid principal of the loan portfolio or such lesser
amount as is reasonable and customary in the geographic area
where the property securing the mortgage is located from RMI
VIII. Historically, RMC charged one percent
annually, and at times waived additional amounts to improve
the partnership’s earnings. Such fee waivers
were not made for the purpose of providing the partnership
with sufficient funds to satisfy withdrawal requests, nor
were such waivers made in order to meet any required level of
distributions, as the partnership has no such required level
of distributions. RMC does not use any specific criteria in
determining the amount of fees, if any, to be waived. The
decision to waive fees and the amount, if any, to be waived,
is made by RMC in its sole discretion.
Mortgage
servicing fees are summarized in the following table for the
three and six months ended June 30 ($ in thousands).
Asset
management fees
The
general partners receive monthly fees for managing the
partnership’s loan portfolio and operations of up to
1/32 of 1% of the “net asset
value” (3/8 of 1% annually). At times, the
general partners have charged less than the maximum allowable
rate to enhance the partnership’s earnings. Such fee
waivers were not made with the purpose of providing the
partnership with sufficient funds to satisfy withdrawal
requests, nor to meet any required level of distributions, as
the partnership has no such required level of distributions.
RMC does not use any specific criteria in determining the
exact amount of fees, if any, to be waived. The decision to
waive fees and the amount, if any, to be waived, is made by
RMC in its sole discretion.
Asset
management fees for the three months ended June 30, 2011 and
2010, were $240,000 and $306,000, respectively, and for the
six months ended June 30, 2011 and 2010, were $487,000 and
$610,000, respectively. No asset management fees were waived
during any period reported.
Costs
from RMC
RMC,
an affiliate of the general partners, is reimbursed by the
partnership for operating expenses incurred on behalf of the
partnership, including without limitation, accounting and
audit fees, legal fees and expenses, postage and preparation
of reports to limited partners, and out-of-pocket general and
administration expenses. The decision to request
reimbursement of any qualifying charges is made by RMC in its
sole discretion. Operating expenses were $456,000
and $112,000, for the three months ended June 30, 2011 and
2010, respectively, and $566,000 and $224,000, for the six
months ended June 30, 2011 and 2010,
respectively. To the extent some operating
expenses incurred on behalf of RMI VIII were not charged by
RMC, the financial position and results of operations for the
partnership would be different.
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Note 4 - Loans
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Jun. 30, 2011
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Financing Receivables [Text Block] |
NOTE 4
– LOANS
The
partnership generally funds loans with a fixed interest rate
and a five-year term. As of June 30, 2011, approximately 70%
of the partnership’s loans (representing 86% of the
aggregate principal balance of the partnership’s loan
portfolio) have a five year term or less from loan inception.
The remaining loans have terms longer than five years. As of
June 30, 2011, approximately 34% of the loans outstanding
(representing 63% of the aggregate principal balance of the
partnership’s loan portfolio) provide for monthly
payments of interest only, with the principal due in full at
maturity. The remaining loans require monthly payments of
principal and interest, typically calculated on a 30 year
amortization, with the remaining principal balance due at
maturity.
Secured
loans unpaid principal balance (principal)
Secured
loan transactions are summarized in the following table ($ in
thousands).
Loan
characteristics
Secured
loans had the characteristics presented in the following
table ($ in thousands).
As
of June 30, 2011, the partnership’s largest loan, in
the unpaid principal balance of $37,923,000 (representing
21.34% of outstanding secured loans and 12.80% of partnership
assets) has an interest rate of 9.25% and is secured by a
condominium/apartment complex located in Sacramento County,
California. This loan matured July 1, 2010. The partnership
has been pursuing the borrower on several fronts to obtain
satisfaction of the debt, including having the courts place a
receiver in charge of the property. In February 2011, the
partnership filed a notice of default on the
loan. In May 2011, the borrower filed
bankruptcy. In July 2011, the partnership was
granted relief of stay by the bankruptcy court enabling the
foreclosure to proceed.
Larger
loans sometimes increase above 10% of the secured loan
portfolio or partnership assets as these amounts decrease due
to limited partner withdrawals, loan payoffs and
restructuring of existing loans.
Distribution
of loans within California
Secured
loans are distributed within California as summarized in the
following table ($ in thousands).
Loans
disbursements/construction loans
The
partnership makes construction and rehabilitation loans which
are not fully disbursed at loan inception. The partnership
has approved the borrowers up to a maximum loan balance;
however, disbursements are made periodically during
completion phases of the construction or rehabilitation or at
such other times as required under the loan documents and
would be funded from available cash balances and future cash
receipts. The partnership does not maintain a separate cash
reserve to hold the undisbursed obligations, which are
intended to be funded. As of June 30, 2011, there was one
such loan; however, the borrower is in default negating any
funding obligation.
The
status of the partnership’s loans, which are
periodically disbursed as of June 30, 2011, is set forth
below ($ in thousands).
Construction
loans are determined by the management to be those loans made
to borrowers for the construction of entirely new structures
or dwellings, whether residential, commercial or multifamily
properties. For each such construction loan, the partnership
has approved a maximum balance for such loan; however,
disbursements are made in phases throughout the construction
process. As of June 30, 2011, the partnership had no
commitments for construction loans. Upon project completion
construction loans are reclassified as permanent loans.
Funding of construction loans is limited to 10% of the loan
portfolio.
The
partnership also makes loans, the proceeds of which are used
to remodel, add to and/or rehabilitate an existing structure
or dwelling, whether residential, commercial or multifamily
properties and which, in the determination of management, are
not construction loans. Many of these loans are for cosmetic
refurbishment of both interiors and exteriors of existing
condominiums. The refurbished units will then be sold to new
owners, repaying the partnership’s loan. These loans
are referred to by management as “Rehabilitation
Loans”. As of June 30, 2011 the partnership had
$17,000,000 in Rehabilitation Loans, however, the borrower is
in default negating any funding obligation. While the
partnership does not classify Rehabilitation Loans as
Construction Loans, Rehabilitation Loans carry some of the
same risks as Construction Loans. There is no limit on the
amount of Rehabilitation Loans the partnership may
make.
Lien
positions
Secured
loans had the lien positions presented in the following table
($ in thousands).
Property
type
Secured
loans summarized by property type of the collateral are
presented in the following table ($ in thousands).
Single
family properties include owner-occupied and non-owner
occupied single family homes (1-4 unit residential
buildings), condominium units, townhouses, and condominium
complexes. From time to time, loan originations in one sector
or property type become more active due to prevailing market
conditions. The current concentration of the
partnership’s loan portfolio in condominium properties
may pose additional or increased risks. Recovery of the
condominium sector of the real estate market is generally
expected to lag behind that of single-family residences. In
addition, availability of financing for condominium
properties has been, and will likely continue to be,
constricted and more difficult to obtain than other property
types. As of June 30, 2011 and December 31, 2010,
$122,670,000 and $135,948,000, respectively, of the
partnership’s loans were secured by condominium
properties.
Condominiums
may create unique risks for the partnership that are not
present for loans made on other types of properties. In the
case of condominiums, a board of managers generally has
discretion to make decisions affecting the condominium
building, including regarding assessments to be paid by the
unit owners, insurance to be maintained on the building, and
the maintenance of that building, which may have an impact on
the partnership loans that are secured by such condominium
property.
The
partnership may have less flexibility in foreclosing on the
collateral for a loan secured by condominiums upon a default
by the borrower. Among other things, the partnership must
consider the governing documents of the homeowners
association and the state and local laws applicable to
condominium units, which may require an owner to obtain a
public report prior to the sale of the units.
Scheduled
maturities
Secured
loans are scheduled to mature as presented in the following
table ($ in thousands).
It
is the partnership’s experience that loans may be
repaid or refinanced before, at or after the contractual
maturity date. For matured loans, the partnership may
continue to accept payments while pursuing collection of
amounts owed from borrowers. Therefore, the above tabulation
for scheduled maturities is not a forecast of future cash
receipts.
Matured
loans
The
partnership may periodically negotiate various workout
agreements with borrowers whose loans are past maturity or
who are delinquent in making payments. The partnership is not
obligated to fund additional money as of June 30,
2011.
Secured
loans past maturity are summarized in the following table ($
in thousands).
Delinquency
Secured
loans summarized by payment delinquency are presented in the
following table ($ in thousands).
The
partnership reports delinquency based upon the most recent
contractual agreement with the borrower.
Interest
income accrued on loans contractually past due 90 days or
more as to principal or interest payments during the six
months ended June 30, 2011 and 2010 was $291,000 and
$1,886,000, respectively. Accrued interest on loans
contractually past due 90 days or more as to principal or
interest payments at June 30, 2011 and December 31, 2010 was
$11,333,000 and $12,078,000, respectively.
At
June 30, 2011, the partnership had eight workout agreements
in effect with an aggregate principal of $4,261,000. Of the
eight borrowers, seven, with an aggregate principal of
$4,145,000, had made all required payments under the workout
agreements and were included in the above table as
current. Four of the eight loans, with an
aggregate principal of $1,137,000 were designated impaired
and were in non-accrual status.
At
December 31, 2010, the partnership had 14 workout agreements
in effect with an aggregate principal of $20,444,000. Of the
14 borrowers, 11, with an aggregate principal of $19,097,000
had made all required payments under the workout agreements
and the loans were included in the above table as current.
The three loans which were 90 or more days past due, were not
designated impaired and were accruing interest. Ten of the 14
loans, with an aggregate principal of $19,223,000 were
designated impaired and 6 of the 10 impaired loans with an
aggregate principal of $10,131,000 were in non-accrual
status.
Loans
in non-accrual status
Secured
loans in nonaccrual status are summarized in the following
table ($ in thousands).
At
June 30, 2011 and December 31, 2010, there were seven and
four loans, respectively, with loan balances of $5,943,000
and $1,327,000, respectively, that were contractually 90 or
more days past due as to principal or interest and not in
non-accrual status.
Impaired
loans
Secured
loans designated as impaired loans are summarized in the
following table at and for the six months ended June 30, 2011
and for the year ended December 31, 2010 ($ in
thousands).
Impaired
loans had the average balances and interest income recognized
and received in cash as presented in the following table ($
in thousands).
Modifications
and troubled debt restructurings
During
the six months ended June 30, 2011, the partnership modified
three loans by extending the maturity date, lowering the
interest rate, deferring some payments or reducing the
monthly payment. Two of the modified loans qualified as a
troubled debt restructuring under GAAP resulting in a loss of
approximately $63,000.
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Note 12 - Subsequent Events
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6 Months Ended |
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Jun. 30, 2011
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Subsequent Events [Text Block] |
NOTE 12
– SUBSEQUENT EVENTS
Subsequent
to June 30, 2011:
The
partnership acquired through foreclosure, a condominium
complex located in Lodi, California, which had a recorded
investment of approximately $3,200,000 (classified as REO
held as investment) and an investment property located in San
Francisco, California, which had a recorded investment of
approximately $13,510,000 (classified as REO held for
sale).
The
partnership sold real property (classified REO held for sale)
located in Calabasas, California, with a recorded investment
of $2,700,000, for a gain of approximately $65,000.
Sales
contracts for two REO with recorded investments totaling
$12,150,000 have been signed by the general
partners. The purchasers are completing their due
diligence.
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Note 5 - Allowance for Loan Losses
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Jun. 30, 2011
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Allowance for Credit Losses [Text Block] |
NOTE 5
– ALLOWANCE FOR LOAN LOSSES
Allowance
for loan losses activity is presented in the following table
($ in thousands).
Allowance
for loan losses applicable to secured loans (by property
type) and the percentage of principal (by property type) are
presented in the following table ($ in thousands).
|
Consolidated Statements of Changes in Partners Capital (USD $)
In Thousands |
Total
|
Capital Account Limited Partners [Member]
|
Unallocated Syndication Costs Limited Partners [Member]
|
Formation Loan Gross [Member]
|
Total Limited Partners Capital [Member]
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Capital Deficit Account General Partners [Member]
|
Unallocated Syndication Costs General Partners [Member]
|
Total General Partners Capital Deficit [Member]
|
Total Partners Capital [Member]
|
---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2010 at Dec. 31, 2010 | $ 227,459 | $ 238,581 | $ (1,016) | $ (9,372) | $ 228,193 | $ (724) | $ (10) | $ (734) | $ 227,459 |
Formation loan payments received | (582) | Â | Â | 582 | 582 | Â | Â | Â | 582 |
Net income (loss) | (4,610) | (4,564) | Â | Â | (4,564) | (46) | Â | (46) | (4,610) |
Allocation of syndication costs | Â | (174) | 174 | Â | Â | (2) | 2 | Â | Â |
Withdrawals | 1,366 | (1,366) | Â | Â | (1,366) | Â | Â | Â | (1,366) |
Balance, June 30, 2011 at Jun. 30, 2011 | $ 222,065 | $ 232,477 | $ (842) | $ (8,790) | $ 222,845 | $ (772) | $ (8) | $ (780) | $ 222,065 |
Note 1 - General
|
6 Months Ended |
---|---|
Jun. 30, 2011
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Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
NOTE 1
– GENERAL
In
the opinion of the management of the partnership, the
accompanying unaudited consolidated financial statements
contain all adjustments, consisting of normal, recurring
adjustments, necessary to present fairly the consolidated
financial information included therein. These consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements included in the
partnership’s Form 10-K for the fiscal year ended
December 31, 2010 filed with the Securities and Exchange
Commission. The results of operations for the six month
period ended June 30, 2011 are not necessarily indicative of
the operating results to be expected for the full
year.
Redwood
Mortgage Investors VIII, a California Limited Partnership,
(“RMI VIII” or the “partnership”) was
organized in 1993. The general partners are Michael R.
Burwell (“Burwell”), an individual, Gymno
Corporation (“Gymno”) and Redwood Mortgage Corp.
(“RMC”), both California corporations that are
owned and controlled directly or indirectly, by Michael R.
Burwell through his individual stock ownership and as trustee
of certain family trusts. 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 being arranged and serviced
by RMC. The general partners are solely responsible for
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 are required
to contribute to capital 1/10 of 1% of the aggregate capital
contributions of the limited partners. As of June 30, 2011
the general partners had contributed capital in accordance
with Section 4.1 of the partnership agreement.
The
rights, duties and powers of the general and limited partners
of the partnership are governed by the limited partnership
agreement and Sections 15900 et seq. of the California
Corporations Code.
The
partnership completed its sixth offering stage in 2008. No
additional offerings are contemplated at this
time. Sales commissions owed to securities
broker/dealers in conjunction with the offerings, are not
paid directly out of the offering proceeds by the
partnership. These commissions are paid by RMC as
consideration for the exclusive right to originate loans for
RMI VIII. To fund the payment of these
commissions, during the offering periods, the partnership
lent amounts to RMC to pay all sales commissions and amounts
payable in connection with unsolicited orders to
invest.
On
loans originated for RMI VIII, RMC may collect loan brokerage
commissions (points) limited to an amount not to exceed four
percent per year of the total partnership assets. The loan
brokerage commissions are paid by the borrowers and thus, are
not an expense of the partnership.
Profits
and losses are allocated among the limited partners according
to their respective capital accounts monthly after one
percent of profits and losses is allocated to the general
partners. The monthly results are subject to subsequent
adjustment as a result of quarterly and year-end accounting
and reporting. Income taxes – federal and state –
are the obligation of the limited partners, if and when taxes
apply, other than for the annual California franchise taxes
levied on and paid by the partnership.
Burwell,
Gymno, and RMC, as the general partners, are entitled to one
percent of the profits and losses of RMI VIII. Beginning with
calendar year 2010, and continuing until January 1, 2020,
Gymno and RMC each assigned its right to one-third of one
percent of profits and losses to Burwell in exchange for
Burwell assuming one hundred percent of the general
partners’ equity deficit.
Beginning
with the worldwide financial crisis in 2008, continuing with
the Great Recession, and on-going into 2011, the combination
of the general economic conditions, the constrained credit
and financial markets, the distressed real estate markets,
and the terms and the conditions of the amended and restated
loan agreement dated October 2010 (and the preceding
forbearance agreement) resulted in significant changes to the
lending and business operations of the partnership, as well
as to its balance sheet, results of operations and cash
flows.
Formation
loan
RMC
financed the payments to broker-dealers by borrowing funds
(“the formation loan”) from RMI
VIII. The formation loan is non-interest bearing
and is being repaid equally over an approximate ten-year
period commencing the year after the close of a partnership
offering. Interest has been imputed at the market
rate of interest in effect in the years the offerings
closed.
If
the general partners are removed and RMC is no longer
receiving payments for services rendered, the formation loan
is forgiven.
The
formation loan is deducted from limited partners’
capital in the consolidated balance sheets. As payments are
received from RMC, the formation loan’s balance
outstanding and the deduction from capital is reduced.
Commission
and fees paid by borrowers to the general partners
Brokerage
commissions, loan originations – the partnership
agreement provides for RMC to collect a loan brokerage
commission for fees in connection with the review, selection,
evaluation, negotiation and extension of loans, that is
expected to range from approximately 2% to 5% of the
principal amount of each loan made during the year. Total
loan brokerage commissions are limited to an amount not to
exceed four percent of the total company assets per
year. The loan brokerage commissions are paid by
the borrowers and thus, are not an expense of the
partnership.
Other
fees – the partnership agreement provides for RMC or
Gymno to receive fees for processing, notary, document
preparation, credit investigation, reconveyance, and other
mortgage related fees. The amounts received are customary for
comparable services in the geographical area where the
property securing the loan is located, payable solely by the
borrower and not by the company.
Syndication
costs
The
partnership bears its own syndication costs, other than
certain sales commissions, including legal and accounting
expenses, printing costs, selling expenses and filing fees.
Syndication costs are charged against partners’ capital
and are allocated to individual partners consistent with the
partnership agreement.
Withdrawals
In
March 2009, in response to economic conditions, 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.
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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Note 10 - Fair Value
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Jun. 30, 2011
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Fair Value Disclosures [Text Block] |
NOTE
10 – FAIR VALUE
GAAP
defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between
market participants on the measurement date. An orderly
transaction is a transaction that assumes exposure to the
market for a period prior to the measurement date to allow
for marketing activities that are usual and customary for
transactions involving such assets and liabilities; it is not
a forced transaction. Market participants are buyers and
sellers in the principal market that are (i) independent,
(ii) knowledgeable, (iii) able to transact and (iv) willing
to transact.
The
partnership determines the fair values of its assets and
liabilities based on the fair value hierarchy established in
GAAP. The standard describes three levels of inputs that may
be used to measure fair value (Level 1, Level 2 and Level 3).
Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the
partnership has the ability to access at the measurement
date. An active market is a market in which transactions
occur with sufficient frequency and volume to provide pricing
information on an ongoing basis. Level 2 inputs are inputs
other than quoted prices that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are
unobservable inputs for the asset or liability. Unobservable
inputs reflect the partnership’s own assumptions about
the assumptions market participants would use in pricing the
asset or liability (including assumptions about risk).
Unobservable inputs are developed based on the best
information available in the circumstances and may include
the partnership’s own data.
The
partnership does not record loans at fair value on a
recurring basis.
Non-recurring
basis
Assets
and liabilities measured at fair value on a non-recurring
basis as of June 30, 2011 are presented in the table
below:
Assets
and liabilities measured at fair value on a non-recurring
basis as of December 31, 2010 are presented in the table
below:
The
following methods and assumptions were used to estimate the
fair value.
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