Attached files

file filename
EX-31.2 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trustv165342_ex31-2.htm
EX-31.1 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trustv165342_ex31-1.htm
EX-32.1 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trustv165342_ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
[Mark One]
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to ____________

Commission File Number: 000-51292

Behringer Harvard Mid-Term Value Enhancement Fund I LP
(Exact Name of Registrant as Specified in Its Charter)

Texas
 
71-0897613
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer
Identification No.)

15601 Dallas Parkway, Suite 600, Addison, Texas 75001
(Address of principal executive offices) (Zip Code)

(866) 655-1610
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.45 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o   No x 
 


 

 

BEHRINGER HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
FORM 10-Q
Quarter Ended September 30, 2009

     
Page
 
PART I
   
 
FINANCIAL INFORMATION
   
     
 
Item 1.
Financial Statements (Unaudited).
   
       
 
Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
 
3  
       
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
 
4  
       
 
Consolidated Statements of Partners’ Capital for the year ended December 31, 2008 and the nine months ended September 30, 2009
 
5  
       
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
 
6  
       
 
Notes to Consolidated Financial Statements
 
7  
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
14  
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
20  
       
Item 4T.
Controls and Procedures.
 
20  
 
PART II
OTHER INFORMATION
       
Item 1.
Legal Proceedings.
 
21  
       
Item 1A.
Risk Factors.
 
21  
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
21  
       
Item 3.
Defaults Upon Senior Securities.
 
21  
       
Item 4.
Submission of Matters to a Vote of Security Holders.
 
21  
       
Item 5.
Other Information.
 
21  
       
Item 6.
Exhibits.
 
21  
       
Signature
   
22  

 
2

 
 
PART I
FINANCIAL INFORMATION

Item 1.            Financial Statements.

Behringer Harvard Mid-Term Value Enhancement Fund I LP
Consolidated Balance Sheets
(Unaudited)
(in thousands, except unit amounts)

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Assets
           
Real estate
           
Land
  $ 5,682     $ 5,682  
Buildings and improvements, net
    14,756       15,146  
Total real estate
    20,438       20,828  
                 
Cash and cash equivalents
    4,663       6,247  
Accounts receivable, net
    477       370  
Prepaid expenses and other assets
    59       45  
Lease intangibles, net
    2,382       2,615  
Total assets
  $ 28,019     $ 30,105  
                 
Liabilities and partners' capital
               
Liabilities
               
Accounts payable
  $ -     $ 23  
Payables to related parties
    87       94  
Acquired below-market leases, net
    70       125  
Distributions payable
    211       218  
Accrued liabilities
    846       1,042  
Total liabilities
    1,214       1,502  
                 
Commitments and contingencies
               
                 
Partners' capital
               
Limited partners, 44,000,000 units authorized; 4,275,187 units issued and outstanding at September 30, 2009 and December 31, 2008
    26,804       28,602  
General partners
    1       1  
Total partners' capital
    26,805       28,603  
Total liabilities and partners' capital
  $ 28,019     $ 30,105  

See Notes to Consolidated Financial Statements.

 
3

 

Behringer Harvard Mid-Term Value Enhancement Fund I LP
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per unit amounts)

   
Three Months
   
Three Months
   
Nine months
   
Nine months
 
   
ended
   
Ended
   
Ended
   
Ended
 
   
September 30, 2009
   
September 30, 2008
   
September 30, 2009
   
September 30, 2008
 
                         
Rental revenue
  $ 958     $ 1,059     $ 2,963     $ 2,970  
                                 
Expenses
                               
Property operating expenses
    238       234       642       650  
Real estate taxes
    121       177       489       563  
Property and asset management fees
    64       73       210       212  
General and administrative
    154       114       460       402  
Depreciation and amortization
    358       357       1,075       1,102  
Total expenses
    935       955       2,876       2,929  
                                 
Interest income
    11       36       39       132  
Income before income taxes
    34       140       126       173  
                                 
Provision for income taxes
    3       4       6       11  
Net income
  $ 31     $ 136     $ 120     $ 162  
                                 
Net income allocated to limited partners
  $ 31     $ 136     $ 120     $ 162  
                                 
Weighted average number of limited
                               
partnership units outstanding
    4,275       4,275       4,275       4,294  
                                 
Basic and diluted net income per limited partnership unit
  $ 0.01     $ 0.03     $ 0.03     $ 0.04  

See Notes to Consolidated Financial Statements.

 
4

 

Consolidated Statements of Partners' Capital
(Unaudited)
(in thousands)

   
Limited Partners
   
General Partners
       
   
Contributions/
   
Accumulated
   
Number of
         
Accumulated
       
   
(Distributions)
   
Income (Losses)
   
Units
   
Contributions
   
Income
   
Total
 
                                     
Balance as of January 1, 2008
  $ 31,384     $ -       4,309     $ 1     $ -     $ 31,385  
                                                 
Redemption of units of limited
                                               
partnership interest
    (342 )             (34 )                     (342 )
                                                 
Distributions to limited partners
    (2,440 )     (141 )                             (2,581 )
                                                 
Net income
            141                       -       141  
                                                 
Balance as of December 31, 2008
    28,602       -       4,275       1       -       28,603  
                                                 
Distributions to limited partners
    (1,798 )     (120 )                             (1,918 )
                                                 
Net income
            120                       -       120  
                                                 
Balance as of September 30, 2009
  $ 26,804     $ -       4,275     $ 1     $ -     $ 26,805  

See Notes to Consolidated Financial Statements.

 
5

 

Behringer Harvard Mid-Term Value Enhancement Fund I LP
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
 
   
September 30, 2009
   
September 30, 2008
 
Cash flows from operating activities
           
Net income
  $ 120     $ 162  
Adjustments to reconcile net income to net cash
               
flows provided by operating activities:
               
Depreciation and amortization
    1,068       1,085  
Change in accounts receivable
    (107 )     (23 )
Change in prepaid expenses and other assets
    (14 )     (8 )
Change in lease intangibles
    (338 )     (1 )
Change in accounts payable
    (23 )     5  
Change in payables to related parties
    (7 )     57  
Change in accrued liabilities
    (196 )     (346 )
Cash provided by operating activities
    503       931  
                 
Cash flows used in investing activities
               
Purchases of property and equipment
    (162 )     -  
                 
Cash flows used in financing activities
               
Distributions
    (1,925 )     (1,944 )
Redemption of limited partnership units
    -       (342 )
Cash used in financing activities
    (1,925 )     (2,286 )
                 
Net change in cash and cash equivalents
    (1,584 )     (1,355 )
Cash and cash equivalents at beginning of period
    6,247       7,614  
Cash and cash equivalents at end of period
  $ 4,663     $ 6,259  
                 
Supplemental disclosure:
               
Taxes paid
  $ 10     $ 14  

See Notes to Consolidated Financial Statements.

 
6

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
1.
Business and Organization
 
       Business
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP (which may be referred to as the “Partnership,” “we,” “us,” or “our”) is a limited partnership formed in Texas on July 30, 2002.  Our general partners are Behringer Harvard Advisors I LP (“Behringer Advisors I”) and Robert M. Behringer (collectively the “General Partners”).  We were funded through capital contributions from our General Partners and initial limited partner on September 20, 2002 (date of inception) and offered our limited partnership units pursuant to the public offering which commenced on February 19, 2003 (the “Offering”) and terminated on February 19, 2005.  The Offering was a best efforts continuous offering and we admitted new investors until the termination of the Offering.
 
We used the proceeds from the Offering, after deducting offering expenses, primarily to acquire six office building properties.  As of September 30, 2009, five of the six properties we acquired remain in our portfolio.  These properties combined contain approximately 236,000 rentable square feet.  We are not currently seeking to purchase any additional properties for our portfolio; however, in limited circumstances, we may purchase properties as a result of selling one or more of the properties we currently hold and reinvest the sales proceeds in properties that fall within our investment objectives and investment criteria. We are not limited to investments in institutional quality office properties.  We may invest in other commercial properties, such as shopping centers, business and industrial parks, manufacturing facilities, warehouse and distribution facilities, in order to reduce overall portfolio risk or enhance overall portfolio returns if our General Partners determine that it would be advantageous to do so.  In addition, our General Partners may determine that it would be advantageous to acquire commercial properties other than institutional quality office properties in order to diversify our portfolio or in order to respond to changes in the real estate market.  We may also invest in commercial properties that are not preleased to such tenants or in other types of commercial properties such as hotels or motels.
 
We may purchase properties that have been constructed and have operating histories, are newly constructed or are under development or construction. Our Agreement of Limited Partnership, as amended (the “Partnership Agreement”), provides that we will continue in existence until the earlier of December 31, 2022 or termination of the Partnership pursuant to the dissolution and termination provisions of the Partnership Agreement.
 
       Organization
 
On February 19, 2003, we commenced the Offering at a price of $10 per unit.  The Offering was terminated in February 2005.  As of November 6, 2009, we had 4,275,187 limited partnership units outstanding.  Our limited partnership units are not currently listed on a national exchange, and we do not expect any public market for the units to develop.
 
Until December 31, 2009 the value of our units will be deemed to be $10, as adjusted for any special distributions, and no valuation or appraisal of our units will be performed.  Beginning with fiscal year end 2009, we will prepare annual valuations of our units based upon the estimated amount a limited partner would receive if all Partnership assets were sold for their estimated values as of the close of our fiscal year and all proceeds from such sales, without reduction for selling expenses, together with any funds held by the Partnership, were distributed to the limited partners upon liquidation.  Such estimated property values will be based upon annual valuations performed by the General Partners, and the General Partners are not required to obtain independent property appraisals.  While the General Partners are required under the Partnership Agreement to obtain the opinion of an independent third party stating that their estimates of value are reasonable, the unit valuations provided by the General Partners may not satisfy the technical requirements imposed on plan fiduciaries under the Employee Retirement Income Security Act (“ERISA”).  Similarly, the unit valuations provided by the General Partners may be subject to challenge by the Internal Revenue Service if used for any tax (income, estate and gift or otherwise) valuation purpose as an indicator of the fair value of the units.
 
In February 2009, the Financial Industry Regulatory Authority (“FINRA”) released Regulatory Notice 09-09.  This notice confirms that National Association of Securities Dealers (“NASD”) Rule 2340(c)(2) prohibits broker-dealers that are required to report an estimated value per unit for direct participation programs on customer account statements from using a per unit estimated value developed from data that is more than 18 months old.  Since our offering has been completed for more than 18 months, this would mean that broker-dealers that participated in our offering could not use the last price paid to acquire a limited partnership unit in our public offering as the estimated value per unit of our limited partnership units on customer account statements.  We currently anticipated that our valuation process we describe above will assist broker-dealers with this requirement.

 
7

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
2.              Interim Unaudited Financial Information
 
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted in this report on Form 10-Q pursuant to the rules and regulations of the SEC.
 
The results for the interim periods shown in this report are not necessarily indicative of future financial results.  Our accompanying consolidated balance sheet as of September 30, 2009, consolidated statements of partners’ capital, operations and cash flows for the nine month periods ended September 30, 2009 and 2008 have not been audited by our independent registered public accounting firm.  In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our financial position as of September 30, 2009 and December 31, 2008 and the results of our operations and cash flows for the periods ended September 30, 2009 and 2008.  Such adjustments are of a normal recurring nature.
 
We have evaluated subsequent events after the balance sheet date of September 30, 2009 through November 13, 2009, which is the date the financial statements were issued.
 
3.              Summary of Significant Accounting Policies
 
Use of Estimates in the Preparation of Financial Statements
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as purchase price allocation for real estate acquisitions, impairment of long-lived assets, depreciation and amortization and allowance for doubtful accounts.  Actual results could differ from those estimates.
 
Principles of Consolidation and Basis of Presentation
 
The consolidated financial statements include our accounts and the accounts of all of our subsidiaries.  All inter-company transactions, balances and profits have been eliminated in consolidation.
 
Real Estate
 
Upon the acquisition of real estate properties, we allocate the purchase price of those properties to the assets acquired, consisting of land, inclusive of associated rights, and buildings, any assumed liabilities, identified intangible assets, asset retirement obligations based on their relative fair values.  Identified intangible assets consist of the fair value of above-market and below-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships.  Acquisition-related costs are expensed as incurred.  Initial valuations are subject to change until our information is finalized, which is no later than 12 months from the acquisition date.
 
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method.
 
We determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any fixed rate renewal options for below-market leases.  We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.

 
8

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
The total value of identified real estate intangible assets acquired is further allocated to in-place lease values, in-place tenant improvements, in-place leasing commissions and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, management includes such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions.  The estimates of fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal costs and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.
 
We amortize the value of in-place leases, in-place tenant improvements and in-place leasing commissions to expense over the initial term of the respective leases.  The value of tenant relationship intangibles is amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the related real estate intangibles would be charged to expense.
 
Anticipated amortization associated with acquired lease intangibles for the period from October 1 through December 31, 2009 and for each of the following four years ended December 31 is as follows (in thousands):
 
October 1, 2009 - December 31, 2009
  $ 160  
2010
    599  
2011
    459  
2012
    249  
2013
    137  
 
Accumulated depreciation and amortization related to our consolidated investments in real estate assets and related lease intangibles were as follows (in thousands):
 
               
Acquired
 
   
Buildings and
   
Lease
   
Below-Market
 
As of September 30, 2009
 
Improvements
   
Intangibles
   
Leases
 
                   
Cost
  $ 18,062     $ 5,740     $ (388 )
Less: depreciation and amortization
    (3,306 )     (3,358 )     318  
Net
  $ 14,756     $ 2,382     $ (70 )
                         
                   
Acquired
 
   
Buildings and
   
Lease
   
Below-Market
 
As of December 31, 2008
 
Improvements
   
Intangibles
   
Leases
 
                         
Cost
  $ 17,900     $ 5,408     $ (388 )
Less: depreciation and amortization
    (2,754 )     (2,793 )     263  
Net
  $ 15,146     $ 2,615     $ (125 )
 
Impairment of Long-Lived Assets
 
For our real estate, which is all wholly owned, management monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  When such events or changes in circumstances occur, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset, including its eventual disposition, to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying value of the asset to estimated fair value.  We determine the estimated fair value based on discounted cash flow streams using various factors including estimated future selling prices, costs spent to date, remaining budgeted costs and selling costs.
 
During the first nine months of 2009 and the year 2008, the real estate market experienced difficult conditions including high inventory levels, tightening of the credit market and weak consumer confidence.  We recognized no impairment charges for long-lived assets for the three and nine months ended September 30, 2009 and 2008.  In the event that market conditions continue to decline in the future or the current difficult market conditions extend beyond our expectations, impairments may be necessary in the future.

 
9

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
Cash and Cash Equivalents
 
We consider investments in highly-liquid money market funds with original maturities of three months or less to be cash equivalents.
 
Accounts Receivable
 
Accounts receivable primarily consists of receivables from tenants related to our properties. Our allowance for doubtful accounts associated with accounts receivable was not material at September 30, 2009.  We had no allowance for doubtful accounts at December 31, 2008.
 
Prepaid Expenses and Other Assets
 
Prepaid expenses and other assets include prepaid directors’ and officers’ insurance as well as prepaid insurance for our real estate properties.
 
Revenue Recognition
 
We recognize rental income generated from leases on real estate assets on the straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any.  The total net increase to rental revenues due to straight-line rent adjustments for the nine months ended September 30, 2009 was approximately $126,000.  The total net decrease to rental revenue due to straight-line rent adjustments for the nine months ended September 30, 2008 was approximately $4,000.  Our rental revenue also includes amortization of above and below market leases.  Any payments made to tenants that are considered lease incentives or inducements are being amortized to revenue over the life of the respective leases. The revenues are recognized when earned.  Revenues relating to lease termination fees are recognized at the time that a tenant’s right to occupy the space is terminated and when we have satisfied all obligations under the agreement.
 
Cash Flow Distributions
 
Net cash distributions, as defined in the Partnership Agreement, are to be distributed to the partners as follows:
 
 
a)
To the limited partners, on a per unit basis, until each of such limited partners has received distributions of net cash from operations with respect to such fiscal year, or applicable portion thereof, equal to eight percent (8%) per annum of their net capital contribution;
 
b)
Then to the limited partners, on a per unit basis, until each limited partner has received or has been deemed to have received one hundred percent (100%) of their net capital contribution; and
 
c)
Thereafter, eighty-five percent (85%) to the limited partners, on a per unit basis, and fifteen percent (15%) to the General Partners.
 
Other limitations of allocated or received distributions are defined within the Partnership Agreement.
 
Income (Loss) Allocations
 
Net income for each applicable accounting period is allocated to the partners as follows:
 
 
a)
To the partners to the extent of and in proportion to allocations of net loss as noted below; and
 
b)
Then, so as to cause the capital accounts of all partners to permit liquidating distributions to be made in the same manner and priority as set forth in the Partnership Agreement with respect to net cash distributions.
 
Net loss for each applicable accounting period is allocated to the partners as follows:
 
 
a)
To the partners having positive balances in their capital accounts (in proportion to the aggregate positive balances in all capital accounts) in an amount not to exceed such positive balance as of the last day of the fiscal year; and
 
b)
Then, eighty-five percent (85%) to the limited partners and fifteen percent (15%) to the General Partners.
 
We distribute to our General Partners a share of net cash from operations in the form of a 15% distribution after the limited partners have received distributions equal to their net capital contributions plus an 8% annual cumulative (noncompounded) return on their net capital contributions; provided, however, that in no event will the General Partners receive more than 10% of cash available for distribution.

 
10

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
Income Taxes
 
As a limited partnership, we generally are not subject to income tax.  However, legal entities that conduct business in Texas are generally subject to the Texas margin tax, including previously non-taxable entities such as limited partnerships and limited liability partnerships.  The tax is assessed on Texas sourced taxable margin, which is defined as the lesser of (1) 70% of total revenue or (2) total revenue less (a) the cost of goods sold or (b) compensation and benefits.  Although the law states that the margin tax is not an income tax, it has the characteristics of an income tax since it is determined by applying a tax rate to a base that considers both revenues and expenses.  For the nine months ended September 30, 2009, we recognized a provision for current tax expense of approximately $5,500 and a deferred tax expense of approximately $600 and for the nine months ended September 30, 2008, we recognized a provision for current tax expense of approximately $10,000, and a deferred tax expense of approximately $500, related to the Texas margin tax.
 
Certain of our transactions may be subject to accounting methods for income tax purposes that differ from the accounting methods used in preparing these financial statements in accordance with GAAP.  Accordingly, our net income or loss and the resulting balances in the partners’ capital accounts reported for income tax purposes may differ from the balances reported for those same items in the accompanying financial statements.
 
Concentration of Credit Risk
 
We have cash and cash equivalents in excess of federally insured levels on deposit in financial institutions.  We have diversified our cash and cash equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents and have no restricted cash.  The Federal Deposit Insurance Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank.  Through December 31, 2009, the FDIC will insure up to $250,000 per depositor per insured bank; on January 1, 2010, the standard coverage limit will return to $100,000 for most deposit categories.  Unlimited deposit insurance coverage will be available to our non-interest bearing transaction accounts held at those institutions participating in FDIC’s Temporary Liquidity Guarantee Program through December 31, 2009. 
 
Reportable Segments
 
We have determined that we have one reportable segment, with activities related to the ownership, development and management of real estate.  Our income producing properties generated 100% of our consolidated revenues for the three and nine months ended September 30, 2009 and 2008.  Our chief operating decision maker evaluates operating performance on an individual property level.  Therefore, our properties are aggregated into one reportable segment.
 
Net Income Per Limited Partnership Unit
 
Net income per limited partnership unit is calculated by dividing the net income allocated to limited partners for each period by the weighted average number of limited partnership units outstanding during such period.  Net income per limited partnership unit on a basic and diluted basis is the same because the Partnership has no potential dilutive limited partnership units outstanding.
 
4.           New Accounting Pronouncements
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on fair value measurements.  This guidance establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.  It applies only to fair value measurements that are already required or permitted by other accounting standards.  In February 2008, the FASB staff issued authoritative guidance deferring the effective date of the fair value guidance for all non-financial assets and liabilities to fiscal years beginning after November 15, 2008, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  The implementation of this standard on January 1, 2009 did not have a material impact on our consolidated financial position and results of operations.
 
In December 2007, the FASB issued new guidance on business combinations.  The new standard provides revised guidance on how acquirors recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination.  This standard applies the same method of accounting (the acquisition method) to all transactions and other events in which one entity obtains control over one or more other businesses.  It also includes a broader definition of a business and the requirement that acquisition related costs are expensed as incurred and applies to business combinations occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  We adopted the provisions of this standard on January 1, 2009.  The acquisition of a real estate property has been determined to meet the definition of a business combination under the new standard.  Therefore, if we make future acquisitions, this standard will have a material effect on our accounting, primarily as acquisition costs will no longer be capitalized, but will be expensed.

 
11

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)

In April 2009, the FASB issued additional guidance for estimating fair value when there has been a significant decrease in market activity for a financial asset.  This accounting guidance re-emphasizes that regardless of market conditions, the fair value measurement is an exit price concept.  It clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly.  This guidance is applied prospectively to all fair value measurements where appropriate and is effective for interim and annual periods ending after June 15, 2009.  The implementation of this guidance on June 30, 2009 did not have a material impact on our consolidated financial statements.
 
In April 2009, the FASB issued guidance requiring an entity to provide disclosures about fair value of financial instruments in interim financial information.  This guidance is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  We implemented this guidance on June 30, 2009 and have included the additional disclosure information required within Note 5, “Fair Value of Financial Instruments.”
 
In May 2009, the FASB issued new guidance on subsequent events.  The new guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.   It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date; that is, whether the date represents the actual date the financial statements were issued or were available to be issued.  The implementation of this standard had no material impact on our consolidated financial statements.  See Note 2, “Interim Unaudited Financial Information.”
 
In June 2009, the FASB issued the Accounting Standards Codification (“Codification”).  The Codification is the source and organization of GAAP recognized by the FASB to be applied by nongovernmental entities.  The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The implementation of this standard on September 30, 2009 did not have a material impact on our consolidated financial position and results of operations.
 
5.           Fair Value of Financial Instruments
 
The following disclosure of estimated fair values was determined by us using available market information and appropriate valuation methodologies.  However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
 
As of September 30, 2009 and December 31, 2008, management estimated that the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and distributions payable were at amounts that reasonably approximated their fair value based on their short-term maturities.
 
The fair value estimates presented herein are based on information available to management as of September 30, 2009 and December 31, 2008.  Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein.
 
6.           Real Estate
 
We wholly owned the following five properties at September 30, 2009 and December 31, 2008:
 
       
Approximate
   
       
Rentable Square
   
Property Name
 
Location
 
Footage
 
Description
Hopkins Building
 
Minneapolis, Minnesota
 
29,660
 
One-story office building
Tucson Way
 
Denver, Colorado
 
70,660
 
Two-story office building
2800 W. Mockingbird
 
Dallas, Texas
 
73,349
 
One-story office building
Parkway Vista
 
Dallas, Texas
 
33,467
 
Two-story office building
ASC Building
 
Dallas, Texas
 
28,880
 
One-story office building

 
12

 
 
Behringer Harvard Mid-Term Value Enhancement Fund I LP
Notes to Consolidated Financial Statements
(Unaudited)
 
The following information generally applies to all of our properties:
 
 
·
we believe all of our properties are adequately covered by insurance and suitable for their intended purposes;
 
 
·
our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
 
 
·
depreciation is provided on a straight-line basis over the estimated useful lives of the buildings of 25 years.
 
7.            Partners’ Capital
 
We initiated the declaration of monthly distributions in March 2004 in the amount of a 6% annualized rate of return, based on an investment in our limited partnership units of $10 per unit.  We record all distributions when declared.  Distributions payable at September 30, 2009 was $211,000.  The following are the total distributions declared during the first three quarters of 2009 and 2008 (in thousands):
 
   
2009
   
2008
 
             
Third Quarter
  $ 646     $ 646  
Second Quarter
    640       643  
First Quarter
    632       645  
                 
    $ 1,918     $ 1,934  
 
8.            Related Party Arrangements
 
The General Partners and certain of their affiliates are entitled to receive fees and compensation in connection with the acquisition, management and sale of our assets, and have received fees in the past in connection with the Offering.  Our General Partners have agreed that all of these fees and compensation will be allocated to Behringer Advisors I since the day-to-day responsibilities of serving as our general partner are performed by Behringer Advisors I through the executive officers of its general partner.
 
For the management and leasing of our properties, we pay Behringer Harvard Mid-Term Management Services, LLC, Behringer Harvard Real Estate Services, LLC or HPT Management Services LP, our affiliated property managers or their affiliates (individually or collectively referred to as "Property Manager"), property management and leasing fees equal to the lesser of:  (A) the amounts charged by unaffiliated persons rendering comparable services in the same geographic area or (B)(1) for commercial properties that are not leased on a long-term net lease basis, 4% of gross revenues, plus separate leasing fees of up to 1.5% of gross revenues based upon the customary leasing fees applicable to the geographic location of the properties, and (2) in the case of commercial properties that are leased on a long-term net lease basis (10 or more years), 1% of gross revenues plus a one-time initial leasing fee of 3% of gross revenues payable over the first five years of the lease term.  We reimburse the costs and expenses incurred by our Property Manager on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees of our Property Manager who are engaged in the operation, management, maintenance and leasing or access control of our properties, including taxes, insurance and benefits relating to such employees, and legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties.  During the nine months ended September 30, 2009 and 2008, we incurred property management fees payable to our Property Manager, of approximately $107,000 and $109,000, respectively.
 
We pay Behringer Advisors I, or its affiliates, an annual asset management fee of 0.5% of the contract purchase price of our assets.  Any portion of the asset management fees may be deferred and paid in a subsequent year.  During each of the nine months ended September 30, 2009 and 2008, we incurred asset management fees of approximately $103,000.
 
We may reimburse Behringer Advisors I for costs and expenses paid or incurred to provide services to us, including the costs of goods, services or materials used by us and the salaries and benefits of persons employed by these entities and performing services for us; provided, however, no reimbursement is made for costs of personnel to the extent the advisor receives a separate fee for their services.  For the nine months ended September 30, 2009 and 2008 we incurred and expensed such costs for administrative services totaling approximately $136,000 and $57,000, respectively.
 
At September 30, 2009, we had payables to related parties of approximately $87,000, which primarily consisted of administrative services payable to Behringer Advisors I and management fees payable to our Property Manager.
 
We are dependent on Behringer Advisors I and our Property Manager for certain services that are essential to us, including asset acquisition and disposition decisions, property management and leasing services and other general and administrative responsibilities.  In the event that these companies were unable to provide the respective services to us, we would be required to obtain such services from other sources.
 
*****

 
13

 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis should be read in conjunction with our accompanying financial statements and the notes thereto:
 
Forward-Looking Statements
 
This section of the quarterly report contains forward-looking statements, including discussion and analysis of us and our subsidiaries, our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our limited partners in the future and other matters.  These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees of the future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
 
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false.  We caution investors not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-Q.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  Factors that could cause actual results to differ materially from any forward-looking statements made in this Form 10-Q include changes in general economic conditions, changes in real estate conditions, construction costs that may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, the potential need to fund tenant improvements or other capital expenditures out of operating cash flows and our inability to realize value for limited partners upon disposition of our assets.  The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our Quarterly Report on Form 10-Q for the period ended September 30, 2009 and our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 31, 2009.
 
Cautionary Note
 
The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to or with any other parties.  Moreover, these representations, warranties or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
 
Critical Accounting Policies and Estimates
 
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On a regular basis, we evaluate these estimates, including investment impairment.  These estimates will be based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates.
 
Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
 
Real Estate
 
Upon the acquisition of real estate properties, we allocate the purchase price of those properties to the assets acquired, consisting of land, inclusive of associated rights, and buildings, any assumed liabilities, identified intangible assets, asset retirement obligations based on their relative fair values.  Identified intangible assets consist of the fair value of above-market and below-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships.  Acquisition-related costs are expensed as incurred.  Initial valuations are subject to change until our information is finalized, which is no later than 12 months from the acquisition date.
 
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method.
 
14

 
We determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any fixed rate renewal options for below-market leases.  We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.
 
The total value of identified real estate intangible assets acquired is further allocated to in-place lease values, in-place tenant improvements, in-place leasing commissions and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, management includes such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions.  The estimates of fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal costs and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.
 
We amortize the value of in-place leases and in-place tenant improvements to expense over the initial term of the respective leases.  The value of tenant relationship intangibles is amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the related real estate intangibles would be charged to expense.
 
In allocating the purchase price of each of our properties, management makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets, discount rates used to determine present values, market rental rates per square foot and the period required to lease the property up to its occupancy at acquisition if it were vacant.  Many of these estimates are obtained from independent third party appraisals.  However, management is responsible for the source and use of these estimates.  A change in these estimates and assumptions could result in the various categories of our real estate assets and/or related intangibles being overstated or understated, which could result in an overstatement or understatement of depreciation and/or amortization expense.  These variances could be material to our financial statements.
 
Impairment of Long-Lived Assets
 
For our real estate, which is all wholly owned, management monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  When such events or changes in circumstances occur, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset, including its eventual disposition, to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying value of the asset to estimated fair value.  We determine the estimated fair value based on cash flow streams using various factors including estimated future selling prices, costs spent to date, remaining budgeted costs and selling costs.
 
In evaluating our investments for impairment, management makes several estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership and the projected sales price of each of the properties.  A change in these estimates and assumptions could result in understating or overstating the book value of our investments, which could be material to our financial statements.  Determining if a property is impaired and, if impaired, the amount of required write-down to fair value requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation.
 
Overview
 
               During 2008 and the first nine months of 2009, the U.S. and global economies continued to experience a significant downturn, which included disruptions in the broader financial and credit markets, declining consumer confidence and an increase in unemployment rates.  These conditions have contributed to weakened market conditions.  However, our portfolio is un-leveraged and currently comprised of five buildings, four of which are 100% occupied by single tenants.  Therefore, we believe our exposure to the economic downturn is minimal.
 
15

 
At September 30, 2009 and 2008, we wholly owned five properties.  These properties combined contain approximately 236,000 rentable square feet.
 
Results of Operations
 
Three months ended  September 30, 2009 as compared to the three months ended September 30, 2008
 
Rental Revenue.  Rental revenue for the three months ended September 30, 2009 and 2008 was $1.0 million and $1.1 million, respectively, and was comprised of revenue, including adjustments for straight-line rent and amortization of above-market and below-market leases.  The decrease in rental revenue for the three months ended September 30, 2009 was primarily due to a reduction in the amount of expense reimbursements from tenants.  Management expects rental revenue to remain constant in the near future.
 
Property Operating Expenses.  Property operating expenses for the three months ended September 30, 2009 and 2008 were $238,000 and $234,000, respectively, and were comprised of expenses related to the daily operations of our properties. Management expects property operating expenses to remain constant in the near future.
 
Real Estate Taxes.  Real estate taxes for the three months ended September 30, 2009 and 2008 were $121,000 and $177,000, respectively.  The decrease in real estate taxes for the three months ended September 30, 2009 is due to a decrease in valuations by taxing authorities.  Management anticipates that real estate taxes will remain relatively unchanged in the near future.
 
Property and Asset Management Fees.  Property and asset management fees for the three months ended September 30, 2009 and 2008 were $64,000 and $73,000 respectively. Management expects property and asset management fees to remain constant in future periods.
 
General and Administrative Expenses.  General and administrative expenses for the three months ended September 30, 2009 and 2008 were $154,000 and $114,000, respectively. General and administrative expenses were comprised of administrative services provided by our advisor, auditing fees, directors’ and officers’ insurance premiums, tax preparation fees, transfer agent fees, legal fees, printing costs and other administrative expenses.  The increase in general and administrative expenses is primarily due to an increase in administrative services from Behringer Advisors I, our general partner.  Management expects general and administrative expenses to remain relatively constant in the near future.
 
Depreciation and Amortization Expense.  Depreciation and amortization expense for the three months ended September 30, 2009 and 2008 was $358,000 and $357,000, respectively, and were comprised of depreciation and amortization of buildings and real estate intangibles associated with our five properties.  Management expects future depreciation and amortization expense to remain relatively constant.
 
Interest Income.  Interest income for the three months ended September 30, 2009 and 2008 was $11,000 and $36,000 respectively, and was comprised of interest income associated with funds on deposit with banks.  The decrease in interest income is due to a decrease in cash balances and interest rates on cash deposits.
 
Nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008
 
Rental Revenue.  Rental revenue for each of the nine months ended September 30, 2009 and 2008 was $3.0 million and was comprised of revenue, including adjustments for straight-line rent and amortization of above-market and below-market leases. Management expects rental revenue to remain constant in the near future.
 
Property Operating Expenses.  Property operating expenses for the nine months ended September 30, 2009 and 2008 were $642,000 and $650,000, respectively, and were comprised of expenses related to the daily operations from our properties. Management anticipates the property and operating expenses will remain relatively unchanged in the near future.
 
Real Estate Taxes.  Real estate taxes for the nine months ended September 30, 2009 and 2008 were $489,000 and $563,000 respectively.  The decrease in real estate taxes for the nine months ended September 30, 2009 is due to a decrease in valuations by taxing authorities.  Management anticipates that real estate taxes will remain relatively unchanged in the near future.
 
Property and Asset Management Fees.  Property and asset management fees for the nine months ended September 30, 2009 and 2008 were $210,000 and $212,000, respectively.  Management expects property and asset management fees to remain constant in future periods.
 
General and Administrative Expenses.  General and administrative expenses for the nine months ended September 30, 2009 and 2008 were $460,000 and $402,000 respectively.  General and administrative expenses were comprised of corporate general and administrative expenses, including directors’ and officers’ insurance premiums, transfer agent fees, auditing fees, legal fees and other administrative expenses.  The increase in general and administrative expenses is primarily due to an increase in administrative services from Behringer Advisors I, our general partner.  Management expects general and administrative expenses to remain relatively constant in the near future.
 
Depreciation and Amortization Expense.  Depreciation and amortization expense for each of the nine months ended September 30, 2009 and 2008 was $1.1 million, and was comprised of depreciation and amortization of buildings and intangibles at our five properties.  Management expects depreciation and amortization expenses to remain relatively constant in the near future.
 
16

 
Interest Income.  Interest income for the nine months ended September 30, 2009 and 2008 was $39,000 and $132,000, respectively, and was comprised of interest income associated with funds on deposit with banks.  The decrease in interest income is due to a decrease in cash balances and interest rates on cash deposits.
 
Cash Flow Analysis
 
Cash provided by operating activities for the nine months ended September 30, 2009 was $503,000 and was comprised of net income of $120,000, adjusted for depreciation and amortization of $1.1 million, partially offset by a change in lease intangibles of $338,000 and changes in working capital accounts of $347,000.  Cash provided by operating activities for the nine months ended September 30, 2008 of $931,000 was primarily comprised of net income of $162,000, adjusted for depreciation and amortization of $1.1 million, partially offset by changes in working capital accounts of $314,000.
 
Cash used in investing activities for the nine months ended September 30, 2009 was $162,000 and was comprised of purchases of property and equipment for our properties.  There was no investing activity for the nine months ended September 30, 2008.
 
Cash used in financing activities consisted of distributions of $1.9 million for the nine months ended September 30, 2009.  For the nine months ended September 30, 2008 cash used in financing activities was approximately $2.3 million and consisted of distributions of approximately $2.0 million and redemptions of approximately $342,000.
 
Liquidity and Capital Resources
 
Our cash and cash equivalents were approximately $4.7 million at September 30, 2009.  Our principal demands for funds will be for the payment of operating expenses and distributions.  Generally, cash needs are expected to be met from operations and available cash on hand.  The timing and amount of cash to be distributed to our limited partners is determined by our General Partners and is dependent on a number of factors, including funds available for payment of distributions, financial condition and capital expenditures.  While we continue to pay monthly distributions at a 6% annualized rate of return, in light of the pervasive and fundamental disruptions in the global financial and real estate markets, we cannot provide assurance that we will be able to continue to pay distributions at any particular level.  If the current economic conditions continue, our General Partners may determine to reduce our current distribution rate in order to conserve cash.  In addition, our General Partners, in their discretion, may defer fees payable by us to our General Partners, allowing for more cash to be available to us for distribution to our limited partners.  In addition, our General Partners may make supplemental payments to us or to our limited partners, or otherwise support our operations to the extent not prohibited under the North American Securities Administrators Association Guidelines for Real Estate Programs, which would permit distributions to our limited partners in excess of cash from operations.  Accordingly, all or some of such distributions may constitute a return of capital to our limited partners to the extent that distributions exceed net cash from operations, or may be recognized as taxable income to our limited partners or us.
 
               The distributions paid in the nine months ended September 30, 2009 were approximately $1.9 million.  For the nine months ended September 30, 2009, we had cash flow from operating activities of $503,000.  For the nine months ended September 30, 2008, we generated cash flow from operating activities of $931,000.  For the nine months ended September 30, 2009 and 2008, cash amounts distributed to our limited partners exceeded cash flow from operating activities by approximately $1.4 million and $1.0 million, respectively, which difference was funded from cash on hand.
 
The amount by which distributions paid exceeded cash flow from operating activities increased approximately $410,000 during the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008.  This increase is primarily due to the following activities in 2009: leasing commissions paid in conjunction with new tenant leases and a decrease in interest income earned.
 
The turbulent financial markets and disruption in the banking system, as well as the nationwide economic downturn, has created a severe lack of credit and rising costs of any debt that is available.  Fortunately, we have limited exposure to the currently malfunctioning credit markets.  We have no exposure to money market mutual funds.  We monitor the depository institutions that hold our cash and cash equivalents on a regular basis and believe that we have placed our deposits with creditworthy financial institutions.  We also have no outstanding debt.  However, the continued economic downturn and lack of available credit could delay or inhibit our ability to dispose of our properties, or cause us to have to dispose of our properties for a lower than anticipated return.  As a result, our current objective is to preserve capital and sustain property values while selectively disposing of our properties.
 
17

 
As of September 30, 2009, our portfolio was 95% leased as compared to 94% as of September 30, 2008. The major tenants in our portfolio include Raytheon Company, Government Records Services, Inc., part of Affiliated Computer Systems (“ACS”) and Air Systems Components, LP.  Minneapolis, Denver, Dallas and its surrounding areas represent our geographic exposure.  Of our approximately 236,000 square feet of leasable space, 32% is due to expire in the next 12 months and we have already begun the process of finding new tenants to fill those vacancies.  In addition, we collected 100% of our base rent from our tenants for the third quarter 2009, which is a good indication of credit quality and stability.
 
We expect to meet our future short-term operating liquidity requirements through cash provided by the operations of our current properties and available cash on hand.  Management also expects that our properties will generate sufficient cash flow to cover operating expenses and a portion of the payment of a monthly distribution.  Currently, distributions are paid from available cash on hand from the proceeds from the sale of the Northpoint Property in 2006.  Other potential future sources of capital include proceeds from the sale of properties and undistributed funds from operations.  If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.
 
Net Operating Income
 
Net operating income (“NOI”) is a non-GAAP financial measure that is defined as rental revenue less property operating expenses, real estate taxes and property management fees. Management believes that NOI provides an accurate measure of our operating performance because NOI reflects the operating performance of our properties and excludes certain items that are not associated with management of the properties.  NOI should not be considered as an alternative to net income (loss), or an indication of our liquidity.  NOI is not indicative of funds available to fund our cash needs or our ability to make distributions and should be reviewed in connection with other GAAP measurements.  To facilitate understanding of this financial measure, a reconciliation of NOI to net income has been provided in accordance with GAAP.  Our calculations of NOI for the three and nine months ended September 30, 2009 and 2008 are presented below (in thousands):
 
     
Three months
   
Three months
   
Nine months
   
Nine months
 
       
ended
   
ended
   
ended
   
ended
 
       
September 30, 2009
   
September 30, 2008
   
September 30, 2009
   
September 30, 2008
 
                           
Rental revenue
  $ 958     $ 1,059     $ 2,963     $ 2,970  
                                   
Operating expenses
                               
 
Property operating expenses
    238       234       642       650  
 
Real estate taxes
    121       177       489       563  
 
Property and asset management fees
    64       73       210       212  
 
Less: Asset management fees
    (34 )     (37 )     (103 )     (103 )
Total operating expenses
    389       447       1,238       1,322  
                                   
Net operating income
  $ 569     $ 612     $ 1,725     $ 1,648  
                                   
Reconciliation of NOI to Net income
                               
Net operating income
  $ 569     $ 612     $ 1,725     $ 1,648  
                                   
Less:
General and administrative
    (154 )     (114 )     (460 )     (402 )
 
Depreciation and amortization
    (358 )     (357 )     (1,075 )     (1,102 )
 
Asset management fees
    (34 )     (37 )     (103 )     (103 )
 
Provision for income taxes
    (3 )     (4 )     (6 )     (11 )
Add:
Interest income
    11       36       39       132  
                                   
Net income
  $ 31     $ 136     $ 120     $ 162  
 
18

 
Performance Reporting Required by the Partnership Agreement
 
Section 15.2 in our Partnership Agreement requires us to provide our limited partners with our net cash from operations, a non-GAAP financial measure which is defined as net income, computed in accordance with GAAP, plus depreciation and amortization on real estate assets and adjustments for gain from sale of assets, gain on sale of discontinued operations and capital improvements (“Net Cash From Operations”).  Our calculations of Net Cash From Operations for the three and nine months ended September 30, 2009 and 2008 are presented below (in thousands):
 
   
Three months
   
Three months
   
Nine months
   
Nine months
 
    
ended
   
ended
   
ended
   
ended
 
    
September 30, 2009
   
September 30, 2008
   
September 30, 2009
   
September 30, 2008
 
                         
Net income
  $ 31     $ 136     $ 120     $ 162  
                                 
Depreciation and amortization
    358       357       1,075       1,102  
Less:  Capital improvements
    (55 )     -       (162 )     -  
                                 
Net cash from operations
  $ 334     $ 493     $ 1,033     $ 1,264  
 
Disposition Policies
 
We intend to hold the various real properties in which we have invested until such time as sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that such objectives will not be met.  In deciding whether to sell properties, we will consider factors such as potential capital appreciation, cash flow and federal income tax considerations, including possible adverse federal income tax consequences to our limited partners.  Our General Partners may exercise their discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time, except upon our termination on December 31, 2022, or earlier if our General Partners determine to liquidate us, or, after February 19, 2013, if investors holding a majority of the units vote to liquidate us in response to a formal proxy to liquidate.  Instead of causing us to liquidate, our General Partners, in their sole discretion, may determine to offer to limited partners the opportunity to convert their units into interests in another public real estate program sponsored by our General Partners or their affiliates, through a plan of merger, plan of exchange or plan of conversion, provided that the transaction is approved by holders of such percentage of units as determined by our General Partners, but not less than a majority and excluding those held by our General Partners and their affiliates.  If such an opportunity is provided to our limited partners, it may involve the distribution to limited partners of freely traded securities that are listed on a securities exchange.
 
Cash flow from operations will not be invested in the acquisition of real estate properties.  However, in the discretion of our General Partners, cash flow may be held as working capital reserves or used to make capital improvements to existing properties.  In addition, net sale proceeds generally will not be reinvested but will be distributed to the partners, unless our General Partners determine that it is in our best interest to reinvest the proceeds of any particular sale in other real estate investments in order to meet our investment objectives.  We will not reinvest the proceeds from any sale in additional properties unless our General Partners determine it is likely that we would be able to hold such additional properties for a sufficient period of time prior to the termination of the fund in order to satisfy our investment objectives with respect to that investment.  Thus, we are intended to be self-liquidating in nature.  In addition, our Partnership Agreement prohibits us from reinvesting proceeds from the sale or refinancing of our properties at any time after February 19, 2010.  Our General Partners may also determine not to distribute net sale proceeds if such proceeds are, in the discretion of our General Partners:
 
 
·
used to purchase land underlying any of our properties;
 
 
·
used to buy out the interest of any co-tenant or joint venture partner in a property that is jointly owned;
 
 
·
used to enter into a joint venture with respect to a property;
 
 
·
held as working capital reserves; or
 
 
·
used to make capital improvements to existing properties.
 
Notwithstanding the above, reinvestment of proceeds from the sale of properties will not occur unless sufficient cash will be distributed to pay any federal or state income tax liability created by the sale of the property, assuming limited partners will be subject to a 30.0% combined federal and state tax rate.
 
19

 
We will not pay, directly or indirectly, any commission or fee, except as specifically permitted under Article XII of our Partnership Agreement, to our General Partners or their affiliates in connection with the reinvestment or distribution of proceeds from the sale, exchange or financing of our properties.
 
Although not required to do so, we will generally seek to sell our real estate properties for cash.  We may, however, accept terms of payment from a buyer that include purchase money obligations secured by mortgages as partial payment, depending upon then-prevailing economic conditions customary in the area in which the property being sold is located, credit of the buyer and available financing alternatives.  Some properties we sell may be sold on the installment basis under which only a portion of the sale price will be received in the year of sale, with subsequent payments spread over a number of years.  In such event, our full distribution of the net proceeds of any sale may be delayed until the notes are paid, sold or financed.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
Item 3.              Quantitative and Qualitative Disclosures About Market Risk.
 
We have limited exposure to financial market risks, including changes in interest rates and other relevant market prices.  We have no investments or obligations that would be affected by an increase or decrease in interest rates, nor any foreign operations exposing us to foreign currency fluctuations.
 
Item 4T.            Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the management of Behringer Advisors I, including its Chief Executive Officer and Chief Financial Officer, evaluated as of September 30, 2009 the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Behringer Advisors I concluded that our disclosure controls and procedures, as of September 30,  2009, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to the management of Behringer Advisors I, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
 
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a partnership have been detected.
 
Changes in Internal Control over Financial Reporting
 
There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

20

 
PART II
OTHER INFORMATION
 
Item 1.                 Legal Proceedings.
 
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
 
Item 1A.              Risk Factors.
 
                The following risk factors supplement the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2008;
 
Until we generate sufficient cash flow from operating activities to cover distributions to our unitholders, we may make distributions from other sources, which may negatively impact our ability to sustain or pay distributions.
 
                Distributions are authorized at the discretion of our General Partners based on their analysis of our earnings, cash flow, anticipated cash flow, capital expenditure requirements, general financial condition and other factors that our General Partners deems relevant.  Actual cash available for distribution may vary substantially from estimates.  In addition, to the extent we have significant capital requirements for our properties, our ability to make distributions may be negatively impacted. If cash flow from operating activities is not sufficient to fully fund the payment of distributions, the level of our distributions may not be sustainable and some or all of our distributions will be paid from other sources.  Historically, the amount of our declared distributions has exceeded our cash flow from operating activities.  From time to time, our advisor and its affiliates may agree, but are not required, to waive or defer all, or a portion, of the acquisition, asset management or other fees or other incentives due to them, enter into lease agreements for unleased space, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to make distributions to our unitholders.

Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to you.
 
The global financial markets have undergone pervasive and fundamental disruptions.  This volatility has had and may continue to have an adverse impact on the availability of credit to businesses, generally, and has resulted in the weakening of the U.S. and global economies.  Our business has been and may continue to be affected by market and economic challenges experienced by the U.S. economy or real estate industry as a whole or by the local economic conditions in the markets in which our properties are located, including the current dislocations in the credit markets.  These conditions, or similar conditions existing in the future, may have the following consequences:
 
·  
the financial condition of our tenants has been and may continue to be adversely affected, which may result in us having to increase tenant concessions, reduce rental rates or make capital improvements in order to maintain occupancy levels, or which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;

·  
 significant job losses in the financial and professional services industries may continue to occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;

·  
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties;

·  
the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors; and
 
 
Further, in light of the current economic conditions, we cannot provide assurance that we will be able to sustain the current level of our distributions or that the amount of distributions will increase over time.  If the conditions continue, our General Partners may determine to reduce our current distribution rate or suspend distributions altogether in order to conserve cash.
 
Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3.                 Defaults Upon Senior Securities.
 
None.
 
Item 4.                 Submission of Matters to a Vote of Security Holders.
 
No matters were submitted to a vote of security holders during the third quarter of 2009.
 
Item 5.                 Other Information.
 
None.
 
Item 6.                 Exhibits.
 
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

 
21

 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   
Behringer Harvard Mid-Term Value Enhancement Fund I LP
       
   
By:
Behringer Harvard Advisors I LP
     
Co-General Partner
       
Dated: November 13, 2009
 
By:
/s/ Gary S. Bresky
     
Gary S. Bresky
     
Chief Financial Officer
     
(Principal Financial Officer)

 
22

 
 
Index to Exhibits
 
Exhibit Number
 
Description
     
3.1
 
Agreement of Limited Partnership of Registrant dated July 30, 2002 (previously filed in and incorporated by reference to Exhibit B to the prospectus of the Registrant filed pursuant to Rule 424(b)(3) on February 20, 2003, as supplemented)
     
3.2
 
First Amendment to Agreement of Limited Partnership of Registrant dated September 2, 2003 (previously filed in and incorporated by reference to Exhibit B to Supplement No. 1 to the prospectus of the Registrant contained within Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-11, Commission File No. 333-100126, filed on September 3, 2003)
     
3.3
 
Certificate of Limited Partnership of Registrant (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-100126, filed on September 27, 2002)
     
3.4
 
Second Amendment to Agreement of Limited Partnership of Registrant dated March 29, 2006 (previously filed in and incorporated by reference to Form 8-K filed on March 30, 2006)
     
4.1
 
Form of Subscription Agreement and Subscription Agreement Signature Page (included as Exhibit C to prospectus of the Registrant filed pursuant to Rule 424(b)(3) on February 20, 2003, as supplemented)
     
31.1*
 
Rule 13a-14(a)/15d-14(a) Certification
     
31.2*
 
Rule 13a-14(a)/15d-14(a) Certification
     
32.1**
 
Section 1350 Certifications
 

*
Filed herewith
 
**
In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.