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EX-32.1 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v178686_ex32-1.htm |
EX-21.1 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v178686_ex21-1.htm |
EX-31.1 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v178686_ex31-1.htm |
EX-31.2 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v178686_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
Commission
File Number: 000-51292
Behringer
Harvard Mid-Term Value Enhancement
Fund
I LP
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(Exact
name of registrant as specified in its charter)
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Texas
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71-0897613
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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15601
Dallas Parkway, Suite 600, Addison, Texas 75001
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(Address
of principal executive offices) (Zip Code)
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Registrant’s
telephone number, including area code: (866)
655-1610
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Securities
registered pursuant to section 12(b) of the Act:
None
Securities
registered pursuant to section 12(g) of the Act:
Units
of limited partnership interest
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
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
While
there is no established market for the registrant’s limited partnership
interests, the aggregate market value of limited partnership interests held by
nonaffiliates of the registrant as of June 30, 2009 (the last business day of
the registrant’s most recently completed second fiscal quarter) was $42,751,870,
assuming a market value of $10 per unit of limited partnership
interest.
As of
March 19, 2010, the registrant had 4,275,187 units of limited partnership
interest outstanding.
BEHRINGER
HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
FORM
10-K
Year
Ended December 31, 2009
Page
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PART
I
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Item
1.
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Business.
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3
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Item
1A.
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Risk
Factors.
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8
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Item
1B.
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Unresolved
Staff Comments.
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23
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Item
2.
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Properties.
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24
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Item
3.
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Legal
Proceedings.
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24
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Item
4.
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(Removed
and Reserved).
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24
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
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Purchases
of Equity Securities.
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25
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Item
6.
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Selected
Financial Data.
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27
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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28
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk.
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35
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Item
8.
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Financial
Statements and Supplementary Data.
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35
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Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
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36
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Item
9A(T).
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Controls
and Procedures.
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36
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Item
9B.
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Other
Information.
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36
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance.
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37
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Item
11.
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Executive
Compensation.
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40
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related
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Stockholder
Matters.
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40
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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41
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Item
14.
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Principal
Accountant Fees and Services.
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42
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules.
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44
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Signatures
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45
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2
Forward-Looking
Statements
Certain
statements in this Annual Report on Form 10-K constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). These forward-looking
statements include discussion and analysis of the financial condition of
Behringer Harvard Mid-Term Opportunity Fund I LP (which may be referred to
herein as the “Partnership,” “we,” “us,” or “our”) and our subsidiaries,
including our ability to rent space on favorable terms, and to fund our
liquidity requirements, the value of our assets, our anticipated capital
expenditures, the amount and timing of anticipated future cash distributions to
our unitholders, the estimated per unit value of our limited partnership units
and other matters. 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
forward-looking statements are not historical facts but reflect the intent,
belief or current expectations of our management based on their knowledge and
understanding of the business and industry, the economy and other future
conditions. These statements are not guarantees of future
performance, and we caution unitholders not to place undue reliance on
forward-looking statements. Actual results may differ materially from
those expressed or forecasted in the forward-looking statements due to a variety
of risks, uncertainties and other factors, including but not limited to the
factors listed and described under “Risk Factors” in this Annual Report on Form
10-K and the factors described below:
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·
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market
and economic challenges experienced by the U.S. economy or real estate
industry as a whole and the local economic conditions in the markets in
which our properties are located;
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·
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the
availability of cash flow from operating activities for distributions and
capital expenditures;
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·
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future
increases in interest rates;
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·
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impairment
charges;
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·
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our
ability to retain our executive officers and other key personnel of our
advisor, our property manager and their
affiliates;
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·
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conflicts
of interest arising out of our relationships with our advisor and its
affiliates;
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·
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changes
in the level of financial assistance or support provided by our sponsor or
its affiliates: and
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·
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unfavorable
changes in laws or regulations impacting our business or our
assets.
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Forward-looking
statements in this Annual Report on Form 10-K reflect our management’s view only
as of the date of this Report, and may ultimately prove to be incorrect or
false. 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. We intend for these
forward-looking statements to be covered by the applicable safe harbor
provisions created by Section 27A of the Securities Act and Section 21E of the
Exchange Act.
The
representations, warranties and covenants made by us in any agreement filed as
an exhibit to this Annual Report on Form 10-K 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.
PART
I
Item
1. Business.
General
Description of Business
We are 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 and terminated on February 19, 2005 (the
“Offering”). The Offering was a best efforts continuous offering and
we admitted new investors until the termination of the Offering. As
of December 31, 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.
3
We used
the proceeds from the Offering, after deducting offering expenses, primarily to
acquire six office building properties. As of December 31, 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.
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.
Unit
Valuation
Our
Partnership Agreement requires that beginning with the fiscal year ended
December 31, 2009, the General Partners annually provide our limited partners
with an estimate of the amount a holder of limited partnership units would
receive if our properties were sold at their fair market values as of the close
of the fiscal year, and the proceeds from the sale of the properties (without
reduction for selling expenses), together with other funds of the Partnership,
were distributed in a liquidation.
On
January 14, 2010 Behringer Advisors I, our co-general partner, calculated a new
estimated value per limited partnership unit as of December 31,
2009. As part of the valuation process, and as required by the
Partnership Agreement, the general partner has obtained the opinion of an
independent third party, Robert A. Stanger & Co., Inc., that the estimated
valuation is reasonable and was prepared in accordance with appropriate methods
for valuing real estate. Robert A. Stanger & Co., founded in
1978, is a nationally recognized investment banking firm specializing in real
estate, REIT’s and direct participation programs such as ours. The
new estimated valuation per limited partnership unit as of December 31, 2009 is
$7.09, adjusted from the previously estimated valuation of $10.00 per
unit.
In
addition to meeting its obligation under the Partnership Agreement, the General
Partners understand that this estimated value per unit may be used by (i) broker
dealers who have customers who own our limited partnership units to assist in
meeting customer account statement reporting obligations under the National
Association of Securities Dealers (which is the former name of FINRA) Conduct
Rule 2340 as required by FINRA and (ii) fiduciaries of retirement
plans subject to the annual reporting requirements of ERISA to assist in the
preparation of their reports.
As with
any valuation methodology, the General Partner’s methodology is based upon a
number of estimates and assumptions that may not be accurate or
complete. Different parties with different assumptions and estimates
could derive a different estimated value per unit, and these differences could
be significant. The estimated value per unit does not represent the
fair value according to accounting principles generally accepted in the United
States of America (“GAAP”) of our assets less liabilities, nor does it represent
the amount our units would trade at on a national securities
exchange.
Generally,
we do not anticipate selling our assets until we feel it is the right time to
dispose of an asset, or we feel that the economy has improved, and we have the
opportunity to realize additional value. Our general partners intend
to use all reasonable efforts to realize value for our limited partners when
commercial real estate prices have normalized. We are diligently
working to renew current leases or secure new leases with quality tenants to
increase net operating income and the ultimate value of our assets and to
execute on other value creation strategies. In addition, we continue
to work to meet the originally envisioned liquidation timeframe for the fund
which lasts until 2013.
Our
office is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, and
our toll-free telephone number is (866) 655-1610. The name Behringer
Harvard is the property of Behringer Harvard Holdings, LLC (“Behringer
Holdings”), and is used by permission.
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. We will also consider the current state of the
general economy, and whether waiting to dispose of a property will allow us to
realize additional value for 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, 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.
4
Cash flow
from operations will not be invested in the acquisition of
properties. However, at 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 sales proceeds
will not be reinvested but will be distributed to the partners. Thus,
we are intended to be self-liquidating in nature. 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 sales proceeds if such
proceeds are:
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·
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held
as working capital reserves; or
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·
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used
to make improvements to existing
properties.
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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 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.
Investment
Objectives and Criteria
Our
investment objectives are:
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to
preserve, protect and return investor’s capital
contributions;
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to
maximize cash distributions paid to
investors;
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to
realize growth in the value of our properties upon the ultimate sale of
such properties; and
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·
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either
(1) to make an orderly disposition of the properties and distribute the
cash to the investors or (2) upon the approval of the majority of the
limited partners, for all the investors to exchange their units for
interests in another Behringer Harvard
program.
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We cannot
assure investors that we will attain these objectives or that our capital will
not decrease. We may not change our investment objectives except with
the approval of limited partners holding a majority of our units (without regard
to units owned or controlled by our General Partners). In the event
that the holders of a majority of our units approve a merger or consolidation
with another partnership or corporation, in lieu of our liquidation, limited
partners who dissent from any such merger or consolidation will be entitled to
receive cash for their units based on the appraised value of our net
assets.
Our
General Partners make all decisions relating to the sale of our
properties.
Borrowing
Policies
We have
not borrowed to acquire any of our properties. However, in order to
give our General Partners flexibility in our management, our Partnership
Agreement authorizes us to borrow funds for the following limited
purposes:
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·
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for
Partnership operating purposes in the event of unexpected circumstances in
which our cash resources become insufficient for the maintenance and
repair of our properties or for the protection or replacement of
assets;
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·
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in
order to finance improvement of properties when our General Partners deem
such improvements to be necessary or appropriate to protect the capital
previously invested in the
properties;
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·
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to
protect the value of our investment in a particular property;
and
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5
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·
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to
make a particular property more attractive for sale or
lease.
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We may
not borrow funds for any other purpose. Further, the aggregate amount
of Partnership borrowings at any given time may not exceed amounts permissible
under North American Securities Administrators Association (“NASAA”)
Guidelines.
Our
General Partners have also represented that they will not cause us to incur
indebtedness unless we first obtain an opinion of counsel or an opinion from our
tax accountants that the indebtedness to be obtained more likely than not will
not cause our income to be characterized by the Internal Revenue Service as
Unrelated Business Taxable Income (“UBTI”) as defined in Section 512 of the
Internal Revenue Code. Investors should be aware, however, that any
such opinion would be based upon various representations and assumptions, and
would have no binding effect on the Internal Revenue Service or any
court. Accordingly, no assurance can be given that the conclusions
reached in any such opinion, if contested, would be sustained by a court, or
that any such indebtedness to be obtained by us in the future would not cause
the income allocated to limited partners that are tax-exempt entities to be
taxed as UBTI.
We may
borrow funds from our General Partners or their affiliates for the purposes
listed above only if the following qualifications are met:
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·
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any
such borrowing cannot constitute a “financing” as that term is defined
under the NASAA Guidelines, i.e., indebtedness
encumbering Partnership properties or incurred by the Partnership, the
principal amount of which is scheduled to be paid over a period of not
less than 48 months, and not more than 50% of the principal amount of
which is scheduled to be paid during the first 24
months;
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·
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interest
and other financing charges or fees must not exceed the amounts that would
be charged by unrelated lending institutions on comparable financing for
the same purpose in the same locality as our principal place of business;
and
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·
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no
prepayment charge or penalty shall be
required.
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Conflicts
of Interest
We are
subject to various conflicts of interest arising out of our relationship with
our General Partners and their affiliates, including conflicts related to the
arrangements pursuant to which our General Partners and their affiliates will be
compensated by us. All of our agreements and arrangements with our
General Partners and their affiliates, including those relating to compensation,
are not the result of arm’s-length negotiations. Some of the
conflicts of interest in our transactions with our General Partners and their
affiliates are described below.
Our
General Partners are Robert M. Behringer and Behringer Advisors
I. Mr. Behringer owns a controlling interest in Behringer Holdings, a
Delaware limited liability company that indirectly owns all of the outstanding
equity interests of Behringer Advisors I, our property managers and Behringer
Securities LP (“Behringer Securities”), the dealer manager for the
Offering. Mr. Behringer, Robert S. Aisner, Gerald J. Reihsen, III,
Gary S. Bresky, M. Jason Mattox and Robert J. Chapman are executive
officers of Harvard Property Trust, LLC (“HPT”), the sole general partner of
Behringer Advisors I and Behringer Securities. In addition, Messrs.
Behringer, Reihsen, Bresky and Mattox are executive officers of Behringer
Securities.
Because
we were organized and will be operated by our General Partners, conflicts of
interest will not be resolved through arm’s-length negotiations but through the
exercise of our General Partners’ judgment consistent with their fiduciary
responsibility to the limited partners and our investment objectives and
policies. For a description of some of the risks related to these
conflicts of interest, see the Item 1A. “Risk Factors” section of this Annual
Report on Form 10-K. For a discussion of the conflict resolution
policies, see the Item 13, “Certain Relationships and Related Transactions, and
Director Independence” section of this Annual Report on Form 10-K.
Interests
in Other Real Estate Programs
Our
General Partners and their affiliates are general partners of other Behringer
Harvard programs, including real estate programs that have investment objectives
similar to ours, and we expect that they will organize other such programs in
the future. Our General Partners and such affiliates have legal and
financial obligations with respect to these other programs that are similar to
their obligations to us. As general partners, they may have
contingent liabilities for the obligations of other programs structured as
partnerships as well as our obligations, which, if such obligations were
enforced against them, could result in substantial reduction of their net
worth.
6
Other
Activities of Our General Partners and Their Affiliates
We rely
on our General Partners and their affiliates for the day-to-day operation of our
business. As a result of their interests in other Behringer Harvard
programs and the fact that they have also engaged and will continue to engage in
other business activities, our General Partners and their affiliates will have
conflicts of interest in allocating their time between us and other Behringer
Harvard programs and other activities in which they are involved. In
addition, our Partnership Agreement does not specify any minimum amount of time
or level of attention that our General Partners must devote to
us. However, our General Partners believe that they and their
affiliates have sufficient personnel to discharge fully their responsibilities
to all of the Behringer Harvard programs and other ventures in which they are
involved.
In no
event may we:
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·
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sell
or lease real property to our General Partners or any of their affiliates,
except under limited circumstances permissible under the NASAA
Guidelines;
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make
loans to our General Partners or any of their affiliates;
or
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·
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enter
into agreements with our General Partners or their affiliates for the
provision of insurance covering us or any of our properties, except under
the limited circumstances permissible under the NASAA
Guidelines.
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Competition
in Leasing Properties
Conflicts
of interest will exist to the extent that we own properties in the same
geographic areas where properties owned by our General Partners, their
affiliates or other Behringer Harvard programs are located. In such a
case, a conflict could arise in the leasing of our properties in the event that
we and another Behringer Harvard program were to compete for the same tenants in
negotiating leases, or a conflict could arise in connection with the resale of
properties in the event that we and another Behringer Harvard program were to
attempt to sell similar properties at the same time. Conflicts of
interest may also exist at such time as we or our affiliates managing properties
on our behalf seek to employ developers, contractors or building managers, and
other circumstances. Our General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, our General Partners will seek to
reduce conflicts that may arise with respect to properties available for sale or
rent by making prospective purchasers or tenants aware of all such
properties. However, these conflicts cannot be fully avoided in that
there may be established differing compensation arrangements for employees at
different properties or differing terms for resale or leasing of the various
properties.
Affiliated
Property Manager
Our
properties are managed and leased by Behringer Harvard Mid-Term Management
Services, LLC, Behringer Harvard Real Estate Services, LLC and HPT Management
Services LLC, our affiliated property managers or their affiliates (individually
or collectively referred to as "Property Manager"). Our agreements
with our Property Manager expire in June 2010, but automatically extend for
successive seven year terms. We can terminate the agreements only in
the event of gross negligence or willful misconduct on the part of our Property
Manager. Behringer Harvard Real Estate Services, LLC and HPT
Management Services, LLC also serve, and will continue to serve, as
property manager for properties owned by affiliated real estate programs, some
of which may be in competition with our properties. Management fees
to be paid to our Property Manager are based on a percentage of the rental
income received by the managed properties.
Regulations
Our
investments are subject to various federal, state and local laws, ordinances and
regulations, including, among other things, zoning regulations, land use
controls, environmental controls relating to air and water quality, noise
pollution and indirect environmental impacts such as increased motor vehicle
activity. We believe that we have all permits and approvals necessary
under current law to operate our investments.
Environmental
As an
owner of real estate, we are subject to various environmental laws of federal,
state and local governments. Compliance with existing laws has not
had a material adverse effect on our financial condition or results of
operations, and management does not believe it will have such an impact in the
future. However, we cannot predict the impact of unforeseen
environmental contingencies or new or changed laws or regulations on properties
in which we hold an interest.
7
Significant
Tenants
As
of December 31, 2009, four of our tenants accounted for 10% or more of our
aggregate annual rental revenues from our properties. Raytheon
Company, a major United States Government defense contractor, leases all of
Tucson Way and accounted for rental revenue of approximately $1.7 million or
approximately 43% of our aggregate annual rental revenues for the year ended
December 31, 2009. Our lease with Raytheon Company expires on April
30, 2012. Government Records Services, Inc., part of Affiliated
Computer Systems (“ACS”), a provider of business process and information
technology outsourcing solutions to commercial and government clients, leases
100% of 2800 W. Mockingbird and accounted for rental revenue of approximately
$839,000, or approximately 22% of our aggregate annual rental
revenues. Our lease with ACS expires on September 30,
2010. Air Systems Components, LP, which consists of a group of companies
that are the largest manufacturer of air handling components in North America,
leases 100% of the ASC Building and accounted for rental revenue of
approximately $492,000, or approximately 13% of our aggregate annual rental
revenues. Our lease with Air Systems Components, LP expires on
October 31, 2010. SunGard Financial System, Inc., which conducts
financial clearing activities, data warehousing and disaster recovery for
computer operations, leases all of the Hopkins Building and accounted for
approximately $388,000 of our rental revenue or approximately 10% of our
aggregate annual rental revenue. Our lease with SunGard expires on
March 31, 2018. We have already begun the process of finding new
tenants to replace the leases that will expire during
2010.
Employees
We have
no employees. The employees of Behringer Advisors I and other
affiliates of ours perform a full range of real estate services for us,
including property management, accounting, legal, asset management, wholesale
brokerage and investor relations.
We are
dependent on our affiliates for services that are essential to us, including the
sale of our limited partnership units, property management and other general and
administrative responsibilities. In the event that these companies
were unable to provide these services to us, we would be required to obtain such
services from other sources.
Financial
Information About Industry Segments
Our
current business consists only of owning, managing, operating, leasing and
disposing of real estate assets. We internally evaluate all of our
real estate assets as one industry segment, and, accordingly, we do not report
segment information.
Available
Information
We
electronically file an Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports with the
Securities and Exchange Commission (“SEC”). Copies of our filings
with the SEC may be obtained from the web site maintained for us by our advisor
at http://www.behringerharvard.com or at the SEC’s web site, at
http://www.sec.gov. Access to these filings is free of
charge. We are not incorporating our website or any information from
the website into this Form 10-K.
Item
1A. Risk
Factors.
The
factors described below represent our principal risks. Other factors
may exist that we do not consider to be significant based on information that is
currently available or that we are not currently able to
anticipate.
Risks
Related to an Investment in Behringer Harvard Mid-Term Value Enhancement Fund I
LP
There
is no public trading market for our units, therefore it will be difficult for
limited partners to sell their units.
There is
no public trading market for the units, and we do not expect one to ever
develop. Our Partnership Agreement restricts our ability to participate in a
public trading market or anything substantially equivalent to one by providing
that any transfer that may cause us to be classified as a publicly traded
partnership as defined in Section 7704 of the Internal Revenue Code shall
be deemed void and shall not be recognized by us. Because our
classification as a publicly traded partnership may significantly decrease the
value of the units, our General Partners intend to use their authority to the
maximum extent possible to prohibit transfers of units that could cause us to be
classified as a publicly traded partnership. For these reasons, it
will be difficult for limited partners to sell their units.
Our
units have limited transferability and lack liquidity.
Except
for certain intra-family transfers, limited partners are limited in their
ability to transfer their units. Our Partnership Agreement and
certain state regulatory agencies have imposed restrictions relating to the
number of units limited partners may transfer. In addition, the
suitability standards imposed on initial investors also apply to potential
subsequent purchasers of our units. If limited partners are able to
find a buyer for their units, they may not sell their units to such buyer unless
the buyer meets the suitability standards applicable to him or
her. Accordingly, it will be difficult for limited partners to sell
their units promptly or at all. Limited partners may not be able to
sell their units in the event of an emergency, and if they are able to sell
their units, they may have to sell them at a substantial discount. It
is also likely that their units would not be accepted as the primary collateral
for a loan.
8
Our
limited partners should view their investments as long-term in
nature.
Our units
lack a public trading market and are subject to transfer
restrictions. Although we are currently preparing and assessing
properties for potential liquidation without a definitive time table, we may
choose to wait to sell any or all of the properties we now hold and not
liquidate the Partnership until between five and eight years following the
termination of the Offering on February 19, 2005. We expect that net
proceeds from the sale of our properties will generally be distributed to our
partners unless needed for working capital resources and capital
improvements. For each of these reasons, limited partners should view
their investment in units strictly as a long-term investment.
We
are limited in the number and type of properties in which we may invest and the
value of the limited partners’ investments will fluctuate with the performance
of the specific investments made.
Currently,
we hold five real estate investments, resulting in less diversification in terms
of the number of investments owned, the geographic regions in which our
investments are located and the types of investments that we made. As
a result, the likelihood of our profitability being affected by the performance
of any one of our investments has increased. The investment in our
units will be subject to greater risk to the extent that we lack a diversified
portfolio of investments. In addition, our fixed operating expenses,
as a percentage of gross income, are higher, and our financial condition and
ability to pay distributions may be adversely affected.
We
may not successfully provide unitholders with a liquidity event.
Our
current timeframe for liquidating the Partnership is by 2013. Market
conditions and other factors could cause us to delay liquidation beyond this
period. If liquidation is delayed, your units will continue to be
illiquid.
Robert
M. Behringer has a dominant role in determining what is in our best interests
and, therefore, we will not have the benefit of independent consideration of
issues affecting our Partnership operations.
Mr.
Behringer is one of our general partners. Our other general partner
is Behringer Advisors I. Behringer Advisors I is managed by its
general partner, HPT, for which Mr. Behringer serves as Chief Executive
Officer and sole manager. Therefore, Mr. Behringer has a
dominant role in determining what is in the best interests of us and our limited
partners. Since no person other than Mr. Behringer has any direct
control over our management, we do not have the benefit of independent
consideration of issues affecting our Partnership
operations. Therefore, Mr. Behringer alone will determine the
propriety of his own actions, which could result in a conflict of interest when
he is faced with any significant decision relating to our Partnership
affairs.
The
prior performance of real estate investment programs sponsored by affiliates of
our General Partners may not be an indication of our future
results.
Investors
should not rely upon the past performance of other real estate investment
programs sponsored by Mr. Behringer, our individual general partner, or his
affiliates to predict our future results. To be successful in this
market, we must, among other things:
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attract,
integrate, motivate and retain qualified personnel to manage our
day-to-day operations; and
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continue
to build and expand our operations structure to support our
business.
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We cannot
guarantee that we will succeed in achieving these goals, and our failure to do
so could cause investors to lose all or a portion of their
investment.
If
we lose or are unable to obtain key personnel, our ability to implement our
investment strategies could be delayed or hindered.
Our
success depends to a significant degree upon the continued contributions of
certain key personnel of the general partner of Behringer Advisors I, HPT,
including Mr. Behringer, who would be difficult to replace. Although
HPT has employment agreements with its key personnel, these agreements are
terminable at will, and we cannot guarantee that such persons will remain
affiliated with HPT or us. If any of HPT’s key personnel were to
cease employment, our operating results could suffer. We believe that
our future success depends, in large part, upon HPT’s ability to hire and retain
highly skilled managerial, operational and marketing
personnel. Competition for such personnel is intense, and we cannot
assure limited partners that HPT will be successful in attracting and retaining
such skilled personnel. Further, our General Partners intend to
establish strategic relationships with firms that have special expertise in
certain services or as to real properties in certain geographic
regions. Maintaining such relationships will be important for us to
effectively compete. We cannot assure limited partners that our
General Partners will be successful in attracting and retaining such
relationships. If we lose or are unable to obtain the services of key
personnel or do not establish or maintain appropriate strategic relationships,
our ability to implement our strategies could be delayed or
hindered.
9
Our
General Partners have a limited net worth consisting of assets that are not
liquid, which may adversely affect the ability of our General Partners to
fulfill their financial obligations to us.
The net
worth of our General Partners consists primarily of interests in real estate,
retirement plans, partnerships and closely held
businesses. Accordingly, the net worth of our General Partners is
illiquid and not readily marketable. This illiquidity, and the fact
that our General Partners have commitments to other Behringer Harvard programs,
may adversely affect the ability of our General Partners to fulfill their
financial obligations to us.
Our
rights and the rights of our limited partners to recover claims against our
General Partners are limited.
Our
Partnership Agreement provides that our General Partners will have no liability
for any action or failure to act that the General Partners in good faith
determine was in our best interest, provided their action or failure to act did
not constitute negligence or misconduct. As a result, we and our
limited partners may have more limited rights against our General Partners than
might otherwise exist under common law. In addition, we may be
obligated to fund the defense costs incurred by our General Partners in some
cases.
Our
units are generally not suitable for IRAs and other retirement plans subject to
ERISA.
Because
our intended operations will likely give rise to UBTI, our units are generally
not an appropriate investment vehicle for IRAs and retirement plans subject to
ERISA.
General
Risks Related to Investments in Real Estate
Recent
market disruptions will likely impact most aspects of our operating results and
operating condition.
The
global financial markets have undergone pervasive and fundamental disruptions.
The disruption has had and may continue to have an adverse impact on the
availability of credit to businesses, generally, and has resulted in and could
lead to further weakening of the U.S. and global economies. Our
business will likely 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 and general global economic
recession. Availability of debt financing secured by commercial real
estate has declined, as a result of tightened underwriting
standards. These conditions have and may continue to materially
affect the value of our investment properties, and may continue to affect our
ability to pay distributions and the availability or the terms of financing that
we may anticipate utilizing. These challenging economic conditions
will also continue to impact the ability of certain of our tenants to enter into
new leasing transactions or satisfy rental payments under existing
leases. Specifically, the current conditions, or similar conditions
existing in the future, may have the following consequences:
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the
financial condition of our tenants, which include financial, legal and
other professional firms, may be adversely affected, which may result in
us having to increase concessions, reduce rental rates or make capital
improvements in order to maintain occupancy levels or to negotiate for
reduced space needs, which could result in a decrease in our occupancy
levels;
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significant
job losses in the financial and professional services industries have
occurred and may continue to occur, which may decrease demand for our
office space and result in lower occupancy levels, which could result in
decreased revenues and which could diminish the value of our properties,
which depend, in part, upon the cash flow generated by our
properties;
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credit
spreads for major sources of capital may continue to widen, resulting in
lenders increasing the cost for debt
financing;
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our
ability to borrow on terms and conditions that we find acceptable, or at
all, may be limited, which could reduce our returns from our acquisition
activities;
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reduced
values of our properties may limit our ability to dispose of assets at
attractive prices and may reduce the availability of unsecured loans;
and
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the
value and liquidity of our short-term investments and cash deposits could
be reduced as a result of the dislocation of the markets for our
short-term investments, increased volatility in market rates for such
investments or other factors.
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10
Further, in light of the current
economic conditions, we cannot provide assurance that we will be able to
continue distributions at the historical 6% annualized rate or that the amount
of distributions will increase over time.
Recent
disruptions in the financial markets and adverse economic conditions could
adversely affect our ability to secure debt financing on attractive terms,
dispose of our properties and the value of our investments.
We
have not borrowed to acquire any of our properties. However, in order
to give our General Partners flexibility in our management, our Partnership
Agreement authorizes us to borrow funds for limited purposes such as in the
event of unexpected circumstances in which our cash resources become
insufficient for the maintenance and repair of our properties or for the
protection or replacement of assets, and in order to finance improvement of
properties when our General Partners deem such improvements to be necessary or
appropriate to protect the capital previously invested in the properties, to
protect the value of our investment in a particular property and to make a
particular property more attractive for sale or lease.
The
commercial real estate debt markets continue to experience volatility as a
result of certain factors, including the tightening of underwriting standards by
lenders and credit rating agencies and the significant inventory of unsold
collateralized mortgage backed securities in the market. Credit spreads
for major sources of capital have widened significantly as investors have
demanded a higher risk premium. This is resulting in lenders increasing
the cost for debt financing. An increase in the overall cost of
borrowings, either by increases in the index rates or by increases in lender
spreads, may result in our investment operations generating lower overall
economic returns and a reduced level of cash flow. As a result of current
economic conditions, potential purchasers may be unable to obtain financing on
acceptable terms. In addition, the recent dislocations in the debt
markets have reduced the amount of capital that is available to finance real
estate, which, in turn: (1) leads to a decline in real estate values
generally; (2) slows real estate transaction activity; (3) reduces the
loan to value upon which lenders are willing to extend debt; and
(4) results in difficulty in refinancing debt as it becomes
due.
Further,
the recent market volatility will likely make the valuation of our investment
properties more difficult. There may be significant uncertainty in the
valuation, or in the stability of the value, of our properties that could result
in a substantial decrease in the value of our properties. As a result, we
may not be able to recover the carrying amount of our properties, and we may be
required to recognize impairment charges, which will reduce our reported
earnings.
The
pervasive and fundamental disruptions that the global financial markets have
undergone have led to extensive and unprecedented governmental
intervention. Such intervention has in certain cases been implemented on
an “emergency” basis, suddenly and substantially eliminating market
participants’ ability to continue to implement certain strategies or manage the
risk of their outstanding positions. In addition, these interventions have
typically been unclear in scope and application, resulting in confusion and
uncertainty, which in itself has been materially detrimental to the efficient
functioning of the markets as well as previously successful investment
strategies. Among measures proposed by legislators have been moratoriums
on loan payments, limits on the ability of lenders to enforce loan provisions,
including the collection of interest at rates agreed in the loan documents, and
involuntary modification of loan agreements. It is impossible to predict
what, if any, additional interim or permanent governmental restrictions may be
imposed or the effect of such restrictions on us and our results of
operations. There is likely to be increased regulation of the financial
markets.
Future
financing could be impacted by negative capital market conditions.
Recently,
the U.S. credit markets and the sub-prime residential mortgage market have
experienced severe dislocations and liquidity disruptions. Sub-prime mortgage
loans have experienced increasing rates of delinquency, foreclosure and loss.
These and other related events have had a significant impact on the capital
markets associated not only with sub-prime mortgage-backed securities,
asset-backed securities and collateralized debt obligations, but also with the
U.S. housing, credit and financial markets as a whole. Consequently,
there is greater uncertainty regarding our ability to access the credit market
in order to attract financing on reasonable terms.
The
distributions we pay to our limited partners are not necessarily indicative of
our current or future operating results and there can be no assurance that we
will be able to achieve expected cash flows necessary to continue to pay or
maintain cash distributions at any particular level, or that distributions will
increase over time.
There are
many factors that can affect the availability and timing of cash distributions
to limited partners. Distributions will be based principally on cash
available from our properties, real estate securities and other
investments. We expect to distribute net cash from operations and net
proceeds from sales of properties to limited partners. However, our
General Partners, in their discretion, may defer fees payable by us to the
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 our limited partners, or otherwise support our
operations to the extent not prohibited under the NASAA Guidelines, which would
permit distributions to our limited partners in excess of net cash from
operations. The amount of cash available for distributions will be
affected by many factors, such as the yields on securities of other real estate
programs in which we invest, and our operating expense levels, as well as many
other variables. Actual cash available for distributions may vary
substantially from estimates. We currently pay distributions at an
annualized rate of 6%. Such distributions are not necessarily indicative of
current or future operating results and we can give no assurance that we will be
able to continue distributions at the current rate or that distributions
will increase over time. Nor can we give any assurance that rents or
other income from our investments will increase, that the investments we make
will increase in value or provide constant or increased distributions over time
will increase our cash available for distributions to limited
partners. Our actual results may differ significantly from the
assumptions used by our General Partners in establishing the distribution rate
to limited partners.
11
Many of
the factors that can affect the availability and timing of cash distributions to
limited partners are beyond our control, and a change in any one factor could
adversely affect our ability to pay future distributions. For
instance:
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If
one or more tenants defaults or terminates its lease, there could be a
decrease or cessation of rental payments, which would mean less cash
available for distributions.
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Cash
available for distributions would be reduced if we are required to spend
money to correct defects or to make improvements to
properties.
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Cash
available to make distributions may decrease if the assets we acquire have
lower yields than expected.
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If
we borrow funds from third parties, more of our cash on hand will be
needed to make debt payments, and cash available for distributions may
therefore decrease.
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In
addition, our General Partners, in their discretion, may retain any portion of
our cash on hand for working capital. We cannot assure limited
partners that sufficient cash will be available to pay distributions to
them.
Gains
and distributions upon resale of our properties are uncertain.
Although
gains from the sales of properties typically represent a substantial portion of
any profits attributable to a real estate investment, we cannot assure investors
that we will realize any gains on the resales of our properties. In
addition, the amount of taxable gain allocated to investors with respect to the
sale of a Partnership property could exceed the cash proceeds received from such
sale.
Proceeds
from the sale of a property will generally be distributed to
investors. The General Partners, in their sole discretion, may
determine not to make such distribution if such proceeds are used
to:
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create
working capital reserves; or
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make
capital improvements to our existing
properties.
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The
provisions of the Texas Business Organizations Code applicable to limited
partnerships do not grant limited partners any voting rights, and limited
partners’ rights are limited under our Partnership Agreement.
A vote of
a majority of the units of limited partnership interest is sufficient to take
the following actions:
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to
amend our Partnership Agreement;
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to
dissolve and terminate the
Partnership;
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to
remove our General Partners; and
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to
authorize a merger or a consolidation of the
Partnership.
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These are
the only significant voting rights granted to our limited partners under our
Partnership Agreement. Therefore, limited partners’ voting rights in
our operations are limited.
Our
General Partners will make all decisions with respect to our management and
determine all of our major policies, including our financing, growth, investment
strategies and distributions. Our General Partners may revise these
and other policies without a vote of the limited partners. Therefore,
limited partners will be relying almost entirely on our General Partners for our
management and the operation of our business. Our General Partners
may only be removed under certain conditions, as set forth in our Partnership
Agreement. If our General Partners are removed, they will receive
payment equal to the fair market value of their interests in us as agreed upon
by our General Partners and us, or by arbitration if we are unable to
agree.
Payment
of fees to our General Partners and their affiliates will reduce cash available
for distribution.
Our
General Partners and their affiliates will perform services for us in connection
with the management and leasing of our properties and the administration of our
other investments. They will be paid substantial fees for these
services, which will reduce the amount of cash available for distribution to
limited partners.
12
The
failure of any bank in which we deposit our funds could reduce the amount of
cash we have available to pay distributions and make additional
investments.
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 have cash and cash
equivalents and restricted cash deposited in interest bearing transaction
accounts at certain financial institutions in excess of federally insured
levels. If any of the banking institutions in which we have deposited
funds ultimately fails, we may lose our deposits over the federally insured
levels. The loss of our deposits could reduce the amount of cash we have
available to distribute and could result in a decline in the value of your
investment.
Your
investment return may be reduced if we are required to register as an investment
company under the Investment Company Act.
We are
not registered, and do not intend to register, as an investment company under
the Investment Company Act of 1940, as amended, based on exclusions that we
believe are available to us. If we were obligated to register as an
investment company, we would have to comply with a variety of substantive
requirements under the Investment Company Act imposing, among other
things:
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limitations
on capital structure;
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restrictions
on specified investments;
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prohibitions
on transactions with affiliates;
and
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compliance
with reporting, record keeping, voting, proxy disclosure and other rules
and regulations that would significantly change our
operations.
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In order
to be excluded from regulation under the Investment Company Act, we must engage
primarily in the business of acquiring and owning real estate assets or real
estate-related assets. We rely on exemptions or exclusions provided by the
Investment Company Act for the direct ownership, or the functional equivalent
thereof, of certain qualifying real estate assets or by engaging in business
through one or more majority-owned subsidiaries, as well as other exemptions or
exclusions. The position of the SEC staff generally requires us to
maintain at least 55% of our assets directly in qualifying real estate interests
in order for us to maintain our exemption. Mortgaged-backed
securities may or may not constitute qualifying real estate assets, depending on
the characteristics of the mortgage-backed securities, including the rights that
we have with respect to the underlying loans.
To
maintain compliance with the Investment Company Act exemption, we may be unable
to sell assets we would otherwise want to sell and may need to sell assets we
would otherwise wish to retain. In addition, we may have to acquire
additional income or loss generating assets that we might not otherwise have
acquired or may have to forgo opportunities to acquire interests in companies
that we would otherwise want to acquire and would be important to our investment
strategy.
If we
were required to register as an investment company but failed to do so, we would
be prohibited from engaging in our business, and criminal and civil actions
could be brought against us. In addition, our contracts would be
unenforceable unless a court required enforcement, and a court could appoint a
receiver to take control of us and liquidate our business.
Risks
Related to Investments in Real Estate
Our
operating results will be affected by economic and regulatory changes that have
an adverse impact on the real estate market in general, and we cannot assure
investors that we will be profitable or that we will realize growth in the value
of our real estate properties.
Our
operating results will be subject to risks generally incident to the ownership
of real estate, including:
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changes
in general economic or local
conditions;
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changes
in supply of or demand for similar or competing properties in an
area;
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ability
to collect rent from tenants;
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increasing
vacancy rates or ability to rent space on favorable
terms;
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changes
in interest rates and availability of permanent mortgage funds that may
render the sale of a property difficult or
unattractive;
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the
illiquidity of real estate investments
generally;
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changes
in tax, real estate, environmental and zoning laws;
and
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periods
of high interest rates and tight money
supply.
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For these
and other reasons, we cannot assure investors that we will be profitable or that
we will realize growth in the value of our real estate properties.
We
have acquired a number of our properties in the Southwest United States,
particularly in the Dallas, Texas metropolitan area. As a result of
this limited diversification of the geographic locations of our properties, our
operating results will be affected by economic changes that have an adverse
impact on the real estate market in that area.
Many of the properties that we have
acquired using the proceeds of the Offering are located in the Southwest United
States, more specifically, in the Dallas, Texas metropolitan
area. Consequently, because of the lack of geographic diversity among
our current assets, our operating results and ability to pay distributions are
likely to be impacted by economic changes affecting the real estate market in
the Dallas, Texas area. An investment in our units will be subject to
greater risk to the extent that we lack a geographically diversified portfolio
of properties.
We
may be unable to secure funds for future tenant improvements, which could
adversely impact our ability to pay cash distributions to our limited
partners.
When
tenants do not renew their leases or otherwise vacate their space, it is usual
that, in order to attract replacement tenants, we will be required to expend
substantial funds for tenant improvements and tenant refurbishments to the
vacated space. If we have insufficient working capital reserves, we
will have to obtain financing from other sources. We generally
maintain working capital reserves of 1% of the contract price of the properties
we own. If these reserves or any reserves otherwise established are
insufficient to meet our cash needs, we may have to obtain financing from either
affiliated or unaffiliated sources to fund our cash requirements. We
cannot assure investors that sufficient financing will be available or, if
available, will be available on economically feasible terms or on terms
acceptable to us. Our Partnership Agreement limits our ability to
borrow money. Any borrowing for working capital purposes, if
permitted, will cause us to incur interest expense, and therefore our financial
condition and our ability to pay cash distributions to our limited partners may
be adversely affected.
We
may be unable to sell a property on acceptable terms and conditions, if at
all.
We intend
to hold our real properties and other investments until our General Partners
decide that a sale or other disposition is consistent with our investment
objectives or until it appears that these objectives will not be
met. Otherwise, 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 liquidation if we do not
cause the units to be listed for trading on a national securities exchange by
2017, unless investors holding a majority of the units approve
otherwise.
We
may suffer adverse consequences due to the financial difficulties, bankruptcy or
insolvency of our tenants.
The
current economic conditions have caused, and may continue to cause, our tenants
to experience financial difficulties, including bankruptcy, insolvency or a
general downturn in their business. We cannot assure you that any tenant that
files for bankruptcy protection will continue to pay us rent. A bankruptcy
filing by or relating to one of our tenants or a lease guarantor would bar
efforts by us to collect pre-bankruptcy debts from that tenant or lease
guarantor, or its property, unless we receive an order permitting us to do so
from the bankruptcy court. In addition, we cannot evict a tenant solely because
of bankruptcy. The bankruptcy of a tenant or lease guarantor could delay our
efforts to collect past due balances under the relevant leases, and could
ultimately preclude collection of these sums. If a lease is assumed by the
tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be
paid to us in full. If, however, a lease is rejected by a tenant in bankruptcy,
we would have only a general, unsecured claim for damages. An unsecured claim
would only be paid to the extent that funds are available and only in the same
percentage as is paid to all other holders of general, unsecured claims.
Restrictions under the bankruptcy laws further limit the amount of any other
claims that we can make if a lease is rejected. As a result, it is likely that
we would recover substantially less than the full value of the remaining rent
during the term.
Properties
that have significant vacancies could be difficult to sell, which could diminish
the return on an investment.
A
property may incur vacancies either by the continued default of tenants under
their leases or the expiration of tenant leases. If vacancies
continue for a long period of time, we may suffer reduced revenues, resulting in
less cash to be distributed to limited partners. In addition, the
resale value of the property could be diminished because the market value of a
particular property will depend principally upon the value of the leases of such
property.
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We
are dependent on tenants for our revenue and lease terminations could reduce or
prevent our distributions to our limited partners.
The
success of our investments, particularly properties occupied by a single tenant,
is materially dependent on the financial stability of our
tenants. Lease payment defaults by tenants could cause us to reduce
the amount of distributions to limited partners. A default by a
significant tenant on its lease payments to us would cause us to lose the
revenue associated with such lease. In the event of a tenant default,
we may experience delays in enforcing our rights as landlord and may incur
substantial costs in protecting our investment and re-letting our
property. If significant leases are terminated, we cannot assure
investors that we will be able to lease the property for the rent previously
received or sell the property without incurring a loss.
If
we sell any of our properties in tenant-in-common transactions, those sales may
be viewed as sales of securities, and we would retain potential liability after
the sale under applicable securities laws.
We may
sell properties in tenant-in-common transactions. If we do make such
sales, they may be viewed as sales of securities, and as a result if the
purchasers in the tenant-in-common transaction had post-closing claims, they
could bring claims under applicable securities laws. Those claims
could have a material adverse effect upon our business and results of
operations.
If
we set aside insufficient working capital reserves, we may be required to defer
necessary property improvements.
If we do
not estimate enough reserves for working capital to supply needed funds for
capital improvements throughout the life of the investment in a property, we may
be required to defer necessary improvements to the property that may cause the
property to suffer from a greater risk of obsolescence or a decline in value, or
a greater risk of decreased cash flow as a result of fewer potential tenants
being attracted to the property. If this happens, we may not be able
to maintain projected rental rates for affected properties, and our results of
operations may be negatively impacted.
Uncertain
market conditions and the broad discretion of our General Partners relating to
the future disposition of properties could adversely affect the limited
partners’ returns on their investments.
We intend
to hold the various real properties in which we invest until such time as our
General Partners determine that a sale or other disposition appears to be
advantageous to achieve our investment objectives or until it appears that such
objectives will not be met. We cannot predict with any certainty the
various market conditions affecting real estate investments that will exist at
any particular time in the future. Although we generally intend to
hold our current properties for five to eight years from the termination of the
Offering on February 19, 2005, due to the uncertainty of market conditions that
may affect the future disposition of our properties, we cannot assure limited
partners that we will be able to sell our properties at a profit in the
future. Accordingly, the extent to which limited partners will
receive cash distributions and realize potential appreciation on our real estate
investments will be dependent upon fluctuating market conditions.
Uninsured
losses relating to real property or excessively expensive premiums for insurance
coverage may adversely affect investor returns.
Our
General Partners will attempt to ensure that all of our properties are
adequately insured to cover casualty losses. However, there are types
of losses, generally catastrophic in nature, such as losses due to wars, acts of
terrorism, earthquakes, floods, hurricanes, pollution or environmental matters,
which are uninsurable or not economically insurable, or may be insured subject
to limitations, such as large deductibles or co-payments. Insurance
risks associated with potential terrorism acts could sharply increase the
premiums we pay for coverage against property and casualty claims. It
is uncertain whether such insurance policies will be available, or available at
reasonable cost, which could inhibit our ability to finance or refinance our
properties. In such instances, we may be required to provide other
financial support, either through financial assurances or self-insurance, to
cover potential losses. We cannot assure investors that we will have
adequate coverage for such losses. In the event that any of our
properties incurs a casualty loss which is not fully covered by insurance, the
value of our assets will be reduced by any such uninsured loss. In
addition, other than the working capital reserve or other reserves we may
establish, we have no source of funding to repair or reconstruct any uninsured
damaged property, and we cannot assure investors that any such sources of
funding will be available to us for such purposes in the
future. Also, to the extent we must pay unexpectedly large amounts
for insurance, we could suffer reduced earnings that would result in less cash
available for distribution to limited partners.
15
A
concentration of our investments in any one property class may leave our
profitability vulnerable to a downturn in such sector.
At any
one time, a significant portion of our investments could be in one property
class. As a result, we will be subject to risks inherent in
investments in a single type of property. If our investments are
substantially in one property class, then the potential effects on our revenues,
and as a result, on cash available for distribution to our stockholders,
resulting from a downturn in the businesses conducted in those types of
properties could be more pronounced than if we had more fully diversified our
investments.
The
costs of compliance with environmental laws and other governmental laws and
regulations may adversely affect our income and the cash available for any
distributions.
All real
property and the operations conducted on real property are subject to federal,
state and local laws and regulations relating to environmental protection and
human health and safety. These laws and regulations generally govern
wastewater discharges, air emissions, the operation and removal of underground
and above-ground storage tanks, the use, storage, treatment, transportation and
disposal of solid and hazardous materials, and the remediation of contamination
associated with disposals. Some of these laws and regulations may
impose joint and several liabilities on tenants, owners or operators for the
costs of investigation or remediation of contaminated properties, regardless of
fault or the legality of the original disposal. In addition, the
presence of these substances, or the failure to properly remediate these
substances, may adversely affect our ability to sell or rent such property or to
use the property as collateral for future borrowing.
Some of
these laws and regulations have been amended so as to require compliance with
new or more stringent standards as of future dates. Compliance with new or
more stringent laws or regulations or stricter interpretation of existing laws
may require material expenditures by us. We cannot assure investors
that future laws, ordinances or regulations will not impose any material
environmental liability, or that the current environmental condition of our
properties will not be affected by the operations of the tenants, by the
existing condition of the land, by operations in the vicinity of the properties,
such as the presence of underground storage tanks, or by the activities of
unrelated third parties. In addition, there are various local, state
and federal fire, health, life-safety and similar regulations with which we may
be required to comply, and which may subject us to liability in the form of
fines or damages for noncompliance.
Discovery
of previously undetected environmentally hazardous conditions may adversely
affect our operating results.
Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
cost of removal or remediation of hazardous or toxic substances on, under or in
such property. The costs of removal or remediation could be
substantial. Such laws often impose liability whether or not the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Environmental laws also may impose
restrictions on the manner in which property may be used or businesses may be
operated, and these restrictions may require substantial
expenditures. Environmental laws provide for sanctions in the event
of noncompliance and may be enforced by governmental agencies or, in certain
circumstances, by private parties. Certain environmental laws and
common law principles could be used to impose liability for release of and
exposure to hazardous substances, including asbestos-containing materials into
the air, and third parties may seek recovery from owners or operators of real
properties for personal injury or property damage associated with exposure to
released hazardous substances. The cost of defending against claims
of liability, of compliance with environmental regulatory requirements, of
remediating any contaminated property, or of paying personal injury claims could
materially adversely affect our business, assets or results of operations and,
consequently, amounts available for distribution to limited
partners.
Our
costs associated with complying with the Americans with Disabilities Act may
affect cash available for distributions.
Our
properties may be subject to the Americans with Disabilities Act of 1990, as
amended (the “Disabilities Act”). Under the Disabilities Act, all
places of public accommodation are required to comply with federal requirements
related to access and use by disabled persons. The Disabilities Act
has separate compliance requirements for “public accommodations” and “commercial
facilities” that generally require that buildings and services be made
accessible and available to people with disabilities. The
Disabilities Act’s requirements could require removal of access barriers and
could result in the imposition of injunctive relief, monetary penalties or, in
some cases, an award of damages. We will attempt to place the burden
on the seller or other third party, such as a tenant, to ensure compliance with
the Disabilities Act. However, we cannot assure investors that we
have acquired properties or will be able to allocate responsibilities in this
manner. If we cannot, our funds used for Disabilities Act compliance
may affect cash available for distributions and the amount of distributions to
limited partners, if any.
16
If
we sell properties by providing financing to purchasers, we will bear the risk
of default by the purchaser.
If we
decide to sell any of our properties, we intend to use our best efforts to sell
them for cash. However, in some instances we may sell our properties
by providing financing to purchasers. When we provide financing to
purchasers, we will bear the risk of default by the purchaser and will be
subject to remedies provided by law, which could negatively impact our cash
distributions to limited partners. There are no limitations or
restrictions on our ability to take purchase money obligations. We
may, therefore, take a purchase money obligation secured by a mortgage as part
payment for the purchase price. The terms of payment to us generally
will be affected by custom in the area where the property being sold is located
and the then-prevailing economic conditions. If we receive promissory
notes or other property in lieu of cash from property sales, the distribution of
the proceeds of sales to our limited partners, or their reinvestment in other
properties, will be delayed until the promissory notes or other property are
actually paid, sold, refinanced or otherwise disposed of. In some
cases, we may receive initial down payments in cash and other property in the
year of sale in an amount less than the selling price and subsequent payments
will be spread over a number of years. If any purchaser defaults
under a financing arrangement with us, it could negatively impact our ability to
pay cash distributions to limited partners.
Risks
Related to Conflicts of Interest
We will
be subject to conflicts of interest arising out of our relationships with our
General Partners and their affiliates, including the material conflicts
discussed below.
Our
General Partners and certain of their key personnel will face competing demands
relating to their time, and this may cause our investment returns to
suffer.
Our
General Partners and certain of their key personnel and their respective
affiliates are general partners and sponsors of other real estate programs
having investment objectives and legal and financial obligations similar to ours
and may have other business interests as well. Because these persons
have competing interests on their time and resources, they may have conflicts of
interest in allocating their time between our business and these other
activities. During times of intense activity in other programs and
ventures, they may devote less time and resources to our business than is
necessary or appropriate. If this occurs, the returns on our
investments may suffer.
Our
General Partners will face conflicts of interest relating to joint ventures,
which could result in a disproportionate benefit to a Behringer Harvard program
or third party other than us.
We may
enter into joint ventures with other Behringer Harvard sponsored programs, as
well as third parties, for the improvement of properties. We may also
develop properties in joint ventures or in partnerships, co-tenancies or other
co-ownership arrangements with the sellers of the properties, affiliates of the
sellers, developers or other persons. Such investments may involve
risks not otherwise present with other methods of investment in real estate,
including, for example:
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the
possibility that our co-venturer, co-tenant or partner in an investment
might become bankrupt;
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that
such co-venturer, co-tenant or partner may at any time have economic or
business interests or goals which are or which become inconsistent with
our business interests or goals;
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that
such co-venturer, co-tenant or partner may be in a position to take action
contrary to our instructions or requests or contrary to our policies or
objectives; or
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the
possibility that we may incur liabilities as the result of the action
taken by our co-venturer, co-tenant or
partner.
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Actions
by such a co-venturer, co-tenant or partner might have the result of subjecting
the property to liabilities in excess of those contemplated and may have the
effect of reducing investors’ returns.
Affiliates
of our General Partners have sponsored or are currently sponsoring registered
public offerings on behalf of Behringer Harvard REIT I, Inc. (“Behringer
Harvard REIT I”), Behringer Harvard Opportunity REIT I, Inc. (“Behringer Harvard
Opportunity REIT I”), Behringer Harvard Opportunity REIT II, Inc. (“Behringer
Harvard Opportunity REIT II”), and Behringer Harvard Short-Term Opportunity Fund
I, LP (“Behringer Harvard Short-Term Opportunity Fund I”). Mr.
Behringer and his affiliate, Behringer Harvard Advisors II LP (an
entity that is under common control with our general partner, Behringer
Advisors I), act as general partners of Behringer Harvard Short-Term
Opportunity Fund I, and Mr. Behringer serves as Chairman of the Board of
Behringer Harvard REIT I, Behringer Harvard Opportunity REIT I, Behringer
Harvard Multifamily REIT I, Inc. (Behringer Harvard Multifamily
REIT”), Berhinger Harvard REIT II, Inc. (“Behringer Harvard REIT
II”),and Behringer Harvard Opportunity REIT II. Because our General
Partners or their affiliates have advisory and management arrangements with
other Behringer Harvard programs, it is likely that they will encounter
opportunities to acquire or sell properties to the benefit of one of the
Behringer Harvard programs, but not others. Our General Partners or
their affiliates may make decisions to buy or sell certain properties, which
decisions might disproportionately benefit a Behringer Harvard program other
than us. In such event, our results of operations and ability to pay
distributions to our limited partners could be adversely
affected.
17
If we
enter into a joint venture with another Behringer Harvard program or joint
venture, our General Partners may have a conflict of interest when determining
when and whether to buy or sell a particular real estate property and limited
partners may face certain additional risks. For example, if we enter
into a joint venture with a Behringer Harvard REIT that subsequently becomes
listed on a national exchange, such REIT would automatically become a perpetual
life entity at the time of listing and might not continue to have similar goals
and objectives with respect to the resale of properties as it had prior to being
listed. In addition, if that Behringer Harvard REIT was not listed on
a securities exchange by the time set forth in its charter, its organizational
documents might provide for an immediate liquidation of its
assets. In the event of such liquidation, any joint venture between
us and that Behringer Harvard REIT might also be required to sell its properties
at such time even though we may not otherwise desire to do
so. Although the terms of any joint venture agreement between us and
another Behringer Harvard program would grant us a right of first refusal to buy
such properties, it is unlikely that we would have sufficient funds to exercise
our right of first refusal under these circumstances.
Since our
General Partners and their affiliates control us and either control or serve as
advisor to other Behringer Harvard programs, agreements and transactions between
the parties with respect to any joint venture between or among such parties will
not have the benefit of arm’s-length negotiation of the type normally conducted
between unrelated co-venturers. Under these joint venture
arrangements, neither co-venturer may have the power to control the venture, and
under certain circumstances, an impasse could be reached regarding matters
pertaining to the joint venture, which might have a negative influence on the
joint venture and decrease potential returns to the limited
partners. In the event that a co-venturer has a right of first
refusal to buy out the other co-venturer, it may be unable to finance such
buy-out at that time. It may also be difficult for us to sell our
interest in any such joint venture or partnership or as a co-tenant in
property. In addition, to the extent that our co-venturer, partner or
co-tenant is an affiliate of our General Partners, certain conflicts of interest
will exist.
The
General Partners and certain of their affiliates face conflicts of interest
caused by their compensation arrangements with us, which could result in actions
that are not in the long-term best interests of our unitholders.
Our
General Partners and certain of their affiliates, including our Property
Manager, are entitled to substantial fees from us under the terms of our
advisory management agreement and property management
agreement. These fees were not negotiated at arm’s length and reduce
the amount of cash available for distributions.
These
fees could influence our General Partner’s advice to us as well as the judgment
of their affiliates performing services for us. Among other matters, these
compensation arrangements could affect their judgment with respect
to:
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continuing,
renewing or enforcing our agreements with our General Partners and their
affiliates, including the advisory management agreement and the property
management agreement;
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property
sales, which reduce the asset management and property management fees
payable to our General Partners or their affiliates but also entitle them
to real estate commissions;
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determining
the compensation paid to employees for services provided to us, which
could be influenced in part by whether or not the General Partners is
reimbursed by us for the related salaries and
benefits;
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whether
and when we seek to sell our assets, which sale could entitle our General
Partners to real estate
commissions.
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The fees
our General Partners receive in connection with transactions involving the
management of an asset are based on the cost of the investment, including the
amount budgeted for the development, construction, and improvement of each
asset, and are not based on the quality of the investment or the quality of the
services rendered to us. This may influence our General Partners to recommend
riskier transactions to us.
We
may be restricted in our ability to replace our Property Manager under certain
circumstances.
Under the
terms of our property management agreement, we may terminate the agreement upon
30 days’ notice in the event of (and only in the event of) a showing of willful
misconduct, gross negligence, or deliberate malfeasance by our Property Manager
in the performance of their duties. Our General Partners may find the
performance of our Property Manager to be unsatisfactory. However,
such performance by the Property Manager may not reach the level of “willful
misconduct, gross negligence, or deliberate malfeasance.” As a
result, we may be unable to terminate the property management agreement at the
desired time, which may have an adverse effect on the management and
profitability of our properties.
18
Our
General Partners and certain of their key personnel face conflicts of interest
related to the positions they hold with affiliated entities, which could
diminish the value of the services they provide to us.
Mr.
Behringer and certain of the key personnel of Behringer Advisors I are also
officers of our Property Manager, our dealer manager and other affiliated
entities. As a result, these individuals owe fiduciary duties to
these other entities, which may conflict with the fiduciary duties that they owe
to us and our investors. Conflicts with our business and interests
are most likely to arise from involvement in activities related to (1)
allocation of management time and services between us and the other entities,
(2) the timing and terms of the sale of an asset, (3) compensation to our
General Partners, and (4) our relationship with our dealer manager and Property
Manager.
Because
we rely on affiliates of Behringer Holdings for the provision of property
management, if Behringer Holdings is unable to meet its obligations, we may be
required to find alternative providers of these services, which could result in
a significant and costly disruption of our business.
Behringer
Holdings, through one or more of its subsidiaries, owns and controls our
Property Manager. The operations of our Property Manager rely
substantially on Behringer Holdings. In light of the common ownership
of this entity and its reliance on Behringer Holdings, we consider the financial
condition of Behringer Holdings when assessing the financial condition of our
Property Manager. In the event that Behringer Holdings would be
unable to meet its obligations as they become due, we might be required to find
alternative service providers, which could result in a significant and costly
disruption of our business.
There
is no separate counsel for us and our affiliates, which could result in
conflicts of interest.
Morris,
Manning & Martin, LLP acts as legal counsel to us, and is also expected to
represent our General Partners and some of their affiliates from time to
time. There is a possibility in the future that the interests of the
various parties may become adverse and, under the Code of Professional
Responsibility of the legal profession, Morris, Manning & Martin, LLP may be
precluded from representing any one or all of such parties. If any
situation arises in which our interests appear to be in conflict with those of
our General Partners or their affiliates, additional counsel may be retained by
one or more of the parties to assure that their interests are adequately
protected. Moreover, should such a conflict not be readily apparent,
Morris, Manning & Martin, LLP, may inadvertently act in derogation of the
interest of the parties which could affect us and, therefore, our limited
partners’ ability to meet our investment objectives.
Federal
Income Tax Risks
The
Internal Revenue Service may challenge our characterization of material tax
aspects of investment in our units of limited partnership interest.
An
investment in units involves material income tax risks. Investors are
urged to consult with their own tax advisor with respect to the federal, state
and foreign tax considerations of an investment in our units. We will
not seek any rulings from the Internal Revenue Service regarding any of the tax
issues discussed herein. Further, although we have obtained an
opinion from our counsel, Morris, Manning & Martin, LLP, regarding the
material federal income tax issues relating to an investment in our units,
investors should be aware that this opinion represents only our counsel’s best
legal judgment, based upon representations and assumptions referred to therein
and conditioned upon the existence of certain facts. Our counsel’s
tax opinion has no binding effect on the Internal Revenue Service or any
court. Accordingly, we cannot assure investors that the conclusions
reached in the tax opinion, if contested, would be sustained by any
court. In addition, our counsel is unable to form an opinion as to
the probable outcome of the contest of certain material tax aspects of the
transactions described in this prospectus, including whether we will be
characterized as a “dealer” so that sales of our assets would give rise to
ordinary income rather than capital gain and whether we are required to qualify
as a tax shelter under the Internal Revenue Code. Our counsel also
gives no opinion as to the tax considerations to investors of tax issues that
have an impact at the individual or partner level. Accordingly,
investors are urged to consult with and rely upon their own tax advisors with
respect to tax issues that have an impact at the partner or individual
level.
Investors
may realize taxable income without cash distributions, and they may have to use
funds from other sources to pay their tax liabilities.
Limited
partners will be required to report their allocable share of our taxable income
on their personal income tax return regardless of whether they have received any
cash distributions from us. It is possible that limited partnership
units will be allocated taxable income in excess of their cash
distributions. We cannot assure limited partners that cash flow will
be available for distribution in any year. As a result, limited
partners may have to use funds from other sources to pay their tax
liability.
19
We
could be characterized as a publicly traded partnership, which would have an
adverse tax effect on investors.
If the
Internal Revenue Service were to classify us as a publicly traded partnership,
we could be taxable as a corporation, and distributions made to limited partners
could be treated as portfolio income to them rather than passive
income. Our counsel has given its opinion that we will not be
classified as a publicly traded partnership, which is defined generally as a
partnership whose interests are publicly traded or frequently
transferred. However, this opinion is based only upon certain
representations of our General Partners and the provisions in our Partnership
Agreement that attempt to comply with certain safe harbor standards adopted by
the Internal Revenue Service. We cannot assure limited partners that
the Internal Revenue Service will not challenge this conclusion or that we will
not, at some time in the future, be treated as a publicly traded partnership due
to the following factors:
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the
complex nature of the Internal Revenue Service safe
harbors;
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the
lack of interpretive guidance with respect to such provisions;
and
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the
fact that any determination in this regard will necessarily be based upon
facts that have not yet occurred.
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The
deductibility of losses will be subject to passive loss limitations, and
therefore, their deductibility will be limited.
Limited
partnership units will be allocated their pro rata share of our tax
losses. Section 469 of the Internal Revenue Code limits the allowance
of deductions for losses attributable to passive activities, which are defined
generally as activities in which the taxpayer does not materially
participate. Any tax losses allocated to investors will be
characterized as passive losses, and accordingly, the deductibility of such
losses will be subject to these limitations. Losses from passive
activities are generally deductible only to the extent of a taxpayer’s income or
gains from passive activities and will not be allowed as an offset against other
income, including salary or other compensation for personal services, active
business income or “portfolio income,” which includes non-business income
derived from dividends, interest, royalties, annuities and gains from the sale
of property held for investment. Accordingly, limited partners may
receive no current benefit from their share of tax losses unless they are
currently being allocated passive income from other sources.
The
Internal Revenue Service may challenge our allocations of profit and loss, and
any reallocation of items of income, gain, deduction and credit could reduce
anticipated tax benefits.
Counsel
has given its opinion that it is more likely than not that Partnership items of
income, gain, loss, deduction and credit will be allocated among our General
Partners and our limited partners substantially in accordance with the
allocation provisions of the Partnership Agreement. We cannot assure
investors, however, that the Internal Revenue Service will not successfully
challenge the allocations in the Partnership Agreement and reallocate items of
income, gain, loss, deduction and credit in a manner that reduces anticipated
tax benefits. The tax rules applicable to allocation of items of
taxable income and loss are complex. The ultimate determination of
whether allocations adopted by us will be respected by the Internal Revenue
Service will depend upon facts which will occur in the future and which cannot
be predicted with certainty or completely controlled by us. If the
allocations we use are not recognized, limited partners could be required to
report greater taxable income or less taxable loss with respect to an investment
in us and, as a result, pay more tax and associated interest and
penalties. Our limited partners might also be required to incur the
costs of amending their individual returns.
We
may be characterized as a dealer, and if so, any gain recognized upon a sale of
real property would be taxable to investors as ordinary income.
If we
were deemed for tax purposes to be a dealer, defined as one who holds property
primarily for sale to customers in the ordinary course of business, with respect
to one or more of our properties, any gain recognized upon a sale of such real
property would be taxable to investors as ordinary income and would also
constitute UBTI to investors who are tax-exempt entities. The
resolution of our status in this regard is dependent upon facts that will not be
known until the time a property is sold or held for sale. Under
existing law, whether property is held primarily for sale to customers in the
ordinary course of business must be determined from all the facts and
circumstances surrounding the particular property at the time of
disposition. These include the number, frequency, regularity and
nature of dispositions of real estate by the holder and activities of the holder
of the property in selling the property or preparing the property for
sale. Accordingly, our counsel is unable to render an opinion as to
whether we will be considered to hold any or all of our properties primarily for
sale to customers in the ordinary course of business.
20
We
may be audited by the Internal Revenue Service, which could result in the
imposition of additional tax, interest and penalties.
Our
federal income tax returns may be audited by the Internal Revenue
Service. Any audit of us could result in an audit of limited
partners’ tax returns that may require adjustments of items unrelated to their
investment in us, in addition to adjustments to various Partnership
items. In the event of any such adjustments, limited partners might
incur attorneys’ fees, court costs and other expenses contesting deficiencies
asserted by the Internal Revenue Service. Limited partners may also
be liable for interest on any underpayment and penalties from the date their tax
was originally due. The tax treatment of all Partnership items will
generally be determined at the partnership level in a single proceeding rather
than in separate proceedings with each partner, and our General Partners are
primarily responsible for contesting federal income tax adjustments proposed by
the Internal Revenue Service. In this connection, our General
Partners may extend the statute of limitations as to all partners and, in
certain circumstances, may bind the partners to a settlement with the Internal
Revenue Service. Further, our General Partners may cause us to elect
to be treated as an electing large partnership. If they do, we could
take advantage of simplified flow-through reporting of Partnership
items. Adjustments to Partnership items would continue to be
determined at the partnership level, however, and any such adjustments would be
accounted for in the year they take effect, rather than in the year to which
such adjustments relate. Our General Partners will have the
discretion in such circumstances either to pass along any such adjustments to
the partners or to bear such adjustments at the partnership level.
State
and local taxes and a requirement to withhold state taxes may apply, and if so,
the amount of net cash from operations payable to investors would be
reduced.
The state
in which a limited partner resides may impose an income tax upon such limited
partner’s share of our taxable income. Further, states in which we
will own our properties may impose income taxes upon limited partners’ share of
our taxable income allocable to any Partnership property located in that
state. Many states have also implemented or are implementing programs
to require partnerships to withhold and pay state income taxes owed by
non-resident partners relating to income-producing properties located in their
states, and we may be required to withhold state taxes from cash distributions
otherwise payable to limited partners. Limited partners may also be
required to file income tax returns in some states and report their share of
income attributable to ownership and operation by the Partnership of properties
in those states. Moreover, despite our pass-through treatment for
U.S. federal income tax purposes, certain states may impose income or franchise
taxes upon our income and not treat us as a pass-through entity. The
imposition of such taxes will reduce the amounts distributable to our limited
partners. In the event we are required to withhold state taxes from
limited partners’ cash distributions, the amount of the net cash from operations
otherwise payable to limited partners would be reduced. In addition,
such collection and filing requirements at the state level may result in
increases in our administrative expenses that would have the effect of reducing
cash available for distribution to limited partners. Limited partners
are urged to consult with their own tax advisors with respect to the impact of
applicable state and local taxes and state tax withholding requirements on an
investment in our units.
Legislative
or regulatory action could adversely affect investors.
In recent
years, numerous legislative, judicial and administrative changes have been made
in the provisions of the federal income tax laws applicable to investments
similar to an investment in our units. Additional changes to the tax
laws are likely to continue to occur, and we cannot assure investors that any
such changes will not adversely affect the taxation of a limited
partner. Any such changes could have an adverse effect on an
investment in our units or on the market value or the resale potential of our
properties. Investors are urged to consult with their own tax advisor
with respect to the impact of recent legislation on their investment in units
and the status of legislative, regulatory or administrative developments and
proposals and their potential effect on an investment in our
units. Investors should also note that our counsel’s tax opinion
assumes that no legislation that will be applicable to an investment in our
units will be enacted after the commencement of the Offering on February 19,
2003.
Congress
has passed major federal tax legislation regarding taxes applicable to
recipients of dividends. One of the changes reduced the tax rate to
recipients of dividends paid by corporations to individuals to a maximum of
15%. The tax changes did not, however, reduce the corporate tax
rates. Therefore, the maximum corporate tax rate of 35% has not been
affected. Even with the reduction of the rate on dividends received
by the individuals, the combined maximum corporate federal tax rate and
individual tax rate on qualified corporate dividends is 44.75% and, with the
effect of state income taxes, can exceed 50%.
21
Although
partnerships continue to receive substantially better tax treatment than
entities taxed as corporations, it is possible that future legislation would
make a limited partnership structure a less advantageous organizational form for
investment in real estate, or that it could become more advantageous for a
limited partnership to elect to be taxed for federal income tax purposes as a
corporation or a REIT. Pursuant to our Partnership Agreement, our
General Partners have the authority to make any tax elections on our behalf
that, in their sole judgment, are in our best interest. This
authority includes the ability to elect to cause us to be taxed as a corporation
or to qualify as a REIT for federal income tax purposes. Our General
Partners have the authority under our Partnership Agreement to make those
elections without the necessity of obtaining the approval of our limited
partners. In addition, our General Partners have the authority to
amend our Partnership Agreement without the consent of limited partners in order
to facilitate our operations so as to be able to qualify us as a REIT,
corporation or other tax status that they elect for us. Our General
Partners have fiduciary duties to us and to all investors and would only cause
such changes in our organizational structure or tax treatment if they determine
in good faith that such changes are in the best interest of our
investors.
There
are special considerations that apply to pension or profit sharing trusts or
IRAs investing in our units.
If
investors are investing the assets of a pension, profit sharing, 401(k), Keogh
or other qualified retirement plan or the assets of an IRA in our units of
limited partnership interest, they should satisfy themselves that, among other
things:
|
·
|
their
investment is consistent with their fiduciary obligations under ERISA and
the Internal Revenue Code;
|
|
·
|
their
investment is made in accordance with the documents and instruments
governing their plan or IRA, including their plan’s investment
policy;
|
|
·
|
their
investment satisfies the prudence and diversification requirements of
ERISA;
|
|
·
|
their
investment will not impair the liquidity of the plan or
IRA;
|
|
·
|
their
investment will not produce UBTI for the plan or
IRA;
|
|
·
|
they
will be able to value the assets of the plan annually in accordance with
ERISA requirements; and
|
|
·
|
their
investment will not constitute a prohibited transaction under Section 406
of ERISA or Section 4975 of the Internal Revenue
Code.
|
We
may dissolve the Partnership if our assets are deemed to be “plan assets” or if
we engage in prohibited transactions.
If our
assets were deemed to be assets of qualified plans investing as limited
partners, known as “plan assets,” our General Partners would be considered to be
plan fiduciaries and certain contemplated transactions between our General
Partners or their affiliates and us may be deemed to be prohibited transactions
subject to excise taxation under Section 4975 of the Internal Revenue
Code. Additionally, if our assets were deemed to be plan assets,
ERISA’s fiduciary standards would extend to the General Partners as plan
fiduciaries with respect to our investments. We have not requested an
opinion of our counsel regarding whether or not our assets would constitute plan
assets under ERISA, nor have we sought any rulings from the U.S. Department of
Labor (“Department of Labor”) regarding classification of our
assets.
Department
of Labor regulations defining plan assets for purposes of ERISA contain
exemptions that, if satisfied, would preclude assets of a limited partnership
such as ours from being treated as plan assets. We cannot assure
investors that our Partnership Agreement and the Offering have been structured
so that the exemptions in such regulations would apply to us, and although our
General Partners intend that an investment by a qualified plan in units will not
be deemed an investment in our assets, we can make no representations or
warranties of any kind regarding the consequences of an investment in our units
by qualified plans in this regard. Plan fiduciaries are urged to
consult with and rely upon their own advisors with respect to this and other
ERISA issues which, if decided adversely to us, could result in prohibited
transactions, which would cause the imposition of excise taxation and the
imposition of co-fiduciary liability under Section 405 of ERISA in the event
actions undertaken by us are deemed to be non-prudent investments or prohibited
transactions.
In the
event our assets are deemed to constitute plan assets, or if certain
transactions undertaken by us are deemed to constitute prohibited transactions
under ERISA or the Internal Revenue Code and no exemption for such transactions
applies or is obtainable by us, our General Partners have the right, but not the
obligation, upon notice to all limited partners, but without the consent of any
limited partner to:
|
·
|
compel
a termination and dissolution of the Partnership;
or
|
|
·
|
restructure
our activities to the extent necessary to comply with any exemption in the
Department of Labor regulations or any prohibited transaction exemption
granted by the Department of Labor or any condition that the Department of
Labor might impose as a condition to granting a prohibited transaction
exemption.
|
22
Adverse
tax considerations may result because of minimum distribution
requirements.
If a
person intends to purchase units through an IRA, or if that person is a trustee
of an IRA or other fiduciary of a retirement plan considering an investment in
units, such person must consider the limited liquidity of an investment in our
units as it relates to applicable minimum distribution requirements under the
Internal Revenue Code. If units are held and our properties have not
yet been sold at such time as mandatory distributions are required to begin to
an IRA beneficiary or qualified plan participant, Sections 408(a)(6) and
401(a)(9) of the Internal Revenue Code will likely require that a
distribution-in-kind of the units be made to the IRA beneficiary or qualified
plan participant. Any such distribution-in-kind of units must be
included in the taxable income of the IRA beneficiary or qualified plan
participant for the year in which the units are received at the fair market
value of the units without any corresponding cash distributions with which to
pay the income tax liability attributable to any such
distribution. Also, fiduciaries of a retirement plan should consider
that, for distributions subject to mandatory income tax withholding under
Section 3405 of the Internal Revenue Code, the fiduciary may have an obligation,
even in situations involving in-kind distributions of units, to liquidate a
portion of the in-kind units distributed in order to satisfy such withholding
obligations. There may also be similar state and/or local tax
withholding or other obligations that should be considered.
UBTI
may be generated with respect to tax-exempt investors.
We do not
intend or anticipate that our tax-exempt investors will be allocated income
deemed to be derived from an unrelated trade or business, which is generally
referred to as UBTI. Notwithstanding this prohibition, our General
Partners do have limited authority to borrow funds deemed
necessary:
|
·
|
for
Partnership operating purposes in the event of unexpected circumstances in
which our cash resources become insufficient for the maintenance and
repair of our properties or for the protection or replacement of
assets;
|
|
·
|
in
order to finance improvement of properties when our General Partners deem
such improvements to be necessary or appropriate to protect the capital
previously invested in the
properties;
|
|
·
|
to
protect the value of our investment in a particular property;
and
|
|
·
|
to
make a particular property more attractive for sale or
lease.
|
Our
General Partners have represented that they will not cause us to incur
indebtedness unless they obtain an opinion of our counsel or an opinion from our
tax accountants that the proposed indebtedness more likely than not will not
cause the income allocable to tax-exempt investors to be characterized as
UBTI. Any such opinion will have no binding effect on the Internal
Revenue Service or any court. Therefore, some risk remains that we
may generate UBTI for our tax-exempt investors in the event that it becomes
necessary for us to borrow funds.
Further,
in the event we are deemed to be a “dealer” in real property, defined as one who
holds real estate primarily for sale to customers in the ordinary course of
business, the gain realized on the sale of our properties that is allocable to
tax-exempt investors would be characterized as UBTI. If we generate
UBTI, a trustee of a charitable remainder trust that has invested in us will
lose its exemption from income taxation with respect to all of its income for
the tax year in question. A tax-exempt limited partner other than a
charitable remainder trust that has UBTI in any tax year from all sources of
more than $1,000 will be subject to taxation on such income and be required to
file tax returns reporting such income.
Item
1B. Unresolved
Staff Comments.
None.
23
Item
2.
|
Properties.
|
At
December 31, 2009, we wholly-owned the following properties:
Property Name
|
Location
|
Approximate
Rentable Square
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
|
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.
|
Item
3.
|
Legal
Proceedings.
|
We are
not party to, and none of our properties are subject to, any material pending
legal proceedings.
Item
4.
|
(Removed
and Reserved).
|
24
PART
II
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Market
Information
There is
no established trading market for our limited partnership units, and we do not
expect that one will develop. This illiquidity creates a risk that a
limited partner may not be able to sell their units at a time or price
acceptable to the limited partner. Our Partnership Agreement requires
that beginning with the fiscal year ended December 31, 2009, the General
Partners annually provide our limited partners with an estimate of the amount a
holder of limited partnership units would receive if our properties were sold at
their fair market values as of the close of the fiscal year, and the proceeds
from the sale of the properties (without reduction for selling expenses),
together with other funds of the Partnership, were distributed in a
liquidation.
On
January 14, 2010 Behringer Advisors I, our co-general partner, adopted a new
estimated value per limited partnership unit as of December 31,
2009. As part of the valuation process, and as required by the
Partnership Agreement, the general partner has obtained the opinion of an
independent third party , Robert A. Stanger & Co., Inc., that the estimated
valuation is reasonable and was prepared in accordance with appropriate methods
for valuing real estate. Robert A. Stanger & Co., founded in
1978, is a nationally recognized investment banking firm specializing in real
estate, REIT’s and direct participation programs such as ours. The
new estimated valuation per limited partnership unit as of December 31, 2009 is
$7.09, adjusted from the previously estimated valuation of $10.00 per
unit.
In
addition to meeting its obligation under the Partnership Agreement, the General
Partners understand that this estimated value per unit may be used by (i) broker
dealers who have customers who own our limited partnership units to assist in
meeting customer account statement reporting obligations under the National
Association of Securities Dealers (which is the former name of FINRA) Conduct
Rule 2340 as required by FINRA and (ii) fiduciaries of retirement
plans subject to the annual reporting requirements of ERISA to assist in the
preparation of their reports.
As with
any valuation methodology, the General Partner’s methodology is based upon a
number of estimates and assumptions that may not be accurate or
complete. Different parties with different assumptions and estimates
could derive a different estimated value per unit, and these differences could
be significant. The estimated value per unit does not represent the
fair value according to GAAP of our assets less liabilities, nor does it
represent the amount our units would trade at on a national securities
exchange.
Generally,
we do not anticipate selling our assets until the economy has improved, and we
have the opportunity to realize additional value. Our general
partners intend to use all reasonable efforts to realize value for our limited
partners when commercial real estate prices have normalized. We are
diligently working to renew current leases or secure new leases with quality
tenants to increase net operating income and the ultimate value of our assets
and to execute on other value creation strategies. We are also trying
to minimize expenses when possible. In addition, we continue to work
to meet the originally envisioned liquidation timeframe for the fund which lasts
until 2013.
Unit
Redemption Program
The
General Partners terminated our unit redemption program on December 31, 2006 and
currently have no intention of re-instituting the program.
The units
we purchased under the Redemption Program were cancelled and will not be
reissued unless they are first registered with the SEC under the Securities Act
and under appropriate state securities laws or otherwise issued in compliance
with or exemption from such laws and our Partnership Agreement. During the
year ended December 31, 2008, the general partners approved a special redemption
of 34,257 units for approximately $342,000.
Holders
As of
March 19, 2010, we had 4,275,187 limited partnership units outstanding that were
held by a total of approximately 1,300 limited partners.
Distributions
The
timing and amount of cash to be distributed to our limited partners is
determined by the General Partners and is dependent on a number of factors,
including funds available for payment of distributions, financial condition and
capital expenditures. However, if cash distributions are made, the
Partnership Agreement requires that such cash distributions be made at least
quarterly. The following table shows the distributions declared in
the years ended December 31, 2009 and 2008 (in thousands):
25
2009
|
2008
|
|||||||
Fourth
Quarter
|
$ | 647 | $ | 647 | ||||
Third
Quarter
|
646 | 646 | ||||||
Second
Quarter
|
640 | 643 | ||||||
First
Quarter
|
632 | 645 | ||||||
$ | 2,565 | $ | 2,581 |
The
amount of distributions payable at December 31, 2009 and 2008 were approximately
$218,000. The distributions we pay to our limited partners are not
necessarily indicative of our current or future operating results, and there can
be no assurance that future cash flow will support distributions at the current
rate. In addition, 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. Our General Partners, in their discretion, may
defer fees payable by us to the 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 NASAA Guidelines, which would permit distributions to our
limited partners in excess of net cash from operations. Accordingly,
all or some of such distributions may constitute a return of capital to our
investors to the extent that distributions exceed net cash from operations, or
may be recognized as taxable income by us or by our investors. While
portfolio liquidation has been delayed because of current economic challenges,
we are at the stage where we are operating with a view to provide
capital returns to our investors through the sale of our assets, and we have
entered into a contract to sell one of our five buildings currently included in
our portfolio. If that sale is consummated, the general partners
currently anticipate distributing the net proceeds of the sale to the limited
partners and would also consider reducing the normal distribution to reflect the
reduction of income resulting from the disposition of this asset and resulting
higher general and administrative costs relative to revenues.
Recent
Sales of Unregistered Securities
None.
26
Item
6.
|
Selected
Financial Data.
|
As of
December 31, 2009, 2008, 2007 and 2006, we wholly-owned five
properties. At December 31, 2005, we wholly-owned six
properties. During 2006, we sold the Northpoint Property, which is
shown as discontinued operations in the table below. Accordingly, the
following selected financial data may not be comparable. The
following data should be read in conjunction with our audited consolidated
financial statements and the notes thereto and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” appearing elsewhere
in this Annual Report on Form 10-K. The selected financial data
presented below as of and for each of the five years in the period ended
December 31, 2009 has been derived from our audited consolidated financial
statements (in thousands, except per unit amounts):
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Total
assets
|
$ | 27,587 | $ | 30,105 | $ | 32,992 | $ | 35,585 | $ | 37,656 | ||||||||||
Total
liabilities
|
$ | 1,384 | $ | 1,502 | $ | 1,607 | $ | 2,370 | $ | 1,843 | ||||||||||
Partners'
capital
|
26,203 | 28,603 | 31,385 | 33,215 | 35,813 | |||||||||||||||
Total
liabilities and partners' capital
|
$ | 27,587 | $ | 30,105 | $ | 32,992 | $ | 35,585 | $ | 37,656 | ||||||||||
Rental
revenue
|
$ | 3,879 | $ | 3,865 | $ | 4,128 | $ | 4,254 | $ | 2,956 | ||||||||||
Income
from continuing operations
|
165 | 141 | 751 | 396 | 316 | |||||||||||||||
Income
from discontinued operations
|
- | - | 5 | 120 | 126 | |||||||||||||||
Gain
on sale of discontinued operations
|
- | - | - | 494 | - | |||||||||||||||
Net
income
|
$ | 165 | $ | 141 | $ | 756 | $ | 1,010 | $ | 442 | ||||||||||
Basic
and diluted per limited partnership unit data:
|
||||||||||||||||||||
Income
from continuing operations
|
$ | 0.04 | $ | 0.03 | $ | 0.17 | $ | 0.09 | $ | 0.07 | ||||||||||
Income
from discontinued operations
|
- | - | - | 0.14 | 0.03 | |||||||||||||||
Basic
and diluted net income per limited partnership unit
|
$ | 0.04 | $ | 0.03 | $ | 0.17 | $ | 0.23 | $ | 0.10 | ||||||||||
Distributions
declared per limited partnership unit
|
$ | 0.60 | $ | 0.60 | $ | 0.60 | $ | 0.60 | $ | 0.60 |
27
Item
7.
|
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 consolidated financial statements and the notes
thereto:
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 GAAP. 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 will evaluate these estimates. 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.
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include our accounts and the accounts of our
wholly-owned subsidiaries. All inter-company transactions, balances
and profits have been eliminated in consolidation.
Impairment
of Long-Lived Assets
Management
monitors events and changes in circumstances indicating that the carrying
amounts of our 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 real estate 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 real estate, 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. If
market conditions continue to deteriorate of management’s plans for certain
properties change, write-downs could be required in the future.
Overview
During
2009 as in 2008, the U.S. economy experienced 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. While it
is unclear as to when the overall economy will recover, we do not expect
conditions to improve in the near future. As a result of the current
economy, our primary objectives will be to preserve capital and sustain property
values while selectively disposing of our properties. Our ability to
dispose of our properties will be subject to various factors, including the
ability of potential purchasers to access capital debt
financing. Given the disruptions in the capital markets and the
current lack of available credit, our ability to dispose of our properties may
be delayed, or we may receive lower than anticipated returns. In
addition, a more prolonged economic downturn could negatively affect our ability
to attract and retain tenants.
Three of
our five real estate assets are located in Texas. These assets are
located in the Dallas-Fort Worth metropolitan area. This market and Texas in
general have historically been more resistant to recessionary trends than much
of the nation. Office vacancy rates in the Dallas-Fort Worth market
continued to rise through 2009. This was due in large part to office
employment declines in the financial activities, professional, and business
services industries. However, despite these declines, leasing
activity continues and supply is not as oversaturated in this market as in many
other markets. According to a recent study by the Brookings
Institution, a public policy think tank in Washington, D.C., the Dallas-Fort
Worth metropolitan area had one of the strongest economies in the nation during
the last quarter of 2009. The Dallas-Fort Worth area is expected to
experience modest leasing volume in 2010.
Current economic conditions discussed
above make it difficult to predict future operating results. There
can be no assurance that we will not experience further declines in revenues or
earnings for a number of reasons, including, but not limited to the possibility
of greater than anticipated weakness in the economy and the continued impact of
the trends mentioned above.
28
Results
of Operations
Fiscal
year ended December 31, 2009 as compared to fiscal year ended December 31,
2008
As of
December 31, 2009 and 2008, we wholly-owned five properties. These
properties combined contain approximately 236,000 rentable square
feet.
Rental Revenue. Rental
revenue for each of the years ended December 31, 2009 and 2008 was approximately
$3.9 million, and was comprised of revenue, including adjustments for
straight-line rent and amortization of above-market and below-market leases,
from our properties. We currently have lease expirations of
approximately 102,000 rentable square feet scheduled during the year ended
December 31, 2010. Unless we are able to release these vacant
properties quickly, management expects rental revenue to decline in the near
future.
Property
Operating Expenses. Property operating expenses for the
years ended December 31, 2009 and 2008 were approximately $875,000 and $821,000,
respectively, and were comprised of expenses related to the daily operations
from our properties. The increase in property operating expenses for
the year ended December 31, 2009 is primarily due to nonrecurring maintenance
expenses during 2009. Management expects property operating expenses
to decline in the near future due to the leases scheduled to expire during
2010.
Real Estate
Taxes. Real estate taxes for the years ended December
31, 2009 and 2008 were approximately $561,000 and $721,000, respectively, and
were comprised of real estate taxes from our properties. The decrease
in real estate taxes for the year ended December 31, 2009 is primarily 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 years
ended December 31, 2009 and 2008 were approximately $279,000
and $282,000, respectively, and were comprised of property management and asset
management fees from our properties. Management expects property and
asset management fees to remain relatively constant in the near
future.
General and Administrative
Expenses. General and administrative expenses for the years
ended December 31, 2009 and 2008 were approximately
$604,000 and $574,000, respectively, and were comprised of corporate general and
administrative expenses, including auditing fees, directors’ and officers’
insurance premiums, advisor’s administrative services, tax preparation fees,
legal fees, transfer agent fees, and other administrative
expenses. The increase was primarily due to increased legal fees, tax
preparation fees and advisors administrative services. Management
expects our general and administrative expenses to remain relatively constant in
the near future.
Depreciation and Amortization
Expense. Depreciation and amortization expense for the years
ended December 31, 2009 and 2008 was approximately $1.4 million and $1.5
million respectively, and was comprised of depreciation and amortization expense
at our properties.
Interest Income.
Interest income for the years ended December 31, 2009 and 2008 was approximately
$49,000 and $162,000 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.
Fiscal
year ended December 31, 2008 as compared to fiscal year ended December 31,
2007
As of
December 31, 2008 and 2007, we wholly-owned five properties. The
results for the year ended December 31, 2007 include the final settlements for
the operations of the Northpoint Property, sold on December 28, 2006 and
classified as discontinued operations on our statements of operations
.
Continuing
Operations
Rental
Revenue. Rental revenue for the years ended December 31,
2008 and 2007 were approximately $3.9 million, and $4.1
million, respectively, and were comprised of revenue, including adjustments for
straight-line rent and amortization of above-market and below-market leases,
from our properties. Rental revenue for the year ended December 31,
2008 decreased by approximately $263,000 compared to the year ended December 31,
2007 primarily due to the expiration of leases at Parkway Vista, partially
offset by higher billings of common area maintenance to tenants.
Property Operating
Expenses. Property operating expenses for the years
ended December 31, 2008 and 2007 were approximately $821,000 and $794,000,
respectively, and were comprised of expenses related to the daily operations
from our properties. The increase in property operating expenses for
the year ended December 31, 2008 was primarily due to higher utility costs and
repairs and maintenance expense.
29
Real Estate
Taxes. Real estate taxes for the years ended December
31, 2008 and 2007 were approximately $721,000 and $682,000, respectively, and
were comprised of real estate taxes from our properties. The increase
in real estate taxes for the year ended December 31, 2008 was primarily due to
increases in valuations by taxing authorities.
Property and Asset Management
Fees. Property and asset management fees for the years
ended December 31, 2008 and 2007 were approximately $282,000 and $298,000,
respectively, and were comprised of property management and asset management
fees from our properties.
General and Administrative
Expenses. General and administrative expenses for the years
ended December 31, 2008 and 2007 were approximately $574,000 and $408,000,
respectively, and were comprised of corporate general and administrative
expenses, including auditing fees, directors’ and officers’ insurance premiums,
tax preparation fees, legal fees, transfer agent fees, Sarbanes-Oxley advisory
services, printing costs and other administrative expenses. The
increase was primarily due to increased legal fees, tax preparation fees and
advisors administrative services, partially offset by a decrease in insurance
and Sarbanes-Oxley advisory services.
Depreciation and Amortization
Expense. Depreciation and amortization expense for the years
ended December 31, 2008 and 2007 was approximately $1.5 million and $1.6
million respectively, and was comprised of depreciation and amortization expense
at our properties. The decrease in depreciation and amortization
expense was primarily due to decreased intangibles amortization as a result of
the expiration of leases at Parkway Vista.
Interest Income.
Interest income for the year ended December 31, 2008 was approximately $162,000
and was comprised of income from funds on deposit with banks. Interest income
for the year ended December 31, 2007 was approximately
$368,000 and was comprised primarily of interest income associated with monies
that were held in an escrow account from the sale of the Northpoint
Property.
Gain on Sale of
Asset. There was no gain on sale of assets in the year ended
December 31, 2008. We recognized a gain on the sale of an asset for
the year ended December 31, 2007 of approximately $51,000, which was a result of
the sale of a parcel of land at 2800 W. Mockingbird on September 5,
2007.
Discontinued
Operations
There was
no income from discontinued operations for the year ended December 31,
2008. For the year ended December 31, 2007, income from discontinued
operations was approximately $5,000 and represents for the Northpoint Property,
which was sold on December 28, 2006. The results for the year ended
December 31, 2007 represent the final settlements of operations of the
Northpoint Property.
Cash
Flow Analysis
Fiscal
year ended December 31, 2009 as compared to the fiscal year ended December 31,
2008
Cash
provided by operating activities for the year ended December 31, 2009 was
approximately $964,000 and was primarily comprised of net income of
approximately $165,000, adjusted for depreciation and amortization of
approximately $1.4 million, partially offset by the changes in lease intangibles
of approximately $361,000 and changes in working capital accounts of
approximately $267,000. Cash provided by operating activities for the
year ended December 31, 2008 was approximately $1.6 million and was primarily
comprised of the net income of approximately $141,000, adjusted for depreciation
and amortization of approximately $1.5 million.
Cash used
in investing activities for the year ended December 31, 2009 was approximately
$181,000 and was comprised of purchases of property and equipment for our
properties. There was no cash provided by or used in investing
activities during the year ended December 31, 2008.
Cash used
in financing activities consisted of distributions to our limited partners of
approximately $2.6 million for the year ended December 31, 2009. For
the year ended December 31, 2008, cash used in financing activities was
approximately $2.9 million and consisted of distributions of approximately $2.6
million and redemptions of approximately $342,000.
Fiscal
year ended December 31, 2008 as compared to the fiscal year ended December 31,
2007
Cash
provided by operating activities for the year ended December 31, 2008 was
approximately $1.6 million and was primarily comprised of net income of
approximately $141,000, adjusted for depreciation and amortization of
approximately $1.5 million. Cash provided by operating activities for
the year ended December 31, 2007 was approximately $1.9 million and was
primarily comprised of net income of approximately $756,000, adjusted for
depreciation and amortization of approximately $1.6 million, partially offset by
changes in working capital accounts of approximately $374,000.
30
There was
no cash provided by or used in investing activities during the year ended
December 31, 2008. Cash provided by investing activities for the year
ended December 31, 2007 was approximately $6.0 million and was comprised of the
change in restricted cash of approximately $5.9 million from the sale of the
Northpoint Property, proceeds from the sale of an asset of approximately
$94,000, partially offset by purchases of property and equipment of
approximately $21,000.
Cash used
in financing activities for each of the years ended December 31, 2008 and 2007
was approximately $2.9 million and was primarily comprised of distributions to
our limited partners.
Liquidity
and Capital Resources
Our cash
and cash equivalents were approximately $4.5 million at December 31,
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. 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.
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 volatile credit markets. We have no exposure to
money market mutual funds and 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 do not own
any loans or debt instruments.
We are at
the stage where we are operating with a view to provide capital returns to our
investors through the sale of our assets, and we have entered into a contract to
sell one of our five buildings currently included in our
portfolio. If that sale is consummated, the general partners
currently anticipate distributing the net proceeds of the sale to the limited
partners and would also consider reducing the normal distribution to reflect the
reduction of income resulting from the disposition of this asset and resulting
higher general and administrative costs relative to revenues.
As of
December 31, 2009, our portfolio was 96% leased as compared to 94% as of
December 31, 2008. The major tenants in our portfolio include Raytheon Company,
Government Records Services, Inc., part of ACS, Air Systems Components, LP and
SFS. Minneapolis, Denver, Dallas and its surrounding areas represent our
geographic exposure. Of our approximately 236,000 square feet of leasable
space, 43% 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 year 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 and cash provided by the operations of our current
properties. 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 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 meet 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 years ended
December 31, 2009, 2008 and 2007 are presented below (in
thousands):
31
2009
|
2008
|
2007
|
||||||||||
Rental
revenue
|
$ | 3,879 | $ | 3,865 | $ | 4,128 | ||||||
Operating
expenses
|
||||||||||||
Property
operating expenses
|
875 | 821 | 794 | |||||||||
Real
estate taxes
|
561 | 721 | 682 | |||||||||
Property
and asset management fees
|
279 | 282 | 298 | |||||||||
Less:
Asset management fees
|
(138 | ) | (138 | ) | (140 | ) | ||||||
Total
operating expenses
|
1,577 | 1,686 | 1,634 | |||||||||
Net
operating income
|
$ | 2,302 | $ | 2,179 | $ | 2,494 | ||||||
Reconciliation of NOI to Net
Income
|
||||||||||||
Net
operating income
|
$ | 2,302 | $ | 2,179 | $ | 2,494 | ||||||
Less:
General and administrative
|
(604 | ) | (574 | ) | (408 | ) | ||||||
Depreciation
and amortization
|
(1,435 | ) | (1,475 | ) | (1,600 | ) | ||||||
Asset
management fees
|
(138 | ) | (138 | ) | (140 | ) | ||||||
Provision
for income taxes
|
(9 | ) | (13 | ) | (14 | ) | ||||||
Add:
Interest income
|
49 | 162 | 368 | |||||||||
Gain
on sale of asset
|
- | - | 51 | |||||||||
Income
from discontinued operations
|
- | - | 5 | |||||||||
Net
income
|
$ | 165 | $ | 141 | $ | 756 |
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 gains on sales of assets,
gains on sales of discontinued operations and capital improvements (“Net Cash
From Operations”). Our calculations of Net Cash From Operations for
the years ended December 31, 2009, 2008 and 2007 are presented below (in
thousands):
2009
|
2008
|
2007
|
||||||||||
Net
income
|
$ | 165 | $ | 141 | $ | 756 | ||||||
Depreciation
and amortization
|
1,435 | 1,475 | 1,600 | |||||||||
Gain
on sale of asset
|
- | - | (51 | ) | ||||||||
Capital
improvements
|
(181 | ) | - | (21 | ) | |||||||
Net
cash from operations
|
$ | 1,419 | $ | 1,616 | $ | 2,284 |
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that are reasonably likely to have a current
or future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Contractual
Obligations
We had no
contractual obligations as of December 31, 2009.
32
Other
Behringer Harvard Programs
As
discussed elsewhere herein, the current economic crisis, which began with the
collapse of residential subprime credit markets and continued through an overall
crisis in, and freeze of, the credit markets toward the end of 2008, followed by
unemployment and economic declines unprecedented in the last 70 years, has had
severely negative effects across substantially all commercial real estate. As
the industry has been affected, just as we have been adversely affected, other
Behringer Harvard-sponsored investment programs that substantially completed
their primary equity offerings at or prior to the end of 2008 have been
adversely affected by the disruptions to the economy generally and the real
estate market. These economic conditions have adversely affected the
financial condition of many of these programs’ tenants and lease guarantors,
resulting in tenant defaults or bankruptcies. Further, lowered asset
values, as a result of declining occupancies, reduced rental rates, and greater
tenant concessions and leasing costs, have reduced investor returns in these
investment programs because these factors not only reduce current return to
investors but also negatively impact the ability of these investment programs to
refinance or sell their assets and to realize gains thereon.
In
response to these economic stresses, like us, these Behringer Harvard-sponsored
investment programs have altered their overall strategies from acquisition and
growth to focusing on capital conservation, debt extensions and restructurings,
reduction of operating expenses, and management of lease renewals and
retenanting, declining occupancies and rental rates, and increases in tenant
concessions and leasing costs. Identified and described below are
trends regarding the consequences of the current economic environment affecting
certain characteristics of these other investment programs. These
trends provide additional information as to the consequences of the current
economic conditions on real estate investment programs of the type sponsored by
Behringer Harvard, many of which consequences currently or in the future may
affect us.
Distributions and
Redemptions. Behringer Harvard
Opportunity REIT I has maintained its 3% annualized rate, but moved from monthly
to quarterly distributions. Behringer Harvard REIT I lowered its
annualized distribution rate from 6.5% to 3.25% in connection with its monthly
distributions beginning in April 2009. The regular distribution
of Behringer Harvard Short-Term Opportunity Fund I was discontinued beginning
with the third quarter of 2009. Behringer Harvard Opportunity REIT I
and Behringer Harvard REIT I have each indicated that their focus in the current
environment is on capital preservation and that they may reduce their
distribution rates or cease paying distributions.
In March
2009, to conserve capital, Behringer Harvard Opportunity REIT I and Behringer
Harvard REIT I suspended their share redemption programs except for redemptions
requested by shareholders by reason of death, disability, or confinement to
long-term care. Behringer Harvard REIT I further limited such
redemptions to no more than $10 million for the 2010 fiscal
year. Behringer Harvard Opportunity REIT I and Behringer Harvard REIT
I may further limit or suspend redemptions. In connection with their
announcements of its intention to enter their portfolio liquidation phase in
December 2006, Behringer Harvard Short-Term Opportunity Fund I terminated its
redemption plans (as well as its distribution reinvestment plan).
The
recession has also negatively impacted the operating performance of Behringer
Harvard Opportunity REIT I and Behringer Harvard REIT I. Cash flow
from operating activities has decreased and has been insufficient to fund both
the net cash required to fund distributions and the capital requirements of
their properties. As a result, a portion of the net cash required for
distributions and capital expenditures of these REITs was funded from their cash
on hand, including proceeds from their offerings and/or borrowings.
Estimated Valuations. Behringer Harvard
Short-Term Opportunity Fund I announced its estimated valuation as of December
31, 2009 of $6.45 per limited partner unit. Behringer Harvard
Opportunity REIT I announced estimated valuations of its common stock of $8.17
per share as of June 30, 2009 and $8.03 as of December 31, 2009. Each
of these units and shares were originally sold in their best efforts public
offerings for a gross offering price of $10.00. Behringer Harvard
REIT I intends to announce an estimated valuation of its common stock as of June
30, 2010 that it expects to be less than the gross offering price of $10.00 per
share at which shares were originally offered on a primary basis in its public
offerings.
As with
any valuation methodology, the methodologies used by the Behringer Harvard
sponsored investment programs utilize a number of estimates and
assumptions. Parties using different assumptions and estimates could
derive a different estimated value and these differences could be
significant. The estimated values per share or unit were adopted
pursuant to the specific valuation policies of these investment programs and do
not represent the fair value of the shares or units calculated in accordance
with GAAP or the price at which such shares or units would trade on a national
securities exchange. The valuation policies and the announcements of
estimated values for these programs should be reviewed for additional
information and limitations.
33
Waiver of Fees and
Expenses. Behringer Harvard Holdings and its affiliates have
from time to time, voluntarily when it has perceived circumstances to
warrant it, waived fees and expenses due from their sponsored investment
programs. In 2009, Behringer Harvard Holdings entities waived asset
management fees of approximately $7.5 million owed by Behringer Harvard REIT I
asset management fees and reimbursement of operating expenses of $31,000 and
$301,000, respectively, owed by Behringer Harvard Short-Term Opportunity Fund I,
asset management fees and reimbursement of operating expenses of $70,000 and
$187,000, respectively, owed by Behringer Harvard Strategic Opportunity Fund I
LP (a privately offered program), and asset management fees and reimbursement of
operating expenses of $172,000 and $161,000, respectively, owed by Behringer
Harvard Strategic Opportunity Fund II LP (also a privately offered
program). In addition, Behringer Harvard Holdings entities waived
property management oversight fees of approximately $161,000 owed by Behringer
Harvard Strategic Opportunity Fund II LP. There is no assurance that
Behringer Harvard Holdings or its affiliated entities will waive or defer fees
or expenses due from its sponsored investment programs in the
future.
Impairments. Under
GAAP, Behringer Harvard sponsored investment programs consider the applicability
of any financial statement impairments of the assets that they
own. As a result of adverse economic conditions beginning in 2008 and
continuing through 2009, Behringer Harvard Opportunity REIT I and Behringer
Harvard REIT I have taken impairments of approximately $19.4 million
and approximately $21.1 million, respectively, during the fiscal year ended
December 31, 2008 and approximately $15.5 million and approximately $259.1
million, respectively, during the fiscal year ended December 31,
2009. Behringer Harvard Opportunity REIT I has made mezzanine loans
to develop two multifamily communities, which Behringer Harvard Opportunity REIT
I has determined meet the criteria of “variable interest entities” under
GAAP. Therefore, Behringer Harvard Opportunity REIT I consolidates
these entities, including the related real estate assets and third party
construction financing, on its financial statements. As of December
31, 2009, the outstanding principal balance of these mezzanine loans was
approximately $22.7 million plus accrued interest, which was eliminated upon
consolidation. As of December 31, 2009, Behringer Harvard Opportunity
REIT I believes that all of the amounts due under the mezzanine loans may not be
collectible and, to the extent that it would in the future deconsolidate the
investments, it would recognize an impairment of the mezzanine loans. Also, for
the years ended December 31, 2007, 2008 and 2009, Behringer Harvard Short-Term
Opportunity Fund I recognized inventory valuation adjustments of approximately
$2.4 million, $16.8 million and $0.5 million respectively.
Financings. The
recent turbulent financial markets and disruption in the banking system, as well
as the nationwide economic downturn, have created a severe lack of credit,
rising costs of any debt that is available and reluctance by lenders to lend as
large a percentage of debt to equity than in prior periods. These
market disruptions have adversely affected all of the Behringer Harvard
investment programs that substantially completed their equity offerings at or
prior to the end of 2008. These investment programs have experienced
property loan maturities that have not been refinanced or that have been
refinanced at reduced values requiring additional collateral or equity and/or at
higher interest rates or loan defaults related to certain of their
assets. These programs are working with their lenders to replace,
extend, or restructure debt arrangements as they mature or to purchase or payoff
the debt at discounted amounts. To date, these investment programs
have had success in these activities, though in respect of two assets where it
was unable to negotiate a satisfactory restructuring or debt purchase, Behringer
Harvard REIT I has allowed the mortgage lenders to foreclose or take the
related property in lieu of foreclosure. These investment programs
each intend to continue with their efforts to manage their debt arrangements to
preserve value for their investors but there is no assurances that they will be
able retain all of their assets as mortgage loans mature.
Sponsor
Activities. Behringer Harvard Holding entities have also
voluntarily and in circumstances where a short term need for liquidity has been
deemed by them to be admisable, provided loans certain Behringer
Harvard-sponsored investment programs, including Behringer Harvard Short-Term
Opportunity Fund I, Behringer Harvard Strategic Opportunity Fund I LP and
Behringer Harvard Strategic Opportunity Fund II LP. The outstanding
principal balance of these loans as of December 31, 2009 was approximately $13.9
million (net of the loan forgiveness described below), $10.8 million and $13.2
million, respectively. On December 31, 2007 and 2009, Behringer
Harvard Holdings forgave $7.5 million and $15.0 million, respectively, of
principal loans and all interest thereon owed by Behringer Harvard Short-Term
Opportunity Fund I which was accounted for as a capital contribution by its
general partners. Behringer Harvard Holdings has also leased vacant
space at certain of its TIC Programs discussed below. There is no
assurance that Behringer Harvard Holdings or its affiliated entities will
provide engage in such activities with respect to its sponsored investment
programs in the future.
Co-Investor
Arrangements. Behringer Harvard Holdings sponsored private
offerings from 2003 through 2005 for eight single asset co-investment
arrangements structured as tenant-in-common programs (“TIC
Programs”). Behringer Harvard Strategic Opportunity Fund I LP
sponsored one TIC Program. As of December 31, 2009, Behringer Harvard
REIT I had acquired all TIC interests where it had been the largest TIC owner in
four TIC Programs and remained the largest tenant-in-common investor in two TIC
Programs. Behringer Harvard Strategic Opportunity Fund I LP owns a
tenant-in-common interest in the one TIC Program it sponsored, and the remaining
TIC Program is owned by tenant-in-common investors with a small interest owned
by Behringer Harvard Holdings. The remaining TIC Program sold its
property in 2008.
34
Investors
in five of the TIC Programs received a positive total return on their investment
including investors in one TIC Program who received a total return above what
was projected in its private placement offering memorandum. In
general, the recession has adversely affected the operating performance of the
remaining four TIC Programs. One of the TIC Programs is
underperforming relative to projections substantially due to representations
made by the seller and its agents related to its operating expenses and revenues
that Behringer Harvard Holdings believes to be false. Behringer
Harvard Holdings is currently engaged in a lawsuit where it has received
settlements for the TIC investors while it remains in dispute with the former
on-site property manager. The tenant-in-common investors have
received substantial settlement consideration and are no longer party to this
suit.
Several
Behringer Harvard sponsored investment programs have made portfolio investments
under co-investment arrangements, generally as partnerships. Certain
of these co-investors have threatened claims against these investment programs
and their sponsor where current economic conditions have resulted in these
investments underperforming expectations. Other than as to Behringer
Harvard Opportunity REIT I who has been sued by a co-investor in one such
circumstance, none of these threats have resulted in lawsuits. While
there is not believed to be any merit in this lawsuit or any of the threats, the
defense and any settlement of these claims may negatively impact returns to the
investors in these investment programs.
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 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 did not have a material impact on our consolidated financial
statements.
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. The implementation of
this standard had no material impact on our consolidated financial
statements.
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 did not have a material
impact on our consolidated financial position and results of
operations.
Inflation
The real
estate market has not been affected significantly by inflation in the past
several years due to the relatively low inflation rate. The majority
of our leases contain inflation protection provisions applicable to
reimbursement billings for common area maintenance charges, real estate tax and
insurance reimbursements on a per square foot basis, or in some cases, annual
reimbursement of operating expenses above a certain per square foot
allowance.
Item
7A.
|
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. At December 31, 2009, we did not have any foreign operations
and thus were not exposed to foreign currency fluctuations.
Item
8.
|
Financial
Statements and Supplementary Data.
|
The
information required by this Item 8 is provided in our Financial Statements
beginning on page F-1 of this Annual Report on Form 10-K.
35
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
None.
Item
9A(T).
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
As
required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act,
the management of Behringer Advisors I, including its Chief Executive Officer
and Chief Financial Officer, evaluated as of December 31, 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 December 31, 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
systems 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.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)). Our management, including the Chief Executive Officer and
Chief Financial Officer of Behringer Advisors I, evaluated as of December 31,
2009 the effectiveness of our internal control over financial reporting using
the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer of Behringer Advisors I
concluded that our internal controls, as of December 31, 2009, were effective in
providing reasonable assurance regarding reliability of financial
reporting.
This
annual report does not include an attestation report of the Partnership’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Partnership’s registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Partnership to provide
only management’s report in this annual report.
Changes
in Internal Control over Financial Reporting
There has
been no change in internal control over financial reporting that occurred during
the quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item
9B.
|
Other
Information.
|
None.
36
PART
III
Item
10.
|
Directors,
Executive Officers and Corporate
Governance.
|
The
General Partners
We
operate under the direction of our General Partners, which are responsible for
the management and control of our affairs. The General Partners are
assisted by the employees of HPT, the general partner of Behringer Advisors
I. We do not employ our own management personnel; but instead we pay
fees and expense allocations to our General Partners for their
services.
The
General Partners are responsible for our direction and management, including
acquisitions in the past, capital improvements, construction and property
management. Any action required to be taken by the General Partners
will be taken only if it is approved, in writing or otherwise, by both General
Partners, unless the General Partners agree between themselves to a different
arrangement for the approval of actions by the General Partners.
The
General Partners are Behringer Advisors I and Robert M. Behringer,
individually. Behringer Advisors I is a Texas limited
partnership formed in July 2002. The executive office of both General
Partners is located at 15601 Dallas Parkway, Suite 600, Addison, Texas
75001. Behringer Advisors I is owned by HPT, its sole general
partner, and Behringer Harvard Partners, LLC (“Behringer Partners”), its sole
limited partner. Behringer Holdings is the sole owner of HPT and
Behringer Partners. Mr. Behringer is the Cheif Executive Officer of
each of these companies. Mr. Behringer is the Chief Executive
Officer and sole manager of Behringer Holdings. Behringer Holdings
also is the indirect owner of our Property Manager, Behringer Development, a
real estate development company, and Behringer Securities, our dealer
manager.
Behringer
Advisors I was created in 2002 for the sole purpose of acting as one of our
General Partners. It is managed by its executive officers,
namely:
Name
|
Age
|
Position(s)
|
||
Robert
M. Behringer
|
61
|
Chairman
|
||
Robert
S. Aisner
|
63
|
Chief
Executive Officer and President
|
||
Samuel
A. Gillespie
|
51
|
Chief
Operating Officer
|
||
Gerald
J. Reihsen, III
|
51
|
Executive
Vice President - Corporate Development
|
||
and
Legal and Secretary
|
||||
Gary
S. Bresky
|
43
|
Chief
Financial Officer
|
||
M.
Jason Mattox
|
34
|
Executive
Vice
President
|
Robert M. Behringer is the
Chairman of Behringer Advisors I. He has also served as the Chairman
of the Board of Dierctors of Behringer Harvard REIT I since June 2002, Behringer
Harvard Opportunity REIT I since June 2006, Behringer Harvard Multifamily REIT I
since December 2007, and Behringer Harvard Opportunity REIT II since January
2007, each a publicly registered real estate investment trust, and Behringer
Harvard REIT II, Inc., a newly formed real estate investment
trust. He is also the founder, sole manager and Chief Executive
Officer of Behringer Holdings, the indirect parent company of Behringer Advisors
II. Since 2002, Mr. Behringer has been a general partner of ours and
Behringer Harvard Short-Term Opportunity Fund I, each a publicly registered real
estate limited partnership. Mr. Behringer also controls the general
partners of Behringer Harvard Strategic Opportunity Fund I LP and Behringer
Harvard Strategic Opportunity Fund II LP, both private real estate limited
partnerships.
From 1995
until 2001, Mr. Behringer was Chief Executive Officer of Harvard Property Trust,
Inc., a privately held REIT formed by Mr. Behringer that was liquidated with a
net asset value of approximately $200 million before
liquidation. Before forming Harvard Property Trust, Inc., Mr.
Behringer invested in commercial real estate as Behringer Partners, a sole
proprietorship formed in 1989 that invested in single asset limited
partnerships. From 1985 until 1993, Mr. Behringer was Vice
President and Investment Officer of Equitable Real Estate Investment Management,
Inc. (since acquired by, an now known as Lend Lease Real Estate Investments,
Inc.), one of the largest real estate pension managers and advisors in the
United States. While at Equitable, Mr. Behringer was responsible for
its General Account Real Estate Assets located in the south central United
States. The portfolio included institutional quality office,
industrial, retail, apartment and hotel properties exceeding 17 million square
feet with a value of approximately $2.8 billion. Although Mr.
Behringer was a significant participant in acquisitions, management, leasing,
redevelopment and dispositions, his primary responsibility was to increase net
operating income and the overall value of the portfolio.
37
Mr.
Behringer has over 25 years of experience in real estate investment, management
and finance activities, including experience with approximately 140 different
properties with over 24 million square feet of office, retail, industrial,
apartment, hotel and recreational properties. In addition to being
the Chief Investment Officer of Behringer Advisors II, he is currently the
general partner or a co-general partner in several real estate limited
partnerships formed for the purpose of acquiring, developing and operating
office buildings and other commercial properties located in the United States
and other countries, including Germany, the Netherlands, England, the Bahamas
and Australia. Mr. Behringer is a Certified Property Manager, Real
Property Administrator and Certified Hotel Administrator, holds FINRA Series 7, 24 and 63
registrations and is a member of the Institute of Real Estate Management, the
Building Owners and Managers Association, the Urban Land Institute and the Real
Estate Council. Mr. Behringer also was a licensed certified public
accountant for over 20 years. Mr. Behringer received a Bachelor of
Science degree from the University of Minnesota.
Robert S. Aisner is the Chief
Executive Officer and President of Behringer Advisors I. Mr. Aisner
also serves as President (since May 2005), Chief Executive Officer (since June
2008) and a director of Behringer Harvard REIT I. In addition, Mr.
Aisner serves as President (since November 2004), Chief Executive Officer (since
June 2008) and a director (since June 2006) of Behringer Harvard Opportunity
REIT I. Mr. Aisner also has served as President, Chief Executive
Officer and a director of Behringer Harvard Opportunity REIT II (since January
2007), as Chief Executive Officer and a director of Behringer Harvard
Multifamily REIT I (since August 2006) and as President (since April 2007)
and Chief Executive Officer (since September 2008) of Behringer Harvard
REIT II, Inc. Mr. Aisner is also President of the other Behringer Harvard
companies.
Mr.
Aisner has over 30 years of commercial real estate experience with acquiring,
managing and disposing of properties located in the United States and other
countries, including Germany, the Netherlands, England, the Bahamas and
Australia. From 1996 until joining Behringer Harvard REIT I in 2003,
Mr. Aisner served as (1) Executive Vice President of AMLI Residential Properties
Trust, formerly a New York Stock Exchange listed REIT focused on the
development, acquisition and management of upscale apartment communities, which
serves as advisor and asset manager for institutional investors with respect to
their multifamily real estate investment activities, (2) President of AMLI
Management Company, that oversees all of AMLI’s apartment operations in 80
communities, (3) President of the AMLI Corporate Homes division that manages
AMLI’s corporate housing properties, (4) Vice President of AMLI Residential
Construction, a division of AMLI that performs real estate construction
services, and (5) Vice President of AMLI Institutional Advisors, the AMLI
division that serves as institutional advisor and asset manager for
institutional investors with respect to their multifamily real estate
activities. Mr. Aisner also served on AMLI’s Executive Committee and
Investment Committee from 1999 until 2003. From 1994 until 1996, Mr.
Aisner owned and operated Regents Management, Inc., which had both a multifamily
development and construction group, and a general commercial property management
group. From 1984 to 1994, he was employed by HRW Resources, Inc., a
real estate development and management company, where he served as Vice
President.
Mr.
Aisner served as an independent director of Behringer Harvard REIT I from June
2002 until February 2003 and as a management director from June 2003 until the
present. Mr. Aisner received a Bachelor of Arts degree from Colby
College and a Masters of Business Administration degree from the University of
New Hampshire.
Samuel A. Gillespie has served
as Chief Operating Officer of Behringer Advisors I since June 2008. In
addition, Mr. Gillespie has served as Senior Vice President of Harvard Property
Trust, the managing member of Behringer Advisors I since March 2006. Mr.
Gillespie also serves as Chief Operating Officer for Behringer Harvard
Opportunity REIT I, Behringer Harvard Opportunity REIT II, and for the general
partner of Behringer Harvard Short-Term Opportunity Fund I (since July
2008).
Mr.
Gillespie has over 25 years of experience in the commercial real estate industry
guiding diverse and sophisticated portfolios. Prior to joining Behringer
Harvard in November 2004, Mr. Gillespie was with the Trammell Crow Company for
21 years. At Trammell Crow, he held the position of Managing Director of
National Accounts and was responsible for Trammell Crow Company’s largest
institutional customers. Prior to that, Mr. Gillespie was partner in
charge of Trammell Crow’s Indianapolis office from 1986 to 1997. He began
his career with Trammell Crow as a leasing agent in Oklahoma City in 1983.
Mr. Gillespie holds a Bachelor of Science degree, summa cum laude, in accounting
from Texas A&M University, and holds the CCIM designation.
Gerald J. Reihsen, III is the
Executive Vice President – Corporate Development and Legal and Secretary of
Behringer Advisors I. Since 2001, Mr. Reihsen has served in this
and similar executive capacities with the other Behringer Harvard companies,
including serving as President of Behringer Securities.
38
For over
20 years, Mr. Reihsen’s business and legal background has centered on
sophisticated financial and transactional matters, including commercial real
estate transactions, real estate partnerships, and public and private securities
offerings. For the period from 1985 to 2000, Mr. Reihsen practiced as
an outside corporate securities attorney. After serving from 1986 to
1995 in the corporate department of Gibson, Dunn & Crutcher, a leading
international commercial law firm, Mr. Reihsen established his own firm, Travis
& Reihsen, where he served as a corporate/securities partner until
1998. In 1998, Mr. Reihsen became the lead partner in the
corporate/securities section of the law firm Novakov Davis, where he served
until 2000. In 2000, he practiced law as a principal of Block &
Balestri, a corporate and securities law firm. In 2000 and 2001, Mr.
Reihsen was employed as the Vice President – Corporate Development and Legal of
Xybridge Technologies, Inc., a telecommunications software company that Mr.
Reihsen helped guide through venture funding, strategic alliances with
international telecommunications leaders and its ultimate sale to Zhone
Technologies, Inc. Mr. Reihsen holds FINRA Series 7, 24, 27 and 63
registrations. Mr. Reihsen received a Bachelor of Arts degree, magna
cum laude, from the University of Mississippi and a Juris Doctorate degree, cum
laude, from the University of Wisconsin.
Gary S. Bresky is the Chief
Financial Officer of Behringer Advisors I. Mr. Bresky also serves as
Executive Vice President and Chief Financial Officer or similar executive
capacities with other entities sponsored by Behringer Harvard Holdings,
including Behringer Harvard Opportunity REIT I (since January 2004) and
Behringer Harvard Opportunity REIT II (since January 2007). Mr.
Bresky also serves as Executive Vice President of Behringer Harvard REIT I
(since June 2002) and Behringer Harvard Multifamily REIT I (since August 2006)
and previously served as Chief Financial Officer of Behringer Harvard REIT I
(from June 2002 to May 2009) and Behringer Harvard Multifamily REIT I (from
August 2006 to September 2009).
Mr.
Bresky has been active in commercial real estate and related activities for over
15 years. Prior to his employment with Behringer Advisors I, Mr.
Bresky served, from 1997 to 2001, as a Senior Vice President of Finance with
Harvard Property Trust, Inc. In this capacity, Mr. Bresky was
responsible for directing all accounting and financial reporting functions and
overseeing all treasury management and banking functions for the
company. Mr. Bresky was also integral in analyzing deal and capital
structures as well as participating in all major decisions related to any
acquisition or sale of assets.
From 1995
until 1996, Mr. Bresky worked in the Real Estate Group at Coopers & Lybrand
LLP in Dallas, Texas, where he focused on finance and accounting for both public
and private REITs. His experience included conducting annual audits,
preparing quarterly and annual public securities reporting compliance filings
and public real estate securities registration statements for his
clients. From 1989 to 1994, Mr. Bresky worked with Ten West
Associates, LTD and Westwood Financial Corporation in Los Angeles, California as
a real estate analyst and asset manager for two commercial real estate
portfolios totaling in excess of $185 million. From 1988 until 1989,
Mr. Bresky worked as an analysts’ assistant for both Shearson-Lehman Bros., Inc.
and Hambrecht and Quist Inc. assisting brokers in portfolio
management. Mr. Bresky has been active in commercial real estate
and related financial activities for over 15 years and holds FINRA Series 7, 24,
27 and 63 registrations. Mr. Bresky received a Bachelor of Arts
degree from the University of California – Berkeley and a Masters of Business
Administration degree from the University of Texas at Austin.
M. Jason Mattox is the
Executive Vice President of Behringer Advisors I and serves in a similar
capacity with other Behringer Harvard companies. From 2002 until
March 2006, Mr. Mattox served as the Senior Vice President of Behringer Advisors
I.
From 1997
until joining Behringer Advisors I in 2002, Mr. Mattox served as a Vice
President of Harvard Property Trust, Inc. and became a member of its Investment
Committee in 1998. From 1999 until 2001, Mr. Mattox served as Vice
President of Sun Resorts International, Inc., a recreational property investment
company, coordinating marina acquisitions throughout the southern United States
and the U.S. Virgin Islands. From 1999 until 2001, in addition to
providing services related to investing, acquisition, disposition and
operational activities, Mr. Mattox served as an asset manager with
responsibility for over one million square feet of Harvard Property Trust,
Inc.’s commercial office assets in Texas and Minnesota, overseeing property
performance, management offices, personnel and outsourcing
relationships.
Mr.
Mattox is a continuing member of the Building Owners and Managers Association
and the National Association of Industrial and Office Properties. Mr.
Mattox holds FINRA Series 7, 24 and 63 registrations. Mr. Mattox
received a Bachelor of Business Administration degree, with honors, and a
Bachelor of Science degree, cum laude, from Southern Methodist
University.
Jon L.
Dooley resigned his position as our Executive Vice President – Real Estate
effective December 31, 2009, in order to accept a similar position with a joint
venture of which Behringer Harvard owns 50%.
39
Other
Personnel
The
General Partners are assisted by the officers and employees of HPT, which is the
general partner of Behringer Advisors I. HPT and its affiliates
employed approximately 430 full-time persons at December 31, 2009, including the
executive officers listed above. HPT and its affiliates will continue
to hire employees as needed. HPT and its affiliates also will engage
the services of non-affiliated third parties to assist with the identification
of properties for possible acquisition and management of our
operations.
Advisory
Board
We do not
have a board of directors. The General Partners were initially
assisted by an advisory board, which was dissolved on March 31,
2008.
No
Audit Committee; No “Audit Committee Financial Expert”
We do not
have a board of directors and, as such, have no board committees such as an
audit committee. Because we do not have an audit committee, we do not
have an “audit committee financial expert.” The General Partners are
responsible for managing the relationship with our Independent Registered Public
Accounting Firm.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act, as amended, requires each director, officer, and
individual beneficially owning more than 10% of a registered security of the
Partnership to file with the SEC reports of security ownership and reports on
subsequent changes in ownership of their securities within specified time
frames. These specified time frames require the reporting of changes
in ownership within two business days of the transaction giving rise to the
reporting obligation. Reporting persons are required to furnish us
with copies of all Section 16(a) forms filed with the SEC. Based upon
our review of the reports furnished to us pursuant to Section 16(a) of the
Exchange Act, to the best of our knowledge, all required Section 16(a) filings
were timely and correctly made by reporting persons during 2009.
Code
of Ethics
Behringer
Advisors I has adopted a code of ethics applicable to its principal executive
officer, principal financial officer, principal accounting officer, controller
and other employees. A copy of the code of ethics of Behringer
Advisors I may be obtained from our website at
http://www.behringerharvard.com. The web site will be updated to
include any material waivers or modifications to the code of
ethics.
Item
11.
|
Executive
Compensation.
|
We
operate under the direction of our General Partners, which are responsible for
the management and control of our affairs. As of December 31, 2009,
we have not made any payments to Mr. Behringer as compensation for serving as
general partner. The officers and employees of HPT assist the General
Partners. The officers and employees of HPT do not devote all of
their time to managing us, and they do not receive any compensation from us for
their services. We pay fees to Behringer Advisors I and its other
affiliates, as provided for in our Partnership
Agreement. Accordingly, we do not have, and our General Partners have
not considered, a compensation policy or program for themselves, their
affiliates, any employees of Behringer Advisors I or any employees of affiliates
of our General Partners and have not included a Compensation Discussion and
Analysis in this Annual Report on Form 10-K. See Item 13. “Certain
Relationships and Related Transactions, and Director Independence” for a
description of the fees payable and expenses reimbursed to our
affiliates.
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
There
were no limited partners known by us who owned more than 5% of our limited
partnership units as of March 19, 2010.
We do not
have any officers or directors. Our two General Partners, Robert M.
Behringer and Behringer Harvard Advisors I, each own 50% of the general
partnership interests. We do not maintain any equity compensation
plans, and no arrangements exist that would, upon operation, result in a change
in control for us.
The
following table sets forth information as of March 19, 2010 regarding the
beneficial ownership of our limited partnership interest and general partnership
interest by each person known by us to own 5% or more of the outstanding class
of partnership interest, each of our directors or those of our General Partners,
each of our executive officers or those of our General Partners, and our
directors and executive officers, or those of our General Partners, as a group.
The percentage of beneficial ownership is calculated based on 4,275,187
limited partnership units and contributions from our General
Partners.
40
Limited Partnership
|
Percent
|
|||||||||
Units Beneficially
|
of
|
|||||||||
Title of class
|
Beneficial owner
|
Owned
|
Class
|
|||||||
General
partner interest
|
Robert
M. Behringer (1)(2)(3)(4)
|
- | 50 | % | ||||||
General
partner interest
|
Behringer
Advisors I (1)(3)(4)
|
- | 50 | % | ||||||
Limited
partner interest
|
Robert
M. Behringer (1)(2)
|
2,762.43 | * | |||||||
Limited
partner interest
|
Robert
S. Aisner (1)(2)
|
1,104.97 | * | |||||||
Limited
partner interest
|
Samuel
A. Gillespie (1)(2)
|
- | * | |||||||
Limited
partner interest
|
Gerald
J. Reihsen, III (1)(2)
|
- | * | |||||||
Limited
partner interest
|
Gary
S. Bresky (1)(2)
|
- | * | |||||||
Limited
partner interest
|
M.
Jason Mattox (1)(2)
|
- | * | |||||||
Limited
partner interest
|
Jon
L. Dooley (1)(2)
|
- | * | |||||||
Limited
partner interest
|
All
current executive officers as a group (7 persons)
|
3,867.40 | * |
*Denotes less than 1%
(1) The
address of Messrs. Behringer, Aisner, Gillespie, Reihsen, Bresky, Mattox and
Behringer Harvard Advisors I is 15601 Dallas Parkway, Suite 600, Addison, Texas
75001.
(2) Executive
Officers of Behringer Advisors I.
(3) General
partners.
(4) Consists
of $500 combined general partnership interests held directly by Mr. Behringer
and Behringer Advisors I.
Item
13. Certain
Relationships and Related Transactions, and Director Independence.
Transactions
with Related Persons
The
General Partners and certain of their affiliates are entitled to receive fees
and compensation in connection with the management and sale of our assets, and
have received fees in the past in connection with the Offering and
acquisitions. Our General Partners have agreed that all of the
financial benefits of serving as our general partners will be allocated to
Behringer Advisors I since the day-to-day responsibilities of serving as our
general partner will be performed by Behringer Advisors I through the executive
officers of its general partner.
For the
management and leasing of our properties, we pay our Property Manager or its
affiliates, 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
years ended December 31, 2009, 2008 and 2007, we incurred property management
fees payable to our Property Manager or its affiliates of approximately
$141,000, $145,000, and $158,000, 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 fee may be deferred and paid in a subsequent
year. During each of the years ended December 31, 2009 and 2008 we
incurred asset management fees of approximately $138,000. For the
year ended December 31, 2007 we incurred asset management fees of approximately
$140,000.
We may
reimburse Behringer Advisors I for costs and expenses paid or incurred to
provide services to us including direct expenses and the costs of salaries and
benefits of certain persons employed by those entities and performing services
for us, as permitted by our Partnership Agreement. For the year ended
December 31, 2009 and 2008, we incurred such costs for administrative services
totaling $178,000 and $120,000, respectively. We incurred and
expensed no such costs for the year ended December 31, 2007.
41
At
December 31, 2009, we had payables to related parties of approximately $72,000,
which consisted of approximately $52,000 for direct expenses and services and
approximately $20,000 for management fees payable to our Property Manager and
Behringer Advisors I. At December 31, 2008, we had payables to
related parties of approximately $94,000, which consisted of approximately
$84,000 for direct expenses and services and approximately $10,000 for
management fees payable to our Property Manager and Behringer
Advisors I.
In
connection with the sale of our properties, we will pay Behringer Advisors I or
its affiliates a subordinated disposition fee in an amount not exceeding the
lesser of: (A) 50% of the reasonable, customary and competitive real
estate brokerage commissions customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (B) 3% of
the gross sales price of each property, subordinated to distributions to limited
partners from the sale proceeds of an amount which, together with prior
distributions to the limited partners, will equal (1) 100% of their capital
contributions plus (2) an 8% annual cumulative (noncompounded) return of their
net capital contributions. Subordinated disposition fees that are not
payable at the date of sale, because limited partners have not yet received
their required minimum distributions, will be deferred and paid at such time as
these subordination conditions have been satisfied. In addition,
after the limited partners have received a return of their net capital
contributions and an 8% annual cumulative (noncompounded) return on their net
capital contributions, then Behringer Advisors I is entitled to receive 15% of
the remaining residual proceeds available for distribution (a subordinated
participation in net sale proceeds and distributions); provided, however, that
in no event will the General Partners receive in the aggregate more than 15% of
sale proceeds remaining after the limited partners have received a return of
their net capital contributions. Since the above conditions have not
been met at this time, we incurred no such disposition fees for the years ended
December 31, 2009, 2008 or 2007.
We are
dependent on Behringer Advisors I and our Property Manager for certain services
that are essential to us, including asset 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.
Policies
and Procedures for Transactions with Related Persons
The
agreements and arrangements among us, our General Partners and their affiliates
have been established by our General Partners, and our General Partners believe
the amounts to be paid thereunder to be reasonable and customary under the
circumstances. In an effort to establish standards for minimizing and
resolving these potential conflicts of interest, our General Partners have
agreed to the guidelines and limitations set forth in our Partnership
Agreement. Among other things, these provisions:
|
·
|
set
forth the specific conditions under which we may own or lease property
jointly or in a partnership with an affiliate of the General
Partners;
|
|
·
|
prohibit
us from purchasing or leasing an investment property from our General
Partners or their affiliates except under certain limited
circumstances;
|
|
·
|
prohibit
loans by us to our General Partners or their
affiliates;
|
|
·
|
prohibit
the commingling of partnership funds (except in the case of making capital
contributions to joint ventures and to the limited extent permissible
under the NASAA Guidelines); and
|
|
·
|
with
certain exceptions, prohibit our General Partners from merging or
consolidating us with another partnership or a corporation or converting
us to a corporation unless the transaction complies with certain terms and
conditions including first obtaining a majority vote of our limited
partners.
|
In
addition, our General Partners have a fiduciary obligation to act in the best
interests of both our limited partners and the investors in other affiliated
programs and will use their best efforts to assure that we will be treated at
least as favorably as any other affiliated program.
Item
14.
|
Principal
Accountant Fees and Services.
|
Because we
do not have a board of directors or any board committees, including an audit
committee, the General Partners pre-approve all auditing and permissible
non-auditing services provided by our independent registered public accounting
firm. The independent public accountants may not be retained to
perform the non-auditing services specified in Section 10A(g) of the Exchange
Act.
Fees
Paid to Principal Independent Registered Public Accounting Firm
The
following table presents aggregate fees for professional audit services billed
to us for the fiscal years ended December 31, 2009 and 2008 by our independent
registered public accounting firm, Deloitte & Touche LLP, the member firms
of Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
“Deloitte & Touche”) (in thousands):
42
2009
|
2008
|
|||||||
Audit
Fees (1)
|
$ | 165 | $ | 148 | ||||
Tax
Related Fees (2)
|
21 | 25 | ||||||
Total
Fees
|
$ | 186 | $ | 173 |
1)
|
Audit
fees consisted of professional services performed in connection with the
audit of our annual consolidated financial statements and review of
consolidated financial statements included in our Forms
10-Q.
|
2)
|
Tax
fees were for assistance with matters related to tax compliance, tax
planning and tax advice.
|
43
PART
IV
Item
15.
|
Exhibits,
Financial Statement Schedules.
|
(a)
|
List
of Documents Filed.
|
|
1.
|
Financial
Statements
|
|
The
list of the financial statements filed as part of this Annual Report on
Form 10-K is set forth on page F-1 herein.
|
||
2.
|
Financial
Statement Schedules
|
|
Report
of Independent Registered Public Accounting Firm on Financial Statement
Schedules
|
||
Schedule
II - Valuation and Qualifying Accounts
|
||
Schedule
III - Real Estate and Accumulated Depreciation
|
||
3.
|
Exhibits
|
|
The
list of exhibits filed as part of this Annual Report on Form 10-K is
submitted in the Exhibit Index following the financial statements in
response to Item 601 of Regulation S-K.
|
||
(b) | Exhibits. | |
The
exhibits filed in response to Item 601 of Regulation S-K are listed on the
Exhibit Index attached hereto.
|
||
(c) |
Financial Statement
Schedules.
|
|
All
other financial statement schedules have been omitted because the required
information of such schedules is not present or not
applicable.
|
44
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
March
31, 2010
|
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
|
|
By:
|
/s/ Robert S. Aisner
|
|
Robert
S. Aisner
|
||
Chief
Executive Officer and President of Behringer Harvard Advisors I
LP
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
March
31, 2010
|
/s/ Robert S. Aisner
|
Robert
S. Aisner
|
|
Chief
Executive Officer and President of Behringer Harvard Advisors I
LP
|
|
(Principal
Executive Officer)
|
|
March
31, 2010
|
/s/ Gary S. Bresky
|
Gary
S. Bresky
|
|
Chief
Financial Officer of Behringer Harvard Advisors I LP (Principal Financial
Officer)
|
|
March
31, 2010
|
/s/ Kimberly Arianpour
|
Kimberly
Arianpour
|
|
Chief
Accounting Officer of Behringer Harvard Advisors I LP (Principal
Accounting Officer)
|
45
INDEX
TO FINANCIAL STATEMENTS
Page
|
|
Financial Statements
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
Consolidated
Statements of Operations for the Years Ended December 31, 2009, 2008 and
2007
|
F-4
|
Consolidated
Statements of Partners’ Capital for the Years Ended December 31, 2009,
2008 and 2007
|
F-5
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
Financial Statement
Schedules
|
|
Report
of Independent Registered Public Accounting Firm
|
F-16
|
Schedule
II – Valuation and Qualifying Accounts
|
F-17
|
Schedule
III – Real Estate and Accumulated Depreciation
|
F-18
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Partners of
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Addison,
Texas
We have
audited the accompanying consolidated balance sheets of the Behringer Harvard
Mid-Term Value Enhancement Fund I LP and subsidiaries (the “Partnership”) as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, partners’ capital and cash flows for each of the three years in the
period ended December 31, 2009. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Partnership is
not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Partnership’s internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Behringer Harvard Mid-Term Value Enhancement
Fund I LP and subsidiaries at December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
/s/
Deloitte & Touche LLP
Dallas,
Texas
March 31,
2010
F-2
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
|
|||||
Consolidated
Balance Sheets
|
|||||
As
of December 31, 2009 and 2008
|
|||||
(in
thousands, except unit
amounts)
|
2009
|
2008
|
|||||||
Assets
|
||||||||
Real
estate
|
||||||||
Land
|
$ | 5,682 | $ | 5,682 | ||||
Buildings
and improvements, net
|
14,590 | 15,146 | ||||||
Total
real estate
|
20,272 | 20,828 | ||||||
Cash
and cash equivalents
|
4,465 | 6,247 | ||||||
Accounts
receivable, net
|
601 | 370 | ||||||
Prepaid
expenses and other assets
|
35 | 45 | ||||||
Lease
intangibles, net
|
2,214 | 2,615 | ||||||
Total
assets
|
$ | 27,587 | $ | 30,105 | ||||
Liabilities
and partners' capital
|
||||||||
Liabilities
|
||||||||
Accounts
payable
|
$ | 141 | $ | 23 | ||||
Payables
to related parties
|
72 | 94 | ||||||
Acquired
below-market leases, net
|
53 | 125 | ||||||
Distributions
payable
|
218 | 218 | ||||||
Accrued
liabilities
|
900 | 1,042 | ||||||
Total
liabilities
|
1,384 | 1,502 | ||||||
Commitments
and contingencies
|
||||||||
Partners'
capital
|
||||||||
Limited
partners, 44,000,000 units authorized;
|
||||||||
4,275,187
units issued and
|
||||||||
outstanding
at December 31, 2009 and
|
||||||||
2008,
respectively
|
26,202 | 28,602 | ||||||
General
partners
|
1 | 1 | ||||||
Total
partners' capital
|
26,203 | 28,603 | ||||||
Total
liabilities and partners' capital
|
$ | 27,587 | $ | 30,105 |
See
Notes to Consolidated Financial Statements.
F-3
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
|
||||||||
Consolidated
Statements of Operations
|
||||||||
For
the Years Ended December 31, 2009, 2008 and 2007
|
||||||||
(in
thousands, except per unit
amounts)
|
2009
|
2008
|
2007
|
||||||||||
Rental
revenue
|
$ | 3,879 | $ | 3,865 | $ | 4,128 | ||||||
Expenses
|
||||||||||||
Property
operating expenses
|
875 | 821 | 794 | |||||||||
Real
estate taxes
|
561 | 721 | 682 | |||||||||
Property
and asset management fees
|
279 | 282 | 298 | |||||||||
General
and administrative
|
604 | 574 | 408 | |||||||||
Depreciation
and amortization
|
1,435 | 1,475 | 1,600 | |||||||||
Total
expenses
|
3,754 | 3,873 | 3,782 | |||||||||
Interest
income
|
49 | 162 | 368 | |||||||||
Gain
on sale of asset
|
- | - | 51 | |||||||||
Income
before income taxes
|
174 | 154 | 765 | |||||||||
Provision
for income taxes
|
9 | 13 | 14 | |||||||||
Income
from continuing operations
|
165 | 141 | 751 | |||||||||
Income
from discontinued operations
|
- | - | 5 | |||||||||
Net
income
|
$ | 165 | $ | 141 | $ | 756 | ||||||
Net
income allocated to limited partners
|
$ | 165 | $ | 141 | $ | 756 | ||||||
Weighted
average number of limited
|
||||||||||||
partnership
units outstanding
|
4,275 | 4,289 | 4,309 | |||||||||
Basic
and diluted net income per limited partnership unit
|
$ | 0.04 | $ | 0.03 | $ | 0.17 |
See
Notes to Consolidated Financial Statements.
F-4
Consolidated
Statements of Partners' Capital
|
||||||||||||
For
the Years Ended December 31, 2009, 2008 and 2007
|
||||||||||||
(in
thousands)
|
Limited
Partners
|
General
Partners
|
|||||||||||||||||||||||
Contributions/
|
Accumulated
|
Number
of
|
Accumulated
|
|||||||||||||||||||||
(Distributions)
|
Income
(Losses)
|
Units
|
Contributions
|
Income
|
Total
|
|||||||||||||||||||
Balance
as of January 1, 2007
|
$ | 33,214 | $ | - | 4,309 | $ | 1 | $ | - | $ | 33,215 | |||||||||||||
Distributions
to limited partners
|
(1,830 | ) | (756 | ) | (2,586 | ) | ||||||||||||||||||
Net
income
|
756 | - | 756 | |||||||||||||||||||||
Balance
as of December 31, 2007
|
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
|
(2,400 | ) | (165 | ) | (2,565 | ) | ||||||||||||||||||
Net
income
|
165 | - | 165 | |||||||||||||||||||||
Balance
as of December 31, 2009
|
$ | 26,202 | $ | - | 4,275 | $ | 1 | $ | - | $ | 26,203 |
See
Notes to Consolidated Financial Statements.
F-5
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
|
|||||||
Consolidated
Statements of Cash Flows
|
|||||||
For
the Years Ended December 31, 2009, 2008 and 2007
|
|||||||
(in
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
income
|
$ | 165 | $ | 141 | $ | 756 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||
flows
provided by operating activities:
|
||||||||||||
Depreciation
and amortization
|
1,427 | 1,455 | 1,575 | |||||||||
Gain
on sale of assets
|
- | - | (51 | ) | ||||||||
Change
in accounts receivable
|
(231 | ) | - | 38 | ||||||||
Change
in prepaid expenses and other assets
|
10 | (1 | ) | (18 | ) | |||||||
Change
in lease intangibles
|
(361 | ) | (19 | ) | (41 | ) | ||||||
Change
in accounts payable
|
118 | 18 | (66 | ) | ||||||||
Change
in payables to related parties
|
(22 | ) | 69 | (26 | ) | |||||||
Change
in accrued liabilities
|
(142 | ) | (106 | ) | (302 | ) | ||||||
Cash
provided by operating activities
|
964 | 1,557 | 1,865 | |||||||||
Cash
flows from investing activities
|
||||||||||||
Purchases
of property and equipment
|
(181 | ) | - | (21 | ) | |||||||
Proceeds
from sale of asset
|
- | - | 94 | |||||||||
Change
in restricted cash
|
- | - | 5,895 | |||||||||
Cash
(used in) provided by investing activities
|
(181 | ) | - | 5,968 | ||||||||
Cash
flows from financing activities
|
||||||||||||
Distributions
|
(2,565 | ) | (2,582 | ) | (2,586 | ) | ||||||
Redemption
of limited partnership units
|
- | (342 | ) | (276 | ) | |||||||
Cash
used in financing activities
|
(2,565 | ) | (2,924 | ) | (2,862 | ) | ||||||
Net
change in cash and cash equivalents
|
(1,782 | ) | (1,367 | ) | 4,971 | |||||||
Cash
and cash equivalents at beginning of year
|
6,247 | 7,614 | 2,643 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 4,465 | $ | 6,247 | $ | 7,614 | ||||||
Supplemental
disclosure:
|
||||||||||||
Taxes
paid
|
$ | 10 | $ | 14 | $ | - |
See
Notes to Consolidated Financial Statements.
F-6
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
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 and was terminated on February 19, 2005 (the
“Offering”). The Offering was a best efforts continuous offering, and
we admitted new investors until the termination of the Offering in February
2005. As of December 31, 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. We used the proceeds from the Offering, after
deducting offering expenses, to acquire six office building
properties. As of December 31, 2009, five of the six properties we
acquired remain in our portfolio. We are not seeking to purchase
additional properties at this time. 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.
During
2009 as in 2008, the U.S. economy experienced 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. While it
is unclear when the overall economy will recover, we do not expect conditions to
improve in the near future. As a result of the current economy, our
primary objectives will be to preserve capital and sustain property values while
selectively disposing of our properties. Our ability to dispose of
our properties will be subject to various factors, including the ability of
potential purchasers to access capital debt financing. Given the
disruptions in the capital markets and the current lack of available credit, our
ability to dispose of our properties may be delayed, or we may receive lower
than anticipated returns. We continue to work to meet the originally
envisioned liquidation timeframe for the fund which lasts until
2013.
2. Summary
of Significant Accounting Policies
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“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 wholly-owned subsidiaries. All inter-company transactions,
balances and profits have been eliminated in consolidation. We have
evaluated subsequent events for recognition or disclosure in our consolidated
financial statements.
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.
F-7
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
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.
Anticipated
amortization associated with acquired lease intangibles for each of the
following five years ended December 31 is as follows (in
thousands):
2010
|
$ | 599 | ||
2011
|
459 | |||
2012
|
249 | |||
2013
|
137 | |||
2014
|
137 |
As of
December 31, 2009 and 2008, respectively, 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 December 31, 2009
|
Improvements
|
Intangibles
|
Leases
|
|||||||||
Cost
|
$ | 18,081 | $ | 5,687 | $ | (358 | ) | |||||
Less:
depreciation and amortization
|
(3,491 | ) | (3,473 | ) | 305 | |||||||
Net
|
$ | 14,590 | $ | 2,214 | $ | (53 | ) | |||||
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
Management
monitors events and changes in circumstances indicating that the carrying
amounts of our 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.
F-8
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
During
2009 as in 2008, the real estate market experienced difficult conditions
including high inventory levels, tightening of the credit market and weak
consumer confidence. There were no impairment charges for long-lived
assets for the years ended December 31, 2009, 2008 and 2007. 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.
Cash
and Cash Equivalents
We
consider investments in highly-liquid money market funds or investments 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. We had an allowance for doubtful accounts of
approximately $2,700 at December 31, 2009 and 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. For the year ended December 31, 2009, the
total net increase to rental revenue due to straight line rent adjustment was
approximately $170,000. For the year ended December 31, 2008, the total net
decrease to rental revenue due to straight line rent adjustment was
approximately $9,400 and for the year ended December 31, 2007, the total net
increases to rental revenues due to straight-line rent adjustments was
approximately $56,000. 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.
|
F-9
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
We
distribute to our General Partners a share of net cash from operations, 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.
Income
Taxes
As a
limited partnership, we are generally not subject to income tax. On
May 18, 2006, the State of Texas enacted a new law which replaced the
then-current state franchise tax with a “margin tax.” In general,
legal entities that conduct business in Texas are 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 years ended December 31, 2009 and
2008, we recognized a provision for current tax expense of approximately $8,000
and $13,000, respectively, and a deferred tax expense of approximately $800 and
$400, respectively, related to the Texas margin tax. During the year
ended December 31, 2007, we recognized a provision for current tax expense
of approximately $14,000 and a deferred tax benefit of approximately $400
related to the Texas margin tax. The Partnership does not have any
entity level uncertain tax positions.
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 accounting principles generally accepted in the
United States of America. 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.
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 years
ended December 31, 2009, 2008 and 2007. 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.
3. 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 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 did not have a material impact on our consolidated financial
statements.
F-10
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
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. The implementation of
this standard had no material impact on our consolidated financial
statements.
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 did not have a material
impact on our consolidated financial position and results of
operations.
4. Leasing
Activity
Future minimum base rental payments due
to us over the next five years and thereafter under non-cancelable leases in
effect as of December 31, 2009 were as follows (in thousands):
2010
|
$ | 2,499 | ||
2011
|
1,654 | |||
2012
|
1,008 | |||
2013
|
549 | |||
2014
|
499 | |||
Thereafter
|
1,226 | |||
$ | 7,435 |
The
future base rental payments above are exclusive of contingent rental
payments. Rental revenue in 2009, 2008 and 2007 did not include any
contingent revenue.
As
of December 31, 2009, four of our tenants accounted for 10% or more of our
aggregate annual rental revenues from our properties. Raytheon
Company, a major United States Government defense contractor, leases all of
Tucson Way and accounted for rental revenue of approximately $1.7 million or
approximately 43% of our aggregate annual rental revenues for the year ended
December 31, 2009. Our lease with Raytheon Company expires on April
30, 2012. Government Records Services, Inc., part of Affiliated
Computer Systems (“ACS”), a provider of business process and information
technology outsourcing solutions to commercial and government clients, leases
100% of 2800 W. Mockingbird and accounted for rental revenue of approximately
$839,000, or approximately 22% of our aggregate annual rental
revenues. Our lease with ACS expires on September 30, 2010. Air
Systems Components, LP, which consists of a group of companies that are the
largest manufacturer of air handling components in North America, leases 100% of
the ASC Building and accounted for rental revenue of approximately $492,000, or
approximately 13% of our aggregate annual rental revenues. Our lease
with Air Systems Components, LP expires on October 31, 2010. SunGard
Financial System, Inc., which conducts financial clearing activities, data
warehousing and disaster recovery for computer operations, leases all of the
Hopkins Building and accounted for approximately $388,000 of our rental revenue
or approximately 10% of our aggregate annual rental revenue. Our
lease with SunGard expires on March 31, 2018. We have already begun
the process of finding new tenants to replace the leases that will expire
during 2010.
5. Accrued
Liabilities
Accrued liabilities consisted of the
following as of December 31, 2009 and 2008 (in thousands):
2009
|
2008
|
|||||||
Property
taxes
|
$ | 480 | $ | 621 | ||||
Tenant
escrows
|
206 | 205 | ||||||
Audit
fees
|
62 | 80 | ||||||
Tax
preparation fees
|
57 | 20 | ||||||
Accrued
operating expenses
|
32 | 43 | ||||||
Miscellaneous
|
63 | 73 | ||||||
$ | 900 | $ | 1,042 |
F-11
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
6. General
and Administrative Expenses
General and administrative expenses for
the years ended December 31, 2009, 2008 and 2007 consisted of the following (in
thousands):
2009
|
2008
|
2007
|
||||||||||
Advisor
administrative services
|
$ | 178 | $ | 120 | $ | - | ||||||
Auditing
expense
|
113 | 205 | 126 | |||||||||
Tax
preparation fees
|
102 | 27 | 9 | |||||||||
Legal
expense
|
53 | 35 | 41 | |||||||||
Directors'
and officers' insurance
|
48 | 26 | 39 | |||||||||
Transfer
agent fees
|
46 | 55 | 43 | |||||||||
Printing
fees
|
35 | 57 | 45 | |||||||||
Sarbanes-Oxley
fees
|
22 | 16 | 83 | |||||||||
Advisory
board fees
|
- | - | 11 | |||||||||
Other
|
7 | 33 | 11 | |||||||||
$ | 604 | $ | 574 | $ | 408 |
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 $10.00 per unit. We record all distributions
when declared, except that the units issued through the DRIP were recorded when
the units were actually issued.
The
distributions we pay to our limited partners are not necessarily indicative of
our current or future operating results, and there can be no assurance that
future cash flow will support distributions at the current rate. In
addition, 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. Our
General Partners, in their discretion, may defer fees payable by us to the
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 NASAA Guidelines, which would
permit distributions to our limited partners in excess of net cash from
operations. Accordingly, all or some of such distributions may
constitute a return of capital to our investors to the extent that distributions
exceed net cash from operations, or may be recognized as taxable income by us or
by our investors.
The
following are the distributions declared during the years ended December 31,
2009 and 2008 (in thousands):
2009
|
2008
|
|||||||
Fourth
Quarter
|
$ | 647 | $ | 647 | ||||
Third
Quarter
|
646 | 646 | ||||||
Second
Quarter
|
640 | 643 | ||||||
First
Quarter
|
632 | 645 | ||||||
$ | 2,565 | $ | 2,581 |
8. Related
Party Arrangements
The
General Partners and certain of their affiliates are entitled to receive fees
and compensation in connection with the management and sale of our assets, and
have received fees in the past in connection with the Offering and
acquisitions. Our General Partners have agreed that all of the
financial benefits of serving as our general partners will be allocated to
Behringer Advisors I since the day-to-day responsibilities of serving as our
general partner will be performed by Behringer Advisors I through the executive
officers of its general partner.
F-12
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
For the
management and leasing of our properties, we pay Behringer Harvard Mid-Term
Management Services, LLC, Behringer Harvard Real Estate Services, LLC and 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 years ended December
31, 2009, 2008 and 2007, we incurred property management fees payable to our
Property Manager or its affiliates of approximately $141,000, $145,000, and
$158,000, 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 fee may be deferred and paid in a subsequent
year. During each of the years ended December 31, 2009 and 2008 we
incurred asset management fees of approximately $138,000. For the
year ended December 31, 2007 we incurred asset management fees of approximately
$140,000.
We may
reimburse Behringer Advisors I for costs and expenses paid or incurred to
provide services to us including direct expenses and the costs of salaries and
benefits of certain persons employed by those entities and performing services
for us, as permitted by our Partnership Agreement. For the year ended
December 31, 2009 and 2008, we incurred such costs for administrative services
totaling $178,000 and $120,000, respectively. We incurred and
expensed no such costs for the year ended December 31, 2007.
At
December 31, 2009, we had payables to related parties of approximately $72,000,
which consisted of approximately $52,000 for direct expenses and services and
approximately $20,000 for management fees payable to our Property Manager and
Behringer Advisors I. At December 31, 2008, we had payables to
related parties of approximately $94,000, which consisted of approximately
$84,000 for direct expenses and services and approximately $10,000 for
management fees payable to our Property Manager and Behringer
Advisors I.
In
connection with the sale of our properties, we will pay Behringer Advisors I or
its affiliates a subordinated disposition fee in an amount not exceeding the
lesser of: (A) 50% of the reasonable, customary and competitive real
estate brokerage commissions customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (B) 3% of
the gross sales price of each property, subordinated to distributions to limited
partners from the sale proceeds of an amount which, together with prior
distributions to the limited partners, will equal (1) 100% of their capital
contributions plus (2) an 8% annual cumulative (noncompounded) return of their
net capital contributions. Subordinated disposition fees that are not
payable at the date of sale, because limited partners have not yet received
their required minimum distributions, will be deferred and paid at such time as
these subordination conditions have been satisfied. In addition,
after the limited partners have received a return of their net capital
contributions and an 8% annual cumulative (noncompounded) return on their net
capital contributions, then Behringer Advisors I is entitled to receive 15% of
the remaining residual proceeds available for distribution (a subordinated
participation in net sale proceeds and distributions); provided, however, that
in no event will the General Partners receive in the aggregate more than 15% of
sale proceeds remaining after the limited partners have received a return of
their net capital contributions. Since the above conditions have not
been met at this time, we incurred no such disposition fees for the years ended
December 31, 2009, 2008 or 2007.
We are
dependent on Behringer Advisors I and our Property Manager for certain services
that are essential to us, including asset 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.
9. Discontinued
Operations
There
were no discontinued operations during the years ended December 31, 2009 and
2008. On December 28, 2006, we sold the Northpoint Property, which contained
approximately 79,000 rentable square feet (unaudited), to an unaffiliated third
party for a contract sale price of approximately $6.3 million and realized a
gain on the sale. The results of operations for the Northpoint
Property are classified as discontinued operations in the accompanying
consolidated statements of operations. The results for the year ended
December 31, 2007 represent the final settlements for operations of the
Northpoint Property. The following table summarizes the results of
discontinued operations for the year ended December 31, 2007 (in
thousands):
F-13
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
Year
ended
|
||||
December
31, 2007
|
||||
Rental
revenue
|
$ | 10 | ||
Expenses
|
||||
Property
operating expenses
|
5 | |||
Total
expenses
|
5 | |||
Income
from discontinued operations
|
$ | 5 |
10. Fair
Value Disclosure 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
December 31, 2009 and 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 estimate presented herein is based on information available to management
as of December 31, 2009 and 2008. Although management is
not aware of any factors that would significantly affect the estimated fair
value amount, such amount has 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.
11. Income
Tax Basis Net Income (Unaudited)
Our
income tax basis net income for the years ended December 31, 2009, 2008, and
2007, is recalculated as follows (in thousands):
2009
|
2008
|
2007
|
||||||||||
Net
income for financial statement purposes
|
$ | 165 | $ | 141 | $ | 756 | ||||||
Start-up
and organizational costs
|
(6 | ) | (35 | ) | (35 | ) | ||||||
Bad
debt expense
|
3 | (8 | ) | 7 | ||||||||
Straight
line rent
|
(170 | ) | 9 | (56 | ) | |||||||
Prepaid
rent
|
(4 | ) | (67 | ) | (32 | ) | ||||||
Depreciation
|
(41 | ) | (49 | ) | (50 | ) | ||||||
Amortization
|
639 | 708 | 844 | |||||||||
Other
|
1 | - | 16 | |||||||||
Net
income for income tax purposes
|
$ | 587 | $ | 699 | $ | 1,450 |
F-14
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Notes
to Consolidated Financial Statements
12. Quarterly
Financial Data (Unaudited)
The
following table presents selected unaudited quarterly financial data for each
quarter during the years ended December 31, 2009 and 2008 (in thousands, expect
per unit amounts):
2009
Quarters Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
Rental
Revenues
|
$ | 981 | $ | 1,024 | $ | 958 | $ | 916 | ||||||||
Net
income
|
$ | 14 | $ | 75 | $ | 31 | $ | 45 | ||||||||
Weighted
average number of
|
||||||||||||||||
limited
partnership units outstanding
|
4,275 | 4,275 | 4,275 | 4,275 | ||||||||||||
Basic
and diluted net income per limited partnership unit
|
$ | - | $ | 0.02 | $ | 0.01 | $ | 0.01 | ||||||||
2008
Quarters Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
Rental
Revenues
|
$ | 943 | $ | 968 | $ | 1,059 | $ | 895 | ||||||||
Net
income (loss)
|
$ | 27 | (1 | ) | $ | 136 | (21 | ) | ||||||||
Weighted
average number of
|
||||||||||||||||
limited
partnership units outstanding
|
4,309 | 4,298 | 4,275 | 4,275 | ||||||||||||
Basic
and diluted net income (loss) per limited partnership unit
|
$ | 0.01 | $ | - | $ | 0.03 | $ | (0.01 | ) |
13.
|
Subsequent
Events
|
On
February 3, 2010, Behringer Harvard Hopkins, LLC, our wholly-owned subsidiary ,
entered into a contract for the sale of a one-story office building containing
approximately 29,660 of rentable square feet, located on approximately 2.5 acres
of land (the “Hopkins Building”), located in Hopkins, Minnesota, a suburb of
Minneapolis, Minnesota to an unaffiliated buyer, Ford Parkway, LLC (“Ford
Parkway”). The contract sales price for the Hopkins Building is approximately
$2.9 million. Ford Parkway made an earnest money deposit of $50,000
as required by the contract, which is refundable until the termination of an
inspection period. If the sale is consummated, the general partners
currently anticipate distributing the net proceeds of the sale to the limited
partners and would also consider reducing the normal distribution to reflect the
reduction of income resulting from the disposition of this asset and resulting
higher general and administrative costs relative to revenues.
*****
F-15
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Partners of
Behringer
Harvard Mid-Term Value Enhancement Fund I LP
Addison,
Texas
We have
audited the consolidated financial statements of Behringer Harvard Mid-Term
Value Enhancement Fund I LP and subsidiaries (the “Partnership”) as of December
31, 2009 and 2008, and for each of the three years in the period ended December
31, 2009, and have issued our report thereon dated March 31, 2010;
such financial statements and report are included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement
schedules of the Partnership listed in Item 15. The financial
statement schedules are the responsibility of the Partnership’s
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth
therein.
/s/
Deloitte & Touche LLP
Dallas,
Texas
March 31,
2010
F-16
Behringer
Harvard Mid Term Value Enhancement Fund I LP
|
||||||||||||||||
Valuation
and Qualifying Accounts
|
||||||||||||||||
Schedule
II
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||
Allowance
for doubtful accounts
|
Balance
at
Beginning
of
Year
|
Charged
to
Expenses
(Recoveries)
|
Deductions
|
Balance
at End
of
Year
|
||||||||||||
Year
ended December 31, 2009
|
$ | - | $ | 3 | $ | - | $ | 3 | ||||||||
Year
ended December 31, 2008
|
$ | 8 | $ | (6 | ) | $ | 2 | $ | - | |||||||
Year
ended December 31, 2007
|
$ | 1 | $ | 7 | $ | - | $ | 8 |
F-17
Behringer
Harvard Mid Term Value Enhancement Fund I LP
|
|||||||||||||||||||||||||||||
Real
Estate and Accumulated Depreciation
|
|||||||||||||||||||||||||||||
Schedule
III
|
|||||||||||||||||||||||||||||
December
31, 2009
|
|||||||||||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||||
Initial
cost
|
Cost
capitalized
|
Gross
amount
|
|||||||||||||||||||||||||||
subsequent
|
carried
at
|
Accumulated
|
Year
of
|
Date
|
Depreciable
|
||||||||||||||||||||||||
Property
Name
|
Market
|
Land
|
Buildings
|
to
acquisition
|
close
of period
|
depreciation
|
construction
|
acquired
|
life
|
||||||||||||||||||||
Hopkins
Building
|
Minneapolis, MN
|
$ | 786 | $ | 2,225 | $ | 52 | $ | 3,063 | $ | 520 |
1981
|
3/12/04
|
(1)
|
|||||||||||||||
Tucson
Way
|
Denver,
CO
|
800 | 5,654 | 67 | 6,521 | 1,181 |
1985
|
10/19/04
|
(1)
|
||||||||||||||||||||
2800
W. Mockingbird
|
Dallas,
TX
|
2,557 | 3,100 | 41 | 5,698 | 597 |
1940
|
3/11/05
|
(1)
|
||||||||||||||||||||
Parkway
Vista
|
Dallas,
TX
|
952 | 3,725 | 268 | 4,945 | 721 |
2002
|
6/8/05
|
(1)
|
||||||||||||||||||||
ASC
Building
|
Dallas,
TX
|
587 | 2,918 | 31 | 3,536 | 472 |
2000
|
12/21/05
|
(1)
|
||||||||||||||||||||
Totals
(2)
|
$ | 5,682 | $ | 17,622 | $ | 459 | $ | 23,763 | $ | 3,491 |
(1) Each
of our buildings has a depreciable life of 25 years.
(2) The
aggregate cost for federal income tax purposes is equal to the gross amount
carried at the close of the
period.
A summary
of activity for real estate and accumulated depreciation for the years ended
December 31, 2009, 2008 and 2007 is as follows (in thousands):
Year
ended
|
Year
ended
|
Year
ended
|
||||||||||
December
31, 2009
|
December
31, 2008
|
December
31, 2007
|
||||||||||
Real Estate:
|
||||||||||||
Balance
at beginning of year
|
$ | 23,582 | $ | 23,585 | $ | 23,607 | ||||||
Additions
|
181 | - | 21 | |||||||||
Disposals
and write-offs
|
- | (3 | ) | - | ||||||||
Cost
of real estate sold
|
- | - | (43 | ) | ||||||||
Balance
at end of the year
|
$ | 23,763 | $ | 23,582 | $ | 23,585 | ||||||
Accumulated depreciation:
|
||||||||||||
Balance
at beginning of year
|
$ | 2,754 | $ | 2,029 | $ | 1,306 | ||||||
Depreciation
expense
|
737 | 725 | 723 | |||||||||
Disposals
|
- | - | - | |||||||||
Balance
at end of the year
|
$ | 3,491 | $ | 2,754 | $ | 2,029 |
*****
F-18
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 June 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 June 3, 2003)
|
|
3.3
|
Certificate
of Limited Partnership of Registrant (previously filed 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 the prospectus of the Registrant filed pursuant
to Rule 424(b)(3) on February 20, 2003, as
supplemented)
|
|
10.1
|
Form
of Amended and Restated Property Management and Leasing Agreement between
Registrant and HPT Management Services LLC (previously filed and
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant’s Registration Statement on Form S-11, Commission File No.
333-100126, filed on June 3, 2003)
|
|
10.2
|
Purchase
Agreement between Behringer Harvard Northpoint I LP, as seller, and
Medical Edge Healthcare Group, Inc., as purchaser, regarding the
Northpoint Property (previously filed and incorporated by reference to
Form 8-K filed on January 4, 2007)
|
|
10.3
|
First
Amendment to Purchase Agreement between Behringer Harvard Northpoint I LP
and Medical Edge Healthcare Group, Inc. (previously filed and incorporated
by reference to Form 8-K filed on January 4, 2007)
|
|
10.4
|
Second
Amendment to Purchase Agreement between Behringer Harvard Northpoint I LP
and Medical Edge Healthcare Group, Inc. (previously filed and incorporated
by reference to Form 8-K filed on January 4, 2007)
|
|
10.5
|
Purchase
Agreement between Behringer Harvard Hopkins LLC, as seller, and Ford
Parkway, LLC, as purchaser, regarding the Hopkins Building (previously
filed and incorporated by reference to Form 8-K filed on February 9,
2010)
|
|
21.1*
|
List
of Subsidiaries
|
|
23.1
|
Consent
of Fulbright & Jaworski L.L.P. (previously filed and incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-11, Commission File No. 333-100126, filed on December
23, 2002)
|
|
23.2
|
Consent
of Morris, Manning & Martin, LLP (previously filed and incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant’s Registration
Statement on Form S-11, Commission File No. 333-100126, filed on
December 23, 2002)
|
|
31.1*
|
Rule
13a-14(a) or Rule 15d-14(a) Certification
|
|
31.2*
|
Rule
13a-14(a) or Rule 15d-14(a) Certification
|
|
32.1*
|
Section
1350 Certifications
|
* filed
herewith