| Remodel of apartment complex is complete; 131 units total
Current Events: 12/12/02 Superior Leasing Co. is the management for the day-to-day operations of the apartment complex, and they continue to do a good job. Our Committee has successfully obtained insurance coverage for fire and liability, completed several requirements of the City of Houston, evicted disruptive tenants, and improved security and lighting, over the last 8 months.
Insurance: The new policy will go in force upon the transfer of the deed to the property from Big State Properties, LLC, which is expected any day. The annual premium is approximately $5000.00 more than the current policy provided through the estate.
Fire Loss: There was a fire at the property last month and one building (six units), totally destroyed. We are waiting for final insurance documentation to proceed in hiring a contractor and rebuilding the six units. There were no major injuries reported.
Electrical: The first phase of the electrical work has been completed, and the partnership has paid the contractor approximately $25,000 to date on the $58,000 contract. This payment was made out of cash flow from collected rents. The remaining work will begin in a few days, and is expected to be complete sometime in January. This work was required by the City of Houston for the complex to maintain its occupancy permit.
HVAC: The next and hopefully the last major work needed is obtaining permits and certifications for the existing air conditioning systems.
Evictions: The property management terminated several leases a few months ago, and the complex is now free of most of the tenants that were creating problems. There are still 30 unrented apartments out of the remaining 131 (6 burned). The management is renting at the rate of about 8-10 units per month (net).
Profitability: The property has remained in the black, although at a lower profit since the evictions. The costs of repairs and required updates / compliance has taken its toll on profit. We anticipate the property returning to the income levels experienced prior to June 2002 of about $18,000.00 to $20,000.00 per month.
Security: The management is developing a comprehensive plan for security that will go into effect January 2003. This will include illuminating a large amount of the property, and on-site private security patrol with a sheriff's deputy. This will provide more coverage because of a lower hourly cost, compared to our current employment of two HPD officers making unannounced visits. Our goal is to achieve security patrol presence most or all of the evening/night hours. The partnership has also contracted with a gate access control company to maintain the gates in good working order.
Joe Wiatt is the GP's point person on this property.
His phone daytime number is 713-446-7061.
4/22/03 Richard Petronella, Favill Funding Interests, LP attorney, received an Interlocutory Judgment (not yet final until all claims are adjudicated in this case) dated April 16, 2003 in the Favill lawsuit against Rone, Rone and Zolman, Inc., Robert W. Rone, and Jimmy Thomas Zolman, jointly and severally, for the loss arising from the Favill property foreclosure, in the amount of $3,562,436.75 plus $40,000.00 in attorney's fees, pre-judgment and post-judgment interest. We are not sure if these defendants have any assets, and we will be engaging an investigator for an asset search.
The partnership has received $168,000 from the Villarreal suit. Also pending is an insurance settlement for approximately $85,000 for the loss of the building from the fire which destroyed 6 apartments.
The rehab is almost complete and the partnership has the funds to cover the costs. The partnership hopes that it can make a distribution of $160,000 in the next few days. As soon as the partnership receives a certificate of occupancy from the city of Houston, the property will be listed for sale.
9/22/03 The property is now listed for sale.
1/18/03 The partnership in the last few months had several issues with Superior Management Co., which managed the property for Favill. Superior's on-site manager was misappropriating funds and pocketing some rents (paid in cash) according to Superior's own audit. Management was failing to control the property in a prudent way. As a result, the general partner terminated Superior in favor of Graystone Management Co. The partnership was faced with security issues, unpaid bills, and deteriorating facilities. Most of the issues are now taken care of, and the rent rolls are expected to increase in coming months. Houston Ind. School Dist has shown some interest in the property, as an elementary school is next door. We expect an offer in the next 30-60 days.
3/18/03 The partnership has received two appraisals. One is for approximately $2.1MM and the other $2.5MM. The principal balance on the loan was $4MM. The expenses are approximately $450,000.
9/5/04 The partnership received a new offer for the property last week for $2.25MM. After the due diligence period of 30 days, be potential buyer may put up earnest money to close. We also have a back-up offer for the same sales price.
12/31/05 The partnership has sold the property. The sale price was $1.65MM. The buyer has put down $125,000, and a note is due the partnership for the balance. A balloon payment is due approx October 2005 for the balance. The buyer is to pay interest at 6% during the financing term. The buyer is to improve the property in the sum of $100,000 during the first five months.
7/18/06 The buyer of the property has failed to pay the interim interest payments from January '06 to date. The property was posted for foreclosure. The buyer and the partnership has negotiated a partial payment of the interest in an effort to keep the property operational and promote the future sale of the property. This is a key factor in the final payoff.
3/21/07 The partnership has the property posted for foreclosure. The buyer claims that the property is under contract, and that the proceeds of the sale will support the payment of the balance of the note. The foreclosure is set for April 2, 2007. If the property is sold and the note amount is collected, it is anticipated that the recovery of principal will be approximately 16%.
2/1/08 The partnership has sold the property. We currently are paying off all debt, and attempting to recover a refund from the overpayment of taxes (required to be paid at closing). There will be a very small recovery of principal from this partnership, mainly due to additional taxes be levied on property never billed to the partnership, and an IRS claim from 2003 on unpaid 941 payroll taxes
8/1/08 The final financial matters are trying to be resolved. There are still tax refunds and deposits still to be received. At this time, it appears that the return on principal will be very small. It is estimated at 5-8%. This is due to an unforeseen tax debt to the IRS for 941 payroll taxes in 2003. Our accountants are checking into this issue. The IRS levied the account.
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