-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ab9OSVG1BgVfUl2p67dfbFq4L0TZT2ZubGQeVZ0O+j1wsqgPiokdUU3J/fXWsg0s 2i4ly/bsdC0Tf9fqRgnOpg== 0000354521-08-000044.txt : 20080812 0000354521-08-000044.hdr.sgml : 20080812 20080812145823 ACCESSION NUMBER: 0000354521-08-000044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080812 DATE AS OF CHANGE: 20080812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL REALTY INVESTORS LTD CENTRAL INDEX KEY: 0000354521 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521219926 STATE OF INCORPORATION: DC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11149 FILM NUMBER: 081009454 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE STREET 2: 5TH FLOOR CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 MAIL ADDRESS: STREET 1: 1200 ROCKVILLE PIKE STREET 2: 5TH FLOOR CITY: ROCKVILLE STATE: MD ZIP: 20852 10-Q 1 f10q_063008-cri1.txt QUARTERLY REPORT - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q ------------------ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2008 ------------------ Commission file number 0-11149 CAPITAL REALTY INVESTORS, LTD. Organized pursuant to the Laws of the District of Columbia ------------------ Internal Revenue Service - Employer Identification No. 52-1219926 11200 Rockville Pike, Rockville, Maryland 20852 (301) 468-9200 ------------------ 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 |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| - -------------------------------------------------------------------------------- CAPITAL REALTY INVESTORS, LTD. INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008 Page Part I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - June 30, 2008 and December 31, 2007........................... 1 Statements of Operations and Accumulated Gain (Losses) - for the three and six months ended June 30, 2008 and 2007..... 2 Statements of Cash Flows - for the six months ended June 30, 2008 and 2007............... 3 Notes to Financial Statements - June 30, 2008 and 2007........................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 12 Item 4. Controls and Procedures........................................... 15 Part II - OTHER INFORMATION Item 5. Other Information................................................. 15 Item 6. Exhibits.......................................................... 16 Signature.................................................................. 17 Part I. FINANCIAL INFORMATION Item 1. Financial Statements CAPITAL REALTY INVESTORS, LTD. BALANCE SHEETS ASSETS

The accompanying notes are an integral part of these financial statements. -1- Part I. FINANCIAL INFORMATION Item 1. Financial Statements CAPITAL REALTY INVESTORS, LTD. STATEMENTS OF OPERATIONS AND ACCUMULATED LOSSES (Unaudited)

The accompanying notes are an integral part of these financial statements. -2- Part I. FINANCIAL INFORMATION Item 1. Financial Statements CAPITAL REALTY INVESTORS, LTD. STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of these financial statements. -3- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 1. BASIS OF PRESENTATION In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position of Capital Realty Investors, Ltd. (the Partnership) as of June 30, 2008, and the results of its operations for the three and six month periods ended June 30, 2008 and 2007, and its cash flows for the six month periods ended June 30, 2008 and 2007. The results of operations for the interim periods ended June 30, 2008, are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form 10-Q. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in conformity with US GAAP have been condensed or omitted pursuant to such instructions. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's annual report on Form 10-KSB at December 31, 2007. On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could be paid to Local General Partners, real estate brokers or other third party intermediaries employed to sell properties in which the Partnership holds interests, to the extent that CRI markets and sells the Partnership's assets instead of such persons (a "Disposition Fee"). The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.

2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS a. Advance to Local Partnership ---------------------------- As of both June 30, 2008 and December 31, 2007, the Partnership had advanced funds, including accrued interest, totaling $290,896 to ARA Associates - -- Shangri-La Ltd. (Shallowford Oaks). For financial reporting purposes, this loan has been reduced to zero by the Partnership as a result of losses at the Local Partnership level during prior years. -4- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued b. Property matters ---------------- Baltic Plaza ------------ On June 24, 2001, the local managing general partner entered into a contract to sell the property owned by Sencit Baltic Associates (Baltic Plaza). On December 19, 2002, Baltic Plaza was sold. Cash proceeds received by the Partnership totaled $2,053,358. As part of the consideration, the Local Partnership took back a 30-year purchase money note in the principal amount of $2,300,000, collateralized by the partnership interests of the general partner of the maker/purchaser. The Local Partnership assigned the purchase money note to an escrow for the benefit of its partners (with CRI serving as escrow agent), so that the Local Partnership entity could be dissolved. The purchase money note bears interest at 4.6% compounded annually, and requires a minimum annual payment equal to 50% of the maker/purchaser's annual audited cash flow, as defined, with the balance of unpaid principal, if any, plus accrued interest, due and payable on December 31, 2032. As of August 12, 2008, no payments of principal or interest have been received on this purchase money note. The Partnership's 98% beneficial interest in this purchase money note is reflected in the accompanying balance sheets at June 30, 2008 and December 31, 2007, at its original principal balance of $2,300,000 plus estimated accrued but unpaid interest, all discounted to $619,000 to provide for an effective interest rate commensurate with the investment risk. The resulting discounted amount has been fully reserved due to uncertainty of collection of the purchase money note and related interest. c. Completed sales --------------- Court Place ----------- On March 31, 2008, the Partnership's interest in Court Place was sold. The sale resulted in net gain on disposition of investment in partnerships of $0 for financial statement purposes in 2008 and approximately $205,000 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2008, the Managing General Partner was paid a disposition fee of $246,690 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships at March 31, 2008. Due to the sale of the Partnership's interest in Court Place, the Partnership's basis, which totaled $204,592, net of an impairment loss of $1,428,802 at December 31, 2007, had been reclassified to investment in partnerships held for sale in the accompanying balance sheet at that date. Net capitalized acquisition fees and property purchase costs were reduced to zero. Frederick Heights ----------------- On March 30, 2007, Frederick Heights was sold. Gross cash sale proceeds received and receivable by the Partnership total $8,423,388. The sale resulted in net gain on disposition of investment in partnerships of $7,335,473 for financial statement purposes in 2007 and a total gain of $9,563,599 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2007, the Managing General Partner was paid a disposition fee of $530,000 related to the sale. The fee was netted against the related gain on disposition -5- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued of investment in partnerships at March 31, 2007. During the second quarter of 2007, gain on disposition of investment in partnerships was increased $155,377, of which $3,969 was received in the second quarter and $151,408 was received in July 2007. The Partnership received $55,045 in August 2007 and September 2007, which is recorded as gain on disposition of investment in partnerships at September 30, 2007. In March 2008, the Partnership received $507,078 for reserves which had been held in escrow by the title company, which was included in gain on disposition of investment in partnerships at December 31, 2007 for financial statement purposes. Lihue Gardens ------------- On December 30, 2005, the property owned by Lihue Associates (Lihue Gardens) was sold. Gross cash sale proceeds received March 1, 2006 by the Partnership totaled $1,524,292. The sale resulted in net gain on disposition of investment in partnership of $1,356,733 for financial statement purposes and in total gain of $2,030,688 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in March 2006, the Managing General Partner was paid a disposition fee of $86,000 related to the sale. The fee was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2005. The Local Partnership was withholding reserves for contingent liabilities. In December 2007, the Partnership received additional proceeds related to the reserves of $62,786, which is included in gain on disposition of investment in partnerships at December 31, 2007 for financial statement purposes, and resulted in loss of $690,917 for federal tax purposes. Linden Place ------------ On November 1, 2007, a contract for the sale of the Partnership's interest in Linden Place was signed. On January 1, 2008, the Partnership's interest in Linden Place was sold. The sale resulted in net gain on disposition of investment in partnerships of $2,796,506 for financial statement purposes in 2008 and approximately $5,154,000 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in January 2008, the Managing General Partner was paid a disposition fee of $917,500 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships in January 2008. In May 2008, the Partnership received a cash flow distribution of $39,265 which is accrued and included in net gain on disposition of investment in partnerships at March 31, 2008. The Partnership's basis, along with unamortized acquisition fees and property purchase costs, which totaled $2,775,259 as of December 31 2007, had been reclassified to investment in partnerships held for sale in the accompanying balance sheet at that date. Park Glen --------- On March 31, 2008, the Partnership's interest in Park Glen was sold. The sale resulted in net gain on disposition of investment in partnerships of $38,518 for financial statement purposes in 2008 and approximately $2,272,000 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2008, the Managing General Partner was paid a disposition fee of $300,610 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships at March 31, 2008. -6- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Due to the sale of the Partnership's interest in Park Glen, the Partnership's basis, along with net unamortized acquisition fees and property purchase costs, which totaled $21,344 at December 31, 2007, had been reclassified to investment in partnerships held for sale in the accompanying balance sheet at that date. Sundance Apartments ------------------- On December 20, 2006, the Partnership's interest in Sundance Apartments was sold. Gross cash sale proceeds received by the Partnership totaled $338,298. The sale resulted in net gain on disposition of investment in partnerships of $205,537 for financial statement purposes and in total gain of $1,701,792 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in January 2007, the Managing General Partner was paid a disposition fee of $120,000 related to the sale. The fee was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2006. Tandem Townhouses ----------------- On December 31, 2007, the Partnership's interest in Tandem Associates (Tandem Townhouses) was sold. Cash proceeds to the Partnership totaled $19,900 of which $1,000 was received in September 2007 as a deposit and $18,900 in January 2008. The sale resulted in $0 gain for financial statement purposes in 2007 and a total loss of $113,356 for federal tax purposes. The Partnership's basis in the Local Partnership totaled $19,900 net of an impairment loss of $327,632 at December 31, 2007. Net capitalized acquisition fees and property purchase costs were reduced to zero at September 30, 2007. Warner House ------------ On October 22, 2007, a contract for the sale of the Partnership's interest in Warner House was signed. On March 31, 2008, the Partnership's interest in Warner House was sold. The sale resulted in net gain on disposition of investment in partnerships of $140,193 for financial statement purposes in 2008 and approximately $1,531,000 for federal tax purposes. Due to the sale of the Partnership's interest in Warner House, the Partnership's basis, along with net unamortized acquisition fees and property purchase costs, which totaled $9,807 as of December 31, 2007, had been reclassified to investment in partnerships held for sale in the accompanying balance sheet at that date. d. Assets held for sale -------------------- New Sharon Woods ---------------- On December 31, 2006, a contract for the sale of the Partnership's interest in New Sharon Woods was signed. Due to the possible sale of the Partnership's interest in New Sharon Woods, the Partnership's basis in the Local Partnership, along with net unamortized acquisition fees, which totaled $9,192 at both June 30, 2008 and December 31, 2007, has been reclassified to investment in partnerships held for sale in the accompanying balance sheets. The sale is -7- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued scheduled to close during the fourth quarter of 2008. There is no assurance that a sale of the Partnership's interest will occur. e. Summarized financial information -------------------------------- Combined statements of operations for the six and eleven Local Partnerships in which the Partnership was invested as of June 30, 2008 and 2007, respectively, follow. The combined statements have been compiled from information supplied by the management agents of the properties and are unaudited. The information for each of the periods is presented separately for those Local Partnerships which have investment basis (equity method), and for those Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those Local Partnerships (equity method suspended). Appended after the combined statements is information concerning the Partnership's share of income from partnerships related to cash distributions recorded as income, and related to the Partnership's share of Local Partnership net income.

(1) Includes Warner House sold in March 2008. -8- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

(1) Includes Warner House sold in March 2008. Cash distributions received from Local Partnerships which have investment basis (equity method) are recorded as a reduction of investments in partnerships and as cash receipts on the respective balance sheets. Cash distributions received from Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those Local Partnerships (equity method suspended) are recorded as share of income from partnerships on the respective statements of operations and as cash receipts on the respective balance sheets. As of June 30, 2008 and 2007, the Partnership's share of cumulative losses to date for four of six and six of the eleven Local Partnerships exceeded the amount of the Partnership's investments in those Local Partnerships by $5,026,917 and $6,044,424, respectively. As the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements. 3. RELATED PARTY TRANSACTIONS In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner or its affiliates for -9- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 3. RELATED PARTY TRANSACTIONS - Continued direct expenses in connection with managing the Partnership. The Partnership paid $103,145 and $180,267 for the three and six month periods ended June 30, 2008, respectively, and $100,604 and $183,768 for the three and six month periods ended June 30, 2007, respectively. Such expenses are included in general and administrative expenses in the accompanying statements of operations. In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee (Management Fee) after all other expenses of the Partnership are paid. The Partnership paid the Managing General Partner a Management Fee of $23,802 for each of the three month periods ended June 30, 2008 and 2007 and $47,604 for each of the six month periods ended June 30, 2008 and 2007. In accordance with the terms of the Partnership Agreement as in effect at the time, in March 2006 the Managing General Partner was paid a disposition fee of $86,000 related to the sale of Lihue Gardens in December 2005, which was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2005. Pursuant to approval of the Partnership's Consent Solicitation Statement on October 17, 2006, the Managing General Partner may receive an increased property disposition fee from the Partnership on the same basis as such fees could be paid to Local General Partners, real estate brokers or other third party intermediaries employed to sell properties in which the Partnership holds interests to the extent that CRI markets and sells the Partnership's assets instead of such persons. In accordance with the terms of the Partnership Agreement, in January 2007 the Managing General Partner was paid a disposition fee of $120,000 related to the sale of Sundance Apartments in December 2006, which was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2007. In accordance with the terms of the Partnership Agreement, in April 2007 the Managing General Partner was paid a disposition fee of $530,000 related to the sale of the Frederick Heights property, which was netted against the related gain on disposition of investment in partnerships at March 31, 2007. In accordance with the terms of the Partnership Agreement, in January 2008 the Managing General Partner was paid a disposition fee of $917,500 related to the sale of the Partnership's interest in Linden Place, which was netted against the related gain on disposition of investment in partnerships at March 31, 2008. In accordance with the terms of the Partnership Agreement, in April 2008 the Managing General Partner was paid disposition fees of $246,690 and $300,610 related to the sales of the Partnership's interests in Court Place and Park Glen, respectively, which were netted against the related gain on disposition of investment in partnerships. 4. CASH DISTRIBUTIONS On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding and the excess amount of taxes withheld of $400,784 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights. -10- CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS June 30, 2008 and 2007 (Unaudited) 4. CASH DISTRIBUTIONS - Continued Cash concentration risk - ----------------------- Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains three cash accounts with the same bank. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of June 30, 2008, the uninsured portion of the cash balances was $8,045,485. # # # -11- Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Realty Investors, Ltd.'s (the Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations section is based on the financial statements, and contains information that may be considered forward looking, including statements regarding the effect of governmental regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including national and local economic conditions, the general level of interest rates, governmental regulations affecting the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, and the availability of working capital. Critical Accounting Policies ---------------------------- The Partnership has disclosed its selection and application of significant accounting policies in Note 1 of the notes to financial statements included in the Partnership's annual report on Form 10-KSB at December 31, 2007. The Partnership accounts for its investments in partnerships (Local Partnerships) by the equity method because the Partnership is a limited partner in the Local Partnerships. As such the Partnership has no control over the selection and application of accounting policies, or the use of estimates, by the Local Partnerships. Environmental and operational trends, events and uncertainties that might affect the properties owned by the Local Partnerships would not necessarily have a significant impact on the Partnership's application of the equity method of accounting, since the equity method has been suspended for four Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those Local Partnerships. The Partnership reviews property assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the estimated future net cash flows expected to be generated by the asset. If an asset were determined to be impaired, its basis would be adjusted to fair value through the recognition of an impairment loss. On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could be paid to Local General Partners, real estate brokers or other third party intermediaries employed to sell properties in which the Partnership holds interests, to the extent that CRI markets and sells the Partnership's assets instead of such persons (a "Disposition Fee"). The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.

General ------- C.R.I., Inc. (the Managing General Partner) continues to evaluate the Partnership's underlying apartment complexes to develop strategies that maximize the benefits to investors. Issues that are at the forefront of the Managing General Partner's strategic planning include: the expiration of Section 8 Housing Assistance Payment (HAP) contracts, the restrictions on properties with -12- Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued state housing agency financing or the U. S. Department of Agriculture's Rural Development agency (RD) financing, the cessation of losses to the Partnership due to the complete depletion of low-income housing accelerated depreciation deductions on the Local Partnerships' properties, and the reduction of mortgage interest deductions as the mortgage loans move closer to maturity. Most of the Local Partnerships in which the Partnership is invested have mortgage loans financed by various state housing agencies, and one Local Partnership has a mortgage loan financed by the RD agency. Four of the Local Partnerships have Section 8 HAP contracts in place for all or substantially all of their apartment units, which Section 8 HAP contracts are generally regulated by HUD (the state housing agencies, RD and HUD, collectively, the "Agencies"). Currently, these Section 8 HAP contracts expire through 2026, and the Managing General Partner believes that, at expiration, the Agencies will strive to preserve the units as low income, or affordable, housing by exercising their rights under the mortgages and/or regulatory agreements to disallow prepayment of the mortgages or conversion of the units to market rate housing. The Managing General Partner continues to monitor the actions of the Agencies to assess how the Agencies will deal with expiring Section 8 HAP contracts and what impact the Agencies' strategies will have on the operations of the Local Partnerships and, consequently, the impact on the Partnership's investments in the Local Partnerships. In connection with renewals of the HAP Contracts under current law and policy, HUD has determined that the amount of rental assistance payments will be based on market rental instead of above market rentals (as may be the case under existing HAP Contracts). The payments under the renewed HAP Contracts may provide sufficient cash flow to permit owners of these properties to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA"). To address the reduction in payments under HAP Contracts as a result of this policy, HUD provides for the restructuring of mortgage loans insured by the FHA. An FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the borrower of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. Sales of properties with state agency or RD financing will be extremely difficult. Since the Agencies are unlikely to allow mortgage prepayment and/or sale for a conversion to market rate housing, prospective buyers are generally limited to tax credit buyers or not-for-profit organizations. The Managing General Partner is working diligently on behalf of the Partnership to produce the best results possible under these difficult circumstances. While the Managing General Partner cannot predict the outcome for any particular property at this time, the Managing General Partner will continue to work with the Local Partnerships to develop strategies that maximize the benefits to investors. Financial Condition/Liquidity ----------------------------- The Partnership's liquidity, with unrestricted cash resources of $7,510,155 net of the distribution payable as of June 30, 2008, along with anticipated future cash distributions from the Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of August 12, 2008, there were no material commitments for capital expenditures. The Partnership closely monitors its cash flow and liquidity position in an effort to ensure that sufficient cash is available for operating requirements. For the six month period ended June 30, 2008, existing cash resources and cash -13- Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued provided by investing activities were adequate to support net cash used in operating activities. Cash and cash equivalents increased $6,167,230 during the six month period ended June 30, 2008, primarily due to proceeds from disposition of investment in partnerships. On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding and the excess amount of taxes withheld of $400,784 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights. Results of Operations --------------------- The Partnership recognized net loss for the three month period ended June 30, 2008 compared to net income during the corresponding period in 2007, primarily due to decreases in share of income from partnerships, gain on disposition of investment in partnerships and interest revenue, and increases in general and administrative expenses and professional fees. Share of income from partnerships decreased primarily due to the cessation of income from properties which have been sold, and decreased rental income and higher operating expenses at one property. Interest revenue decreased due to higher cash and cash equivalent balances during the first quarter of 2008. General and administrative expenses increased primarily due to higher reimbursed payroll costs. Professional fees increased due to higher audit costs. The Partnership's net income for the six month period ended June 30, 2008 decreased from the corresponding period in 2007, primarily due to decreases in gain on disposition of investment in partnerships and share of income from partnerships and increased in general and administrative expenses and professional fees, partially offset by increased interest revenue and deceased amortization of deferred costs. Share of income from partnerships decreased and increases in general and administrative expenses and professional fees are as stated above. Interest revenue increased due to higher cash and cash equivalent balances in 2008. For financial reporting purposes, the Partnership, as a limited partner in the Local Partnerships, does not record losses from the Local Partnerships in excess of its investment to the extent that the Partnership has no further obligation to advance funds or provide financing to the Local Partnerships. As a result, the Partnership's share of income from partnerships for the three and six month periods ended June 30, 2008, did not include losses of $39,513 and $79,025, respectively, compared to excluded losses of $47,296 and $94,592, respectively, for the three and six month periods ended June 30, 2007. No other significant changes in the Partnership's operations have taken place during the three month period ended June 30, 2008. Certain states may assert claims against the Partnership for failure to withhold and remit state income tax on operating profit or where the sale(s) of property in which the Partnership was invested failed to produce sufficient cash proceeds with which to pay the state tax and/or to pay statutory partnership filing fees. The Partnership is unable to quantify the amount of such potential claims at this time. The Partnership has consistently advised its Partners that they should consult with their tax advisors as to the necessity of filing non-resident returns in such states with respect to their proportional taxes due. -14- Part II. FINANCIAL INFORMATION Item 4. Controls and Procedures In July 2008, representatives of the Managing General Partner of the Partnership carried out an evaluation of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not expect that the Partnership's disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2008, our disclosure controls and procedures were effective to ensure that (i) the information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized or reported within the time periods specified in the SEC's rules and forms and (ii) such information was accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In addition, there have been no significant changes in the Partnership's internal control over financial reporting that occurred during the Partnership's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. Part II. OTHER INFORMATION Item 5. Other Information There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended June 30, 2008, but not reported, whether or not otherwise required by this Form 10-Q at June 30, 2008. There is no established market for the purchase and sale of units of limited partner interest (Units) in the Partnership, although various informal secondary market services exist. Due to the limited markets, however, investors may be unable to sell or otherwise dispose of their Units. On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding and the excess amount of taxes withheld of $400,784 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights. -15- Part II. OTHER INFORMATION Item 6. Exhibits Exhibit No. Description - ----------- ----------- 31.1 Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. All other items are not applicable. -16- SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL REALTY INVESTORS, LTD. ---------------------------------------------- (Registrant) by: C.R.I., Inc. ----------------------------------------- Managing General Partner August 12, 2008 by: /s/ H. William Willoughby - --------------- ------------------------------------ DATE H. 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EX-31 4 exhibit31_063008-cri1.htm CERTIFICATIONS REQUIRED UNDER SECTION 302. EXHIBIT 31

EXHIBIT 31.1

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William B. Dockser, certify that:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2008, of CAPITAL REALTY INVESTORS, LTD.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)

		by: C.R.I., Inc.
		Managing General Partner

August 12, 2008		by: /s/ William B. Dockser
DATE		William B. Dockser, Director, Chairman of the Board, and Treasurer (Principal Executive Officer)

This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EXHIBIT 31.2

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, H. William Willoughby, certify that:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2008, of CAPITAL REALTY INVESTORS, LTD.

c)	Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)

		by: C.R.I., Inc.
		Managing General Partner

August 12, 2008		by: /s/ H. William Willoughby
DATE		H. William Willoughby, Director, President, Secretary, Principal Financial Officer and Principal Accounting Officer

This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EX-32 5 exhibit32_063008-cri1.htm CERTIFICATIONS REQUIRED UNDER SECTION 906. Exhibit 32

EXHIBIT 32

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

We, the undersigned, certify that, to the best of our knowledge, this quarterly report on Form 10-Q for the quarter ended June 30, 2008, of CAPITAL REALTY INVESTORS, LTD., and containing the financial statements, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the small business issuer.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)
		by: C.R.I., Inc.
		Managing General Partner
August 12, 2008		by: /s/ William B. Dockser
DATE		William B. Dockser, Director, Chairman of the Board, and Treasurer (Principal Executive Officer)
August 12, 2008		by: /s/ H. William Willoughby
DATE		H. William Willoughby, Director, President, Secretary, Principal Financial Officer and Principal Accounting Officer

This certification accompanies this quarterly report and is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose, and shall not be deemed filed by the small business issuer for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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