Note 2 - Investments in and Advances To Local Limited Partnerships

12 Months Ended

Dec. 31, 2012

Notes

Note 2 - Investments in and Advances To Local Limited Partnerships

Note 2 - Investments in and Advances to Local Limited Partnerships

As of December 31, 2012 and 2011, the Partnership holds limited partnership interests in 2 and 3 Local Limited Partnerships, respectively. The Local Limited Partnerships own residential low income rental projects consisting of 71 and 115 apartment units at December 31, 2012 and 2011, respectively. The mortgage loans of these projects are payable to or insured by various governmental agencies.

The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from both of the Local Limited Partnerships are restricted by the Local Limited Partnerships’ Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership. 

The individual investments are carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero.  Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During each of the years ended December 31, 2012 and 2011, the Partnership received a distribution of approximately $4,000 from operations of one Local Limited Partnership.

For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

At December 31, 2012 and 2011, the investment balance in both of the Local Limited Partnerships had been reduced to zero.

During the year ended December 31, 2011, the Partnership advanced approximately $1,000 to one Local Limited Partnership, Better Housing Associates, to fund a tax payment. While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made this advance in order to protect its economic investment in the Local Limited Partnership. This amount is included in advance made to Local Limited Partnership recognized as expense for the year ended December 31, 2011, as the investment balance in the Local Limited Partnership had been reduced to zero and the Partnership believes that the collection of this advance is doubtful.

The difference between the investment per the accompanying balance sheets at December 31, 2012 and 2011, and the equity per the Local Limited Partnerships' condensed combined financial statements is due primarily to cumulative unrecognized equity in losses of the Local Limited Partnerships, additional basis and costs capitalized to the investment account, cumulative distributions recognized as income and recognition of impairment losses. 

Although the Partnership’s recorded value of its investments and its distributions from the Local Limited Partnerships are individually not material to the overall financial position of the Partnership, the following unaudited condensed combined balance sheets of the aforementioned Local Limited Partnerships as of December 31, 2012 and 2011 and the condensed combined results of operations for each of the two years in the period ended December 31, 2012 are as follows (2012 and 2011 amounts exclude the operations of The Branford Group Limited Partnership, Green Ko Enterprises LP and One Madison Avenue Associates due to the assignment of the Partnership’s interests in the Local Limited Partnerships in December 2012, May 2011 and August 2011, respectively):

Condensed Combined Balance Sheets of the Local Limited Partnerships           (in thousands – unaudited)
	December 31,
	2012	2011
Assets:
Land	$   336	$   336
Buildings and improvements	4,237	4,214
Accumulated depreciation	(3,302)	(2,855)
Other assets	486	427
Total assets	$ 2,027	$ 2,122
Liabilities and Partners' Deficit:
Mortgage notes payable	$ 1,740	$ 1,850
Other liabilities	1,225	1,131
Partners’ deficit	(938)	(859)
Total liabilities and partners’ deficit	$ 2,027	$ 2,122

Condensed Combined Results of Operations of the Local Limited Partnerships
(in thousands, unaudited)
	Year Ended December 31, 2012	Year Ended December 31, 2011
Revenues
Rental and other income	$   542	$   526
Expenses
Operating expense	386	401
Financial expenses	53	49
Depreciation and amortization expenses	177	182
Total expenses	616	632
Loss from continuing operations	$   (74)	$  (106)

Real Estate and Accumulated Depreciation of Local Limited Partnerships

The following unaudited data is a summary of real estate, accumulated depreciation and encumbrances of the Local Limited Partnerships:

Gross Amount at which Carried at December 31, 2012
(in thousands – unaudited)
Description	Encumbrances	Land	Buildings and Personal Property	Total	Accumulated Depreciation	Date of Construction
Better Housing Assoc. LP	$   859	$ 296	$2,736	$3,032	$1,773	1982-83
Oakridge Park Apts. I	881	40	1,501	1,541	1,259	1982-83
Total	$ 1,740	$ 336	$4,237	$4,573	$3,032

Reconciliation of "Real Estate and Accumulated Depreciation" :

	Years Ended December 31,
Real Estate	2012	2011
	(in thousands- unaudited)
Balance at beginning of year	$ 6,812	$ 8,569
Property improvements	23	385
Disposals of property	(2,262)	(2,142)
Balance at end of year	$ 4,573	$ 6,812
Accumulated Depreciation
Balance at beginning of year	$ 4,204	$ 5,790
Depreciation expense	177	237
Disposals of property	(1,349)	(1,823)
Balance at end of year	$ 3,032	$ 4,204

During 2012 and 2011, an affiliate of Aimco was the general partner and property management agent for Better Housing Associates.

In May 2011, the Partnership assigned its limited partnership interest in Green Ko Enterprises LP to an affiliate of the Local Operating General Partner for approximately $63,000. The proceeds received, net of Wisconsin withholding taxes of approximately $3,000, were approximately $60,000. The proceeds were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.

In August 2011, the Partnership assigned its limited partnership interest in One Madison Avenue Associates to a third party for approximately $75,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.

In December 2012, the Partnership assigned its limited partnership interest in The Branford Group Limited Partnership to a third party for a total price of $1,530,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2012, as the Partnership’s investment balance in this Local Limited Partnership was zero at both December 31, 2011 and the date of assignment.

In June 2012, Better Housing Associates entered into a purchase and sale contract to sell its investment property to a third party in exchange for (i) assumption of the outstanding mortgage loans encumbering the property, and (ii) the sum of one dollar. The closing is expected to occur during the second quarter of 2013. The Partnership does not expect to receive any proceeds from the sale of the property. The Partnership had no investment balance remaining in this Local Limited Partnership at December 31, 2012 and 2011.

The current policy of the United States Department of Housing and Urban Development (“HUD”) is to not renew the Housing Assistance Payment (“HAP”) Contracts on a long term basis on the existing terms.  In connection with renewals of the HAP Contracts under current law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts.  The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD (“FHA”) unless such mortgage loans are restructured.  In order to address the reduction in payments under HAP Contracts as a result of current policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (“MAHRAA”) provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, 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 rate 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 owner 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. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.

When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA.  In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.