Note 2 - Investments in and Advances To Local Limited Partnerships

12 Months Ended

Dec. 31, 2015

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, 2015 and 2014, the Partnership held limited partnership interests in one Local Limited Partnership. The Local Limited Partnership owns residential low income rental projects consisting of 31 apartment units at December 31, 2015 and 2014, respectively. The mortgage loans of the project 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 Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnership that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnership using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnership based upon its respective ownership percentage of 99%. Distributions of surplus cash from operations from the Local Limited Partnership are restricted by the Local Limited Partnership’s 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 Partnership’s 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 Partnership and is not otherwise committed to provide additional support to it. Therefore, it does not recognize losses once its investment in the Local Limited Partnership reaches zero. Distributions from the Local Limited Partnership 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, 2015 and 2014, the Partnership received no distributions from operations of the 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 Partnership only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnership. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

At December 31, 2015 and 2014, the investment balance of the Local Limited Partnership had been reduced to zero.

At times, advances are made to the Local Limited Partnership.  Advances made by the Partnership to the Local Limited Partnership are considered part of the Partnership’s investment in the limited partnership. Advances made to the Local Limited Partnership for which the investment has been reduced to zero are generally charged to expense.  There were no advances made to the Local Limited Partnership during the years ended December 31, 2015 and 2014.

The difference between the investment per the accompanying balance sheets at December 31, 2015 and 2014, and the equity per the Local Limited Partnership’s condensed combined financial statements is due primarily to cumulative unrecognized equity in losses of the Local Limited Partnership, 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 Partnership are individually not material to the overall financial position of the Partnership, the following unaudited condensed combined balance sheets of the aforementioned Local Limited Partnership as of December 31, 2015 and 2014 and the condensed combined results of operations for each of the two years ended December 31, 2015 and 2014 are as follows:

Condensed Combined Balance Sheets of the Local Limited Partnership (in thousands – unaudited)
	December 31,
	2015	2014
Assets:
Land	$ 345	$ 345
Buildings and improvements	2,725	2,707
Accumulated depreciation	(2,198)	(2,066)
Other assets	217	239
Total Assets	$ 1,089	$ 1,225
Liabilities and Partners’ Deficit:
Mortgage notes payable	$ 657	$ 669
Other liabilities	1,255	1,280
Partners’ deficit	(823)	(724)
Total Liabilities and partners’ deficit	$ 1,089	$ 1,225

Condensed Combined Results of Operations of the Local Limited Partnerships
(in thousands - unaudited)
	Years Ended December 31,
	2015	2014
Revenues
Rental income	$ 347	$ 355
Expenses
Operating expense	287	291
Financial and entity expenses	27	34
Depreciation and amortization expenses	132	144
Total expenses	446	469
Loss from continuing operations	$ (99)	$ (114)

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:(in thousands – unaudited)

Description	Encumbrances	Land	Buildings and Personal Property	Total	Accumulated Depreciation	Date of Construction
Better Housing Assoc. LP	$ 657	$ 345	$ 2,725	$ 3,070	$ 2,198	1982-83

Reconciliation of Real Estate and Accumulated Depreciation

(in thousands - unaudited)

	Years Ended December 31,
Real Estate	2015	2014
Balance at beginning of year	$ 3,052	$ 3,049
Property improvements	18	3
Disposals of property	--	0
Balance at end of year	$ 3,070	$ 3,052
Accumulated Depreciation
Balance at beginning of year	$ 2,066	$ 1,922
Depreciation expense	132	144
Disposals of property	--	0
Balance at end of year	$ 2,198	$ 2,066

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 Partnership 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.