Investments, Equity Method and Joint Ventures

12 Months Ended

Dec. 31, 2011

Investments, Equity Method and Joint Ventures

Equity Method Investments Disclosure [Text Block]

Note 3 - Investments in and Advances to Local Limited Partnerships

As of December 31, 2011 and 2010, the Partnership holds limited partnership interests in eleven Local Limited Partnerships and a general partner interest in REA IV which, in turn, holds limited partnership interests in eight additional Local Limited Partnerships; therefore, the Partnership holds interests, either directly or indirectly through REA IV, in nineteen Local Limited Partnerships as of December 31, 2011. The other general partner of REA IV is NAPICO. The Local Limited Partnerships own residential low income rental projects consisting of 1,237 apartment units at both December 31, 2011 and 2010. 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 99.99%). Distributions of surplus cash from operations from most 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. See “Note 2 – Organization and Summary of Significant Accounting Policies” for a description of the impairment policy. 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 consolidated statements of operations. During the year ended December 31, 2010, the Partnership received operating distributions of approximately $7,000 from Local Limited Partnerships that were recognized as income on the consolidated statements of operations. The Partnership did not receive any distributions from Local Limited Partnerships during the year ended December 31, 2011.

At times, advances are made to the Local Limited Partnerships. Advances made by the Partnership to the individual Local Limited Partnerships are considered part of the Partnership's investment in limited partnerships.  Advances made to Local Limited Partnerships for which the investment has been reduced to zero are charged to expense. During the year ended December 31, 2010, the Partnership advanced approximately $23,000 to Clarkwood Apartments I and II to pay for the Local Limited Partnerships’ tax returns. There were no advances made during the year ended December 31, 2011. The 2010 advances were charged to expense on the consolidated statements of operations. While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made these advances in order to facilitate the sales of the properties owned by Clarkwood Apartments I and II.

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.

The Partnership has no carrying value in investments in Local Limited Partnerships as of December 31, 2011 and 2010.

On August 8, 2011, Bellair Manor, Oak Hill, Mount Union and Ivywood each entered into separate agreements of sale and purchase to each sell its investment property in exchange for (i) full satisfaction of the non-recourse note payable (as discussed above) due to an affiliate of the purchaser, (ii) the assumption of the outstanding mortgage loan encumbering the property, and (iii) the sum of one dollar. The Partnership does not expect to receive any proceeds from the sales of the properties. The Partnership had no investment balance remaining in Bellair Manor, Oak Hill, Mount Union or Ivywood at December 31, 2011 and 2010.

On August 8, 2011, Yorkview entered into an agreement of sale and purchase to sell its investment property in exchange for (i) full satisfaction of the non-recourse note payable (as discussed above) due to an affiliate of the purchaser, (ii) the assumption of the outstanding mortgage loan encumbering the property, and (iii) the sum of $150,000. After payment of closing costs, the Partnership expects to receive a distribution from the sale of Yorkview. During the year ended December 31, 2011, the Partnership received a sale deposit of $50,000, which is included in deferred revenue on the consolidated balance sheets included in “Item 8. Financial Statements and Supplementary Data” at December 31, 2011. The Partnership had no investment balance remaining in Yorkview at December 31, 2011 and 2010.

Subsequent to December 31, 2011, Oakwood Park Apartments I, Oakwood Park Apartments II and Birch Manor I each sold their respective investment properties to the holder of non-recourse notes payable in exchange for (i) full satisfaction of non-recourse notes payable due to an affiliate of the purchaser and (ii) the sum of one dollar with respect to each property. The Partnership did not receive any proceeds from the sale.  The Partnership had no investment balance remaining in either Oakwood Park Apartments I, Oakwood Park Apartments II or Birch Manor I as of December 31, 2011 or 2010.

On August 8, 2011, Birch Manor II and Richards Park each entered into a separate agreement of sale and purchase to sell its investment property in exchange for (i) full satisfaction of the non-recourse note payable due to an affiliate of the purchaser and (ii) the sum of one dollar. The Partnership does not expect to receive any proceeds from the sale of the property. The Partnership had no investment balance remaining in Birch Manor II or Richards Park at December 31, 2011 and 2010. 

Subsequent to December 31, 2011, the Partnership assigned its limited partnership interest in Arkansas City and Oakview to a third party for a total of $3,000. The Partnership had no investment balance remaining in either Arkansas City or Oakview as of December 31, 2011 and 2010.

On April 20, 2010, Hampshire House sold its investment property for a sale price of $4,600,000. After payment of closing costs and upon the purchaser’s closing of its financing of the property, the Partnership’s share of distributable proceeds was approximately $1,063,000, which was recognized as a distribution in excess of investment in Local Limited Partnerships during the year ended December 31, 2010. Approximately $890,000 of the proceeds were used at closing to repay the non-recourse note and related accrued interest payable to an affiliate of the purchaser associated with the Partnership’s investment in Hampshire House, and the Partnership received the remaining proceeds of approximately $173,000. The Partnership had no investment balance remaining in Hampshire House as of December 31, 2011 and 2010.

In August 2007, the mortgage lender for the mortgage encumbering Newton Apartments sent notice accelerating the debt.  The Local Operating General Partner requested that the lender restructure or write down the debt. The Local Operating General Partner conducted mediation with the lender in June 2010. The mortgage lender was unwilling to write down or restructure the debt, but did agree to give the Local Operating General Partner additional time to complete a sale of the property. The Partnership is currently in negotiations to sell its limited partner interest to the Local Operating General Partner.

Although the Partnership’s recorded value of its investments and its equity in income and/or distributions from the Local Limited Partnerships are individually not material to the overall financial position of the Partnership, the following are summaries of the unaudited condensed combined balance sheets of the aforementioned Local Limited Partnerships as of December 31, 2011 and 2010, and the unaudited combined results of operations for each of the two years in the period ended December 31, 2011 (2011 and 2010 amounts exclude Hampshire House, which sold April 20, 2010, Oakwood Park Apartments I and Oakwood Park Apartments II, which sold February 2, 2012, Birch Manor Apartments I, which sold March 9, 2012 and Arkansas City Apartments and Oakview Apartments, due to the assignment of the Partnership’s interest in the Local Limited Partnerships on March 27, 2012):

CONDENSED COMBINED BALANCE SHEETS

OF THE LOCAL LIMITED PARTNERSHIPS

	December 31,
	2011	2010
	(in thousands-unaudited)
Assets:
Land	$ 1,234	$ 1,234
Buildings and improvements, net of accumulated
depreciation of approximately $27,369 and $26,321	7,785	7,332
Other assets	5,550	5,401
Total assets	$14,569	$13,967
Liabilities and Partners' deficit:
Mortgage notes payable	$11,054	$10,981
Notes payable	360	360
Accrued interest on notes payable	869	834
Other liabilities	3,204	3,133
Total liabilities	15,487	15,308
Partners' deficit	(918)	(1,341)
Total liabilities and partners' deficit	$14,569	$13,967

CONDENSED COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
	Years Ended December 31,
	2011	2010
	(in thousands-unaudited)
Revenues:
Rental and other	$ 7,416	$ 7,234
Expenses:
Depreciation and amortization	1,050	1,007
Interest	444	418
Operating	5,484	5,409
Total expenses	6,978	6,834
Income from continuing operations	$   438	$   400

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):

				Buildings
				And
		Notes Payable		Related
	Mortgage	and Accrued		Personal		Accumulated
Description	Notes	Interest	Land	Property	Total(2)	Depreciation (2)
Aristocrat Manor	$ 2,888	$    --	$  265	$ 4,509	$  4,774	$ 3,230
Bellair Manor Apts.	267	--	153	1,571	1,724	1,418
Birch Manor Apts. II	218	1,229	50	1,405	1,455	1,272
Bluewater Apts.	465	--	130	4,787	4,917	3,677
Ivywood Apts.	513	--	200	2,945	3,145	2,697
Jasper County Prop.	613	--	33	968	1,001	810
Nantucket Apts.	76	--	35	1,485	1,520	1,215
Newton Apts.	981	--	55	1,268	1,323	1,145
Oak Hill Apts.	793	--	76	3,226	3,302	2,844
Pachuta Apts.	420	--	21	641	662	529
Richards Park Apts.	199	--	53	1,426	1,479	1,294
Shubuta Properties	412	--	23	727	750	594
Tradewinds East	2,991	--	118	8,838	8,956	5,534
Yorkview Estates	218	--	22	1,358	1,380	1,110
Total	$11,054	$ 1,229	$1,234	$35,154	$36,388	$27,369

(2)   Reconciliation of real estate and accumulated depreciation (unaudited)

	Years Ended December 31,
	2011	2010
	(in thousands-unaudited)
Real Estate
Balance at beginning of year	$ 34,887	$ 42,837
Improvements during the year	1,501	1,735
Assets held for sale	--	(5,639)
Disposal of property	--	(4,046)
Balance at end of year	$ 36,388	$ 34,887

	Years Ended December 31,
	2011	2010
	(in thousands-unaudited)
Accumulated Depreciation
Balance at beginning of year	$ 26,321	$ 32,580
Depreciation expense for the year	1,048	1,159
Assets held for sale	--	(4,064)
Disposal of property	--	(3,354)
Balance at end of year	$ 27,369	$ 26,321

The difference between the investment per the accompanying consolidated balance sheets at December 31, 2011 and 2010 and the equity per the Local Limited Partnerships' combined financial statements is due primarily to cumulative unrecognized equity in losses of certain Local Limited Partnerships, costs capitalized to the investment account, cumulative distributions recognized as income and the recognition of impairment losses.

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 this new 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 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.