10KSB 1 f4fina10k.txt BRAUVIN REAL ESTATE FUND LP 4 12-31-07 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2007 or [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-13402 Brauvin Real Estate Fund L.P. 4 (Name of small business issuer in its charter) Delaware 36-3304339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 N. Michigan Avenue Chicago, Illinois 60601 (Address of principal executive offices) (Zip Code) (312) 759-7660 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Exchange Act: Limited Partnership Interests (Title of class) Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.[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 . State issuer's revenues for its most recent fiscal year $900,661. The aggregate sales price of the limited partnership interests of the issuer (the "Units") to unaffiliated investors of the issuer was $9,550,000. This does not reflect market value. This is the price at which the Units were sold to the public. There is no current established trading market for these Units, nor have any Units been sold within the last 60 days prior to this filing. Portions of the Prospectus of the registrant dated February 16, 1984, and filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, are incorporated by reference into Parts II and III of this Annual Report on Form 10-KSB. BRAUVIN REAL ESTATE FUND L.P. 4 2007 FORM 10-KSB ANNUAL REPORT INDEX PART I Page Item 1. Description of Business 3 Item 2. Description of Properties 4 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for the Issuer's Limited Partnership Interests, Related Security Holder Matters and Small Business Issuer Purchases of Equity Securities 8 Item 6. Management's Discussion and Analysis or Plan of Operation 8 Item 7. Consolidated Financial Statements and Supplementary Data 14 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 Item 8a. Controls and Procedures 15 Item 8b. Other Information 16 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 17 Item 10. Executive Compensation 18 Item 11. Security Ownership of Certain Beneficial Owners and Management 19 Item 12. Certain Relationships and Related Transactions 20 Item 13. Exhibits 21 Item 14. Principal Accountant Fees and Services. 22 Signatures 23 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) PART I Item 1. Description of Business. The Partnership is a Delaware limited partnership organized for the purpose of acquiring, operating, holding for investment and disposing of existing office buildings, medical office centers, shopping centers and industrial and retail commercial buildings of a general purpose nature, all in metropolitan areas. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. The Partnership is managed by an affiliate of the General Partners. Properties acquired by the Partnership either directly or indirectly through joint ventures were: (a) Fortune Professional Building (which was sold February 2003); (b) Raleigh Springs Marketplace(which was sold in December 2007); (c) Strawberry Fields Shopping Center (which was sold in July 2001); and (d) Sabal Palm Shopping Center (which was sold in December 2005). The General Partners originally intended to dispose of the Partnership's properties approximately five to eight years after acquisition of each property, with a view toward liquidation of the Partnership. Due to the past real estate market conditions and economic trends in the areas where the Partnership's properties were located, the General Partners believed it to be in the best interest of the Partnership to retain the properties until such time as the General Partners reasonably believed it was appropriate to dispose of the Partnership's properties. In order to make this determination, the General Partners periodically evaluated market conditions. The limited partnership agreement (the "Agreement") provides that the Partnership shall terminate December 31, 2010, unless sooner terminated. The General Partners shall in no event dispose of the properties after that date. The Partnership has no employees. Market Conditions/Competition Prior to the sale of its last property, the Partnership faced active competition in all aspects of its business and competed with entities which owned properties similar in type to those owned by the Partnership. Competition existed in such areas as attracting and retaining creditworthy tenants, financing capital improvements and selling properties. Many of the factors affecting the ability of the Partnership to compete were beyond the Partnership's control, such as softened markets caused by an oversupply of similar rental facilities, declining performance in the economy in which a property was located, population shifts, reduced availability and increased cost of financing, changes in zoning laws or changes in patterns of the needs of users. The Partnership retained ownership of its properties for periods longer than anticipated at acquisition. Market conditions weakened in several markets resulting in lower cash flows than were originally anticipated. The Partnership strived to maximize economic occupancy and, as such, adjusted rents to attract and retain tenants. The Partnership, by virtue of its prior ownership of real estate, was subject to federal and state laws and regulations covering various environmental issues. Management of the Partnership retained the services of third parties who held themselves out to be experts in the field to assess a wide range of environmental issues and conduct tests for environmental contamination. Management believes that all prior real estate owned by the Partnership was in full compliance with applicable environmental laws and regulations. Item 2. Description of Properties. The following is a summary of the real estate and improvements owned by the Partnership at January 1, 2006 and subsequent transactions related thereto. For the purpose of the information disclosed in this section, the following terms are defined as follows: Occupancy Rate: The occupancy rate is defined as the occupied square footage at December 31, divided by the total rentable square footage excluding square footage of outparcels, if any. Average Annual Base Rent Per Square Foot: The average annual base rent per square foot is defined as the total effective base rental income for the year divided by the average square feet occupied excluding outparcels, if any. Average Square Feet Occupied: The average square feet occupied is calculated by averaging the occupied square feet at the beginning of the year with the occupied square feet at the end of the year excluding outparcels, if any. In the opinion of the General Partners, the Partnership has provided for adequate insurance coverage of its real estate investment properties. Raleigh Springs Marketplace ("Raleigh Springs") On June 26, 1985, the Partnership acquired Raleigh Springs, an approximately 114,000 square foot community shopping center located in Memphis, Tennessee. Raleigh Springs was constructed in two phases. Phase I was completed during 1984 and Phase II was completed in 1985. The national anchor tenants are AJ Wright, Sav A Lot and the Veterans Administration. The Partnership purchased Raleigh Springs for $7,486,800, consisting of $2,300,000 in cash at closing (plus or minus prorations) and the assumption of an existing first mortgage loan on Phase I of $5,186,800. On November 17, 2005, the Partnership paid off its existing loan (in the amount of $3,910,423) using the proceeds from a new first mortgage loan ("First Mortgage") in the amount of $4,400,000. This loan required payments of interest only and had a twelve-month maturity, however, the Partnership had the ability to extend this loan for an additional twelve-month period (with the payment of an additional fee of $11,000), which the Partnership exercised in 2006. Interest was payable based on the LIBOR rate plus 2.25%. On December 31, 2006 the total interest rate was approximately 7.6%. The Partnership was also required to purchase interest rate caps at a cost of $5,000 and $2,500, which capped the LIBOR rate at 6.45% for a one year period from December 2006 and 2005, respectively. The notional amount of the interest rate cap agreement was identical to the notional amount of the loan. The fair market value of the interest rate cap at December 31, 2006 was $0. The change in fair value is reflected in general and administrative expense in the accompanying consolidated statement of operations as the Partnership had not elected to designate the interest rate cap as a hedge. The First Mortgage also required the establishment of a $300,000 escrow that could be used for the payment of tenant improvements and leasing commissions. The First Mortgage lender also required the Partnership to create a special purpose entity, Brauvin Raleigh LLC, which is fully owned by the Partnership. The Partnership transferred its ownership interest in Raleigh Springs to the special purpose entity. The Partnership was also required to enter into a limited guaranty agreement. Primarily, under the terms of the guaranty agreement the Partnership will not be personally liable unless the Partnership or Brauvin Raleigh LLC commit fraud by misapplication or misappropriation of cash receipts. Prior to the sale, the outstanding First Mortgage balance encumbered by the property was $4,400,000. Raleigh Springs has two tenants (AJ Wright and Sav A Lot)which occupy ten percent or more of the rentable square footage. In the first quarter of 2006, the Partnership received an expression of interest in leasing the remaining space that was the former Toys "R" Us (approximately 11,000 square feet). In the second quarter of 2006, the Partnership and Marty's, LLC (a regional supplier of men's fashion clothing) executed a lease agreement. The tenant required significant improvements to be made to the space prior to its occupancy. The Partnership paid for these improvements through the use of the escrow funds held by the First Mortgage lender (as detailed above) and available cash on hand. Marty's began its occupancy in mid November 2006 and began paying rent in April 2007. On December 28, 2007, Brauvin Raleigh, L.L.C., an affiliate of the Partnership, sold the property for a gross sales price of $7,125,000, which was the Partnership's last property investment. The Partnership received net sales proceeds, after repayment of the First Mortgage, of approximately $2,423,000 and recognized a gain on the sale of approximately $797,000. Under the terms of the transaction, the Partnership was able to bill and retain the 2007 common area maintenance and real estate tax reimbursements. Accordingly, in early 2008, the Partnership billed the Raleigh Springs Marketplace tenants approximately $18,000 for reimbursements. The Partnership is endeavoring to collect the remaining receivables from the tenants. The Partnership was required to provide certain representations and warranties to the purchaser for six months from the date of sale. The Partnership anticipates making a final distribution to Unit Holders soon after the expiration of the representations and warranties in third quarter of 2008. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) PART II Item 5.Market for the Issuer's Limited Partnership Interests, Related Security Holder Matters and Small Business Issuer Purchases of Equity Securities. At December 31, 2007, there were approximately 478 Limited Partners in the Partnership. There is currently no established public trading market for the Units and it is not anticipated that a public market for the Units will develop. Bid prices quoted by "partnership exchanges" vary widely and are not considered a reliable indication of market value. Neither the Partnership nor Brauvin Ventures, Inc. (the "Corporate General Partner") will redeem or repurchase outstanding Units. Pursuant to the terms of the Agreement, there are restrictions on the ability of the Limited Partners to transfer their Units. In all cases, the General Partners must consent to any substitution of a Limited Partner. There were no cash distributions to Limited Partners in 2007 and 2006. Item 6. Management's Discussion and Analysis or Plan of Operation. General Certain statements in this Annual Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing forward-looking statements may be found in this section and in the section entitled "Description of Business." Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward-looking statements to reflect future events or circumstances. Liquidity and Capital Resources The Partnership's mortgage notes payable was satisfied through the sale of Raleigh Springs Marketplace. In 1999, the Partnership solicited and received the votes of the Limited Partners to approve a sale of all the Partnership's properties, either on an individual or group basis, and to subsequently liquidate the Partnership. The solicitation, which was approved by the Limited Partners in the third quarter of 1999, stated that the Partnership's properties may be sold individually or in any combination provided that the total sales price for the properties included in the transaction equals or exceeds 70% of the aggregate appraised value for such properties, which valuation was conducted by an independent third party appraisal firm. The Partnership sold the Raleigh Springs Marketplace under a closed bid process which included identification of target buyers with proven financing ability and performance of certain evaluations of the property, such as environmental testing. Potential buyers were requested to sign confidentiality agreements to safeguard the Partnership's confidential proprietary information. The General Partners determined that each bid must have been all cash, completely unconditional and accompanied by a substantial deposit. Property Status Raleigh Springs Marketplace In the first quarter of 2006, the Partnership received an expression of interest in leasing the remaining space that was the former Toys "R" Us (approximately 11,000 square feet). In the second quarter of 2006 the Partnership and Marty's, LLC (a regional supplier of men's fashion clothing) executed a lease agreement. The tenant required significant improvements to be made to the space prior to its occupancy. The Partnership intends to pay for these improvements through the use of the escrow funds held by the First Mortgage lender (as detailed below) and available cash on hand. Marty's began its occupancy in mid November 2006 and began paying rent in April 2007. The Partnership made a number of cosmetic repairs and improvements to the center to improve its marketability for sale. These improvements included painting and repair of the sign band as well as minor parking lot repairs. On November 17, 2005, the Partnership paid off its existing loan (in the amount of $3,910,423) using the proceeds from a new first mortgage loan ("First Mortgage") in the amount of $4,400,000. This loan required payments of interest only and had a twelve-month maturity, however, the Partnership had the ability to extend this loan for an additional twelve-month period (with the payment of an additional fee of $11,000), which the Partnership exercised in 2006. Interest was payable based on the LIBOR rate plus 2.25%. At December 31, 2006 the total interest rate was approximately 7.6%. The Partnership was also required to purchase interest rate caps at a cost of $5,000 and $2,500, which capped the LIBOR rate at 6.45% for a one year period from December 2006 and 2005, respectively. The notional amount of the interest rate cap agreement was identical to the notional amount of the loan. The fair market value of the interest rate cap at December 31, 2006 was $0. The change in fair value is reflected in general and administrative expense in the accompanying consolidated statement of operations as the Partnership had not elected to designate the interest rate cap as a hedge. The First Mortgage also required the establishment of a $300,000 escrow that could be used for the payment of tenant improvements and leasing commissions. The Partnership has been reimbursed approximately $229,000 from the escrow account for improvements related to the Marty's buildout. The First Mortgage lender also required the Partnership to create a special purpose entity, Brauvin Raleigh LLC, which is fully owned by the Partnership. The Partnership transferred its ownership interest in Raleigh Springs to the special purpose entity. The Partnership was also required to enter into a limited guaranty agreement. Primarily, under the terms of the guaranty agreement the Partnership will not be personally liable unless the Partnership or Brauvin Raleigh LLC commit fraud by misapplication or misappropriation of cash receipts. On December 28, 2007, Brauvin Raleigh, L.L.C., an affiliate of the Partnership, sold the property for a gross sales price of $7,125,000, which was the Partnership's last property investment. The Partnership received net sales proceeds, after repayment of the First Mortgage, of approximately $2,423,000 and recognized a gain on the sale of approximately $797,000. Under the terms of the transaction, the Partnership was able to bill and retain the 2007 common area maintenance and real estate tax reimbursements. Accordingly, in early 2008, the Partnership billed the Raleigh Springs Marketplace tenants approximately $18,000 for reimbursements. The Partnership is endeavoring to collect the remaining receivables from the tenants. The Partnership was required to provide certain representations and warranties to the purchaser for six months from the date of sale. The Partnership anticipates making a final distribution to Unit Holders soon after the expiration of the representations and warranties in third quarter of 2008. Sabal Palm Shopping Center On December 7, 2005, the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. Under the terms of the transaction, the joint venture was able to bill and retain the 2005 common area maintenance reimbursements. Accordingly, in late December 2005, the joint venture billed the Sabal Palm tenants approximately $75,000 for its common area reimbursement. In 2006, the joint venture distributed all of its cash to its partners and liquidated. Results of Operations The Partnership's revenue and expenses were affected primarily by the operations of the property. Property operations, and in particular the components of income, demand for space and rental rates are, to a large extent, determined by local and national market conditions. These conditions have generally adversely impacted the Partnership's property economics. The General Partners conducted an in-depth assessment of each property's physical condition as well as a demographic analysis to assess opportunities for increasing occupancy and rental rates and decreasing operating costs. In all instances, decisions concerning restructuring of loan terms, reversions and subsequent operation of the property were made with the intent of maximizing the potential proceeds to the Partnership and, therefore, return of investment and income to Limited Partners. Results of Operations for the years ended December 31, 2007 and 2006 As a result of the Partnership's adoption of the liquidation basis of accounting, and in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on a liquidation basis. The Partnership generated an excess of expenses over revenue of $188,000 for the year ended December 31, 2007 as compared to an excess of expenses over revenue of $608,000 for the same period in 2006. The $420,000 decrease in expenses over revenues is the result of an increase in total income of $28,000 and a decrease in total expense of $381,000. Total revenue for the year ended December 31, 2007 was $901,000 as compared to $873,000 for the same period in 2006. The $28,000 increase in total revenue was the result of a $25,000 increase in rental income and an increase in other income of $17,000. Partially offsetting the increase in rental and other income was a decrease in interest income of $14,000. Increases in rental and other income is primarily the result of an increase in Raleigh Springs economic occupancy, related primarily to the beginning of rental payments from Marty's in April 2007. Total expenses for the year ended December 31, 2007 were $1,088,000 as compared to $1,469,000 for the same period in 2006. The $381,000 decrease in total expense was primarily a result of a $545,000 decrease in tenant improvements and leasing commissions, which was substantially related to the 2006 tenancy costs of Marty's at Raleigh Springs. Partially offsetting this decrease was increases in franchise and other taxes, operating expenses and interest expense. Franchise and other taxes increased $92,000 in 2007 when compared to 2006, primarily as a result of the state tax gain on the sale of Raleigh Springs. Operating expenses increased $65,000 in 2007 when compared to 2006 as a result of replacing certain heating and air conditioning units at the Raleigh Springs in order to facilitate the sale of the property. Interest expense increased $36,000 in 2007 when compared to 2006 as a result of higher interest rates. Results of Operations for the years ended December 31, 2006 and 2005 The Partnership generated an excess of expenses over revenue of $608,000 for the year ended December 31, 2006 as compared to an excess of revenue over expenses of $330,000 for the same period in 2005. The $938,000 decrease in excess revenue over expenses is the result of a decrease in equity interest in Sabal Palm's net income of $582,000 and an increase in total expense of $350,000. Total revenue for the year ended December 31, 2006 was $873,000 as compared to $878,000 for the same period in 2005. The $5,000 decrease in total revenue was the result of a $24,000 decrease in rental income. Partially offsetting the decrease in rental income was an increase in interest income of $18,000 and an increase in other income of $1,000. Rental and other income decreased as a result of a decrease in average occupancy at Raleigh Springs. Raleigh Springs physical occupancy, however, increased in November 2006 with Marty's occupancy (but the Partnership did not begin to get rental payments from this tenant until April 2007). Total expenses for the year ended December 31, 2006 were $1,469,000 as compared to $1,119,000 for the same period in 2005. The $350,000 increase in total expense was primarily the result of a $352,000 increase in tenant improvements and leasing costs, a $45,000 increase in general and administrative expense, a $39,000 increase in franchise and other taxes, a $24,000 increase in repairs and maintenance, and a $5,000 increase in operating expense. Partially offsetting the increase was a $205,000 decrease in interest expense, a $10,000 decrease in real estate taxes, a $10,000 decrease in bad debt expense and a $2,000 decrease in management fees. The decrease in interest expense was the result of the November 17, 2005 Raleigh Springs loan refinancing. Item 7. Consolidated Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on Page F-1 of this Form 10-KSB for financial statements where applicable. The financial information required in Item 310(b) of Regulation S-B is not applicable. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. On December 5, 2006, the Partnership was notified that a majority of the partners of Altschler Melvoin and Glasser, LLP ("AM&G"), including the lead audit partner for the Partnership, had become partners of McGladrey & Pullen, LLP and, as a consequence, that AM&G was compelled to resign and would no longer be the auditor for the Partnership. McGladrey & Pullen, LLP ("M&P") was appointed as the Company's new auditor. The decision to engage M&P was approved by the Partnership's general partners. During the two most recent fiscal years prior to 2006 and through the interim period ending December 5, 2006, the Partnership has not consulted with M&P regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Partnership's financial statements, and neither a written report nor oral advice was provided to the Partnership concluding there was an important factor to be considered by the Partnership in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject or a disagreement, or a reportable event with the Partnership's former auditor, AM&G. Item 8a. Controls and Procedures Controls and Procedures As of December 31, 2007, the Partnership's Chief Executive Officer and Chief Financial Officer of the Corporate General Partner, have concluded that the Partnership's controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, as amended. Management's Report on Internal Control over Financial Reporting The Partnership's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Partnership's management assessed the effectiveness of the internal control over financial reporting as of December 31, 2007. In making this assessment, the Partnership's management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Partnership's management has concluded that, as of December 31, 2007, the internal control over financial reporting is effective based on these criteria. Further, there were no changes in the Partnership's controls over financial reporting during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting. The Partnership's management, including the Chief Executive Officer and Chief Financial Officer of the Corporate General Partner, does not expect that the disclosure controls and procedures of the internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, 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 and instances of fraud, if any, have been detected. This Form 10-KSB does not include an attestation report of the Partnership's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management's report in this Annual Report. Changes in Internal Controls There have not been any significant changes in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. Item 8b. Other Information None. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) PART III Item 9.Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. The General Partners of the Partnership are: Brauvin Ventures, Inc., an Illinois corporation Mr. Jerome J. Brault, individually Brauvin Ventures, Inc. was formed under the laws of the State of Illinois in 1983, with its issued and outstanding shares being owned by A.G.E. Realty Corporation, Inc. (50%), and Messrs. Jerome J. Brault (beneficially) (25%) and Cezar M. Froelich (25%). The principal officers and directors of the Corporate General Partner are: Mr. Jerome J. Brault Chairman of the Board of Directors, Director, Chief Executive Officer and President Mr. James L. Brault Vice President and Secretary Mr. Thomas E. Murphy Treasurer and Chief Financial Officer The business experience during the past five years of the General Partners, officers and directors is as follows: MR. JEROME J. BRAULT (age 74) chairman of the board of directors, president and chief executive officer of the Corporate General Partner, as well as a principal shareholder of the Corporate General Partner. He is a member and manager of Brauvin Real Estate Funds, L.L.C. He is a member of Brauvin Capital Trust L.L.C., Brauvin Net Capital Manager, L.L.C, Brauvin Walton, L.L.C. and Brauvin Net Lease, L.L.C. He is an officer, director and one of the principal shareholders of Brauvin Associates, Inc., Brauvin Management Company, Brauvin Advisory Services, Inc. and Brauvin Securities, Inc., Illinois companies engaged in the real estate and securities businesses. He is the chief executive officer of Brauvin Capital Trust, Inc. Mr. Brault received a B.S. in Business from DePaul University, Chicago, Illinois in 1959. MR. JAMES L. BRAULT (age 47) is a vice president and secretary and is responsible for the overall operations of the Corporate General Partner and other affiliates of the Corporate General Partner. Mr. Brault is executive vice president and assistant secretary and is responsible for the overall operations of Brauvin Management Company. He is a manager of Brauvin Capital Trust, L.L.C., BA/Brauvin L.L.C., Brauvin Net Capital, L.L.C., Brauvin Walton L.L.C. and Brauvin Net Lease, L.L.C. He is the president of Brauvin Net Lease, Inc. Prior to joining the Brauvin organization in May 1989, he was a Vice President of the Commercial Real Estate Division of the First National Bank of Chicago ("First Chicago"), based in their Washington, D.C. office. Mr. Brault joined First Chicago in 1983 and his responsibilities included the origination and management of commercial real estate loans, as well as the direct management of a loan portfolio in excess of $150 million. Mr. Brault received a B.A. in Economics from Williams College, Williamstown, Massachusetts in 1983 and an M.B.A. in Finance and Investments from George Washington University, Washington, D.C. in 1987. Mr. Brault is the son of Mr. Jerome J. Brault. MR. THOMAS E. MURPHY (age 41) is the treasurer and chief financial officer of the Corporate General Partner and other affiliates of the Corporate General Partner. Mr. Murphy is also the chief financial officer of Brauvin Management Company, Brauvin Financial, Inc., Brauvin Securities, Inc. and Brauvin Net Lease, Inc. He is responsible for the Partnership's accounting and financial reporting to regulatory agencies. He joined the Brauvin organization in July 1994. Mr. Murphy received a B.S. in Accounting from Northern Illinois University in 1988. Mr. Murphy is a Certified Public Accountant and is a member of the Illinois CPA Society. Item 10. Executive Compensation. (a & b) The Partnership is required to pay certain fees, make distributions and allocate a share of the profits and losses of the Partnership to the Corporate General Partner as described under the caption "Compensation Table" on pages 10 to 12 of the Partnership's Prospectus, as supplemented, and the sections of the Agreement entitled "Distributions of Operating Cash Flow," "Allocation of Profits, Losses and Deductions," "Distribution of Net Sale or Refinancing Proceeds" and "Compensation of General Partners and Their Affiliates" on pages A-9 to A-12 of the Agreement attached as Exhibit A to the Partnership's Prospectus. The relationship of the Corporate General Partner (and its directors and officers) to its affiliates is set forth above in Item 9. Reference is also made to Notes 2 and 4 of the Notes to Consolidated Financial Statements filed with this annual report for a description of such distributions and allocations. The General Partners received an allocation of the Partnership's net income or loss for 2007 and 2006. An affiliate of the General Partners is reimbursed for its direct expenses relating to the administration of the Partnership. The Partnership does not have any employees and therefore there is no compensation paid. (c) - (h) Not applicable. Item 11. Security Ownership of Certain Beneficial Owners and Management. (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership. (b) The officers and directors of the Corporate General Partner do not, individually or as a group, own any Units. (c) The Partnership is not aware of any arrangements, the operations of which may result in a change of control of the Partnership. No officer or director of the Corporate General Partner possesses a right to acquire beneficial ownership of Units. The General Partners will share in the profits, losses and distributions of the Partnership as outlined in Item 10, "Executive Compensation." Item 12. Certain Relationships and Related Transactions. (a & b) The Partnership is entitled to engage in various transactions involving affiliates of the Corporate General Partner, as described in the section of the Partnership's Prospectus, as supplemented, entitled "Compensation Table" and "Conflicts of Interest" at pages 10 to 15 and the section of the Agreement entitled "Rights, Duties and Obligations of General Partners" at pages A-14 to A-17. The relationship of the Corporate General Partner to its affiliates is set forth in Item 9. Cezar M. Froelich resigned as an individual general partner of the Partnership effective 90 days after August 14, 1997 but remains a shareholder of the Corporate General Partner. He is also a principal of the law firm of Shefsky & Froelich Ltd., which firm acted as securities and real estate counsel to the Partnership. Reference is made to Note 4 of the Consolidated Notes to Financial Statements for a summary of transactions with affiliates. (c) Not applicable. (d) There have been no transactions with promoters. Item 13. Exhibits (a) The following documents are filed as part of this report: (1) (2) Financial Statements. (See Index to Financial Statements filed with this annual report). (3) Exhibits required by the Securities and Exchange Commission Regulation S-B Item 601: Exhibit No. Description *3.(a) Restated Limited Partnership Agreement *3.(b) Articles of Incorporation of Brauvin Ventures, Inc. *3.(c) By-Laws of Brauvin Ventures, Inc. *3.(d) Amendment to the Certificate of Limited Partnership of the Partnership *10.(a) Escrow Agreement *10.(b)(1) Management Agreement 21. Subsidiaries of the registrant *28. Pages 11-16, A-9 to A-13 and A-15 to A-18 of the Partnership's Prospectus and the Agreement dated March 1, 1985, as supplemented. * Incorporated by reference from the exhibits filed with the Partnership's registration statement (File No. 2-95633) on Form S-11 filed under the Securities Act of 1933. (b) No portions of the annual report have been incorporated by reference in this Form 10-KSB. (c) An annual report for the fiscal year 2007 will be sent to the Limited Partners subsequent to this filing. Item 14. Principal Accountant Fees and Services Audit fees relate to audit work performed on the financial statements as well as work that generally only the independent auditor can reasonably be expected to provide, including discussions surrounding the proper application of financial accounting and/or reporting standards and reviews of the financial statements included in quarterly reports filed on Form 10-QSB. Fees for audit and audit-related services provided by McGladrey & Pullen, LLP ("M&P") for the years ended December 31, 2007 and 2006 amounted to $29,100 and $26,600, respectively. Tax compliance services for 2007 and 2006 were provided by RSM McGladrey, Inc. for which fees amounted to $6,500 and $3,975, respectively. During the years ended December 31, 2007 and 2006, M&P did not perform any management consulting services for the Partnership. In accordance with policies of the board of directors of the Corporate General Partner, all services provided by M&P are required to be and have been pre-approved. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRAUVIN REAL ESTATE FUND L.P. 4 BY: Brauvin Ventures, Inc. Corporate General Partner By: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, Chief Executive Officer and President By: /s/ James L. Brault James L. Brault Vice President and Secretary By: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer INDIVIDUAL GENERAL PARTNER /s/ Jerome J. Brault Jerome J. Brault Dated: March 31, 2008 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER I, Jerome J. Brault, certify that: 1. I have reviewed this annual report on Form 10-KSB of Brauvin Real Estate Fund L.P. 4; 2. Based on my knowledge, this report does not contain any untrue statement of 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; 3. 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 statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the small business issuer and have: a) 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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) 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; and d) 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 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 5. 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 function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) 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. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY:/s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, President and Chief Executive Officer DATE: March 31, 2008 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CERTIFICATION FOR SARBANES-OXLEY SECTION 302(A) CERTIFICATE OF THE CHIEF FINANCIAL OFFICER I, Thomas E. Murphy, certify that: 1. I have reviewed this annual report on Form 10-KSB of Brauvin Real Estate Fund L.P 4.; 2. Based on my knowledge, this report does not contain any untrue statement of 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; 3. 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 statement of changes in net assets in liquidation of the small business issuer as of, and for, the periods presented in this report; 4. 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the small business issuer and have: a) 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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) 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; and d) 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 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 5. 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 function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to aversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) 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. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY:/s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer and Treasurer DATE: March 31, 2008 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) Exhibit 99 SECTION 906 CERTIFICATION The following statement is provided by the undersigned to accompany the Annual Report on Form 10-KSB for the year ended December 31, 2007, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed pursuant to any provisions of the Securities Exchange Act of 1934 or any other securities law: Each of the undersigned certifies that the foregoing Report on Form 10-KSB fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-KSB fairly presents, in all material respects, the financial condition and results of operations of Brauvin Real Estate Fund L.P. 4. BY: Brauvin Ventures, Inc. Corporate General Partner of Brauvin Real Estate Fund L.P. 4 BY: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, Chief Executive Officer and President DATE: March 31, 2008 BY: /s/ Thomas E. Murphy Thomas E. Murphy Chief Financial Officer And Treasurer DATE: March 31, 2008 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Statement of Net Assets in Liquidation as of December 31, 2007 F-3 Consolidated Statement of Changes in Net Assets in Liquidation for the year ended December 31, 2007 (Liquidation Basis) F-4 Consolidated Statement of Changes in Net Assets in Liquidation for the year ended December 31, 2006 (Liquidation Basis) F-5 Consolidated Statements of Operations for the years ended December 31, 2007 and 2006 (Liquidation Basis) F-6 Notes to Consolidated Financial Statements F-7 All other schedules provided for in Item 13 (a) of Form 10-KSB are either not required, not applicable, or immaterial. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners of Brauvin Real Estate Fund L.P. 4 We have audited the accompanying consolidated statement of net assets in liquidation of Brauvin Real Estate Fund L.P. 4 and subsidiary as of December 31, 2007 and the related consolidated statements of changes in net assets in liquidation and of operations for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated net assets in liquidation of Brauvin Real Estate Fund L.P. 4 and subsidiary as of December 31, 2007, and the changes in their net assets in liquidation and the results of their operations for each of the two years in the period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles. We were not engaged to examine management's assertion about the effectiveness of Brauvin Real Estate Fund L.P. 4 and subsidiary's internal control over financial reporting as of December 31, 2007 included in the accompanying Management's Report on Internal Control Over Financial Reporting and, accordingly, we do not express as opinion theron. /s/ McGladrey & Pullen, LLP Chicago, Illinois March 31, 2008 BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 2007 (LIQUIDATION BASIS) ASSETS Cash and cash equivalents $2,896,332 Tenant receivables 27,949 Escrow deposits 27,370 ---------- Total Assets 2,951,651 ---------- LIABILITIES Accounts payable and accrued expenses 209,642 Reserve for estimated costs during the period of liquidation (Note 1) 260,069 Due to affiliates 3,273 ---------- Total Liabilities 472,984 ---------- Net Assets in Liquidation $2,478,667 ========== See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 2007 (LIQUIDATION BASIS) Net assets in liquidation at January 1, 2007 $1,970,445 Excess expenses over revenue from operations (187,594) Gain on sale of property 796,960 Adjustment to estimated liquidation costs (101,144) ---------- Net assets in liquidation at December 31, 2007 $2,478,667 ========== Net assets available to: General Partners $ - - ========== Limited Partners $2,478,667 ========== See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 2006 (LIQUIDATION BASIS) Net assets in liquidation at January 1, 2006 $2,557,214 Excess expenses over revenue from operations (607,619) Adjustment to estimated liquidation costs 20,850 ---------- Net assets in liquidation at December 31, 2006 $1,970,445 ========== Net assets available to: General Partners $ -- ========== Limited Partners $1,970,445 ========== See notes to consolidated financial statements. BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (LIQUIDATION BASIS) 2007 2006 ---------- ---------- REVENUE Rental $ 733,452 $ 708,553 Interest 5,994 20,141 Other, primarily tenant expense reimbursements 161,215 144,467 ---------- ---------- Total revenue 900,661 873,161 ---------- ---------- EXPENSES Interest 371,295 334,707 Real estate taxes 116,359 112,829 Repairs and maintenance 41,339 50,302 Management fees (Note 4) 51,786 49,253 Other property operating 117,332 51,995 Tenant improvements and leasing costs 6,945 552,109 Bad debt expense 32,866 28,624 Franchise and other taxes 149,135 57,371 General and administrative 201,198 232,265 ---------- ---------- Total expenses 1,088,255 1,469,455 ---------- ---------- Excess expenses over revenue before equity interest (187,594) (596,294) Equity interest in Sabal Palm Joint Venture's excess expenses over revenue -- (11,325) ---------- ---------- Excess expenses over revenue from operations $ (187,594) $ (607,619) ========== ========== See notes to consolidated financial statements BRAUVIN REAL ESTATE FUND L.P. 4 (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2007 and 2006 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The financial statements consolidate the accounts of Brauvin Real Estate Fund L.P. 4 and its wholly owned subsidiary (the "Partnership") and include, through June 30, 2006, a 47% interest in a joint venture, which is accounted for using the equity method of accounting. The Partnership is a Delaware limited partnership organized for the purpose of acquiring, operating, holding for investment and disposing of existing office buildings, medical office centers, shopping centers and industrial and retail commercial buildings of a general purpose nature, all in metropolitan areas. The General Partners of the Partnership are Brauvin Ventures, Inc. and Jerome J. Brault. The Partnership is managed by an affiliate of the General Partners. Properties acquired by the Partnership either directly or indirectly through affiliated joint ventures were: (a) Fortune Professional Building (which was sold February 2003); (b) Raleigh Springs Marketplace(which was sold in December 2007); Strawberry Fields Shopping Center (which was sold in July 2001 and terminated in 2002) and (d) Sabal Palm Shopping Center (which was sold in December 2005). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates significant to the financial statements include the reserve for estimated costs during the period of liquidation. Actual results could differ from those estimates. Basis of Presentation As a result of the July 12, 1999 authorization by a majority of the Limited Partners to sell the Partnership's properties, the Partnership began the liquidation process and, in accordance with generally accepted accounting principles, the Partnership's financial statements for periods subsequent to July 12, 1999 have been prepared on the liquidation basis of accounting. Accordingly, the carrying values of assets are presented at their net realizable amounts and liabilities are presented at estimated settlement amounts, including estimated costs associated with carrying out the liquidation. Preparation of the financial statements on a liquidation basis requires significant assumptions by management, including the estimate of liquidation costs and the resolution of any contingent liabilities. There may be differences between the assumptions and the actual results because events and circumstances frequently do not occur as expected. Those differences, if any, could result in a change in the net assets recorded in the statement of net assets in liquidation as of December 31, 2007. Estimated Liquidation Costs Estimated costs expected to be incurred during the remaining liquidation period through June 30, 2008 include legal fees and other administrative items. Actual results could differ materially from these estimates. On a regular basis, an evaluation is made of the assumptions, judgments and estimates, and changes are recorded, as appropriate. Accounting Method The accompanying financial statements have been prepared in accordance with the liquidation basis of accounting. Tenant Receivables Tenant receivables are comprised of (a) billed but uncollected amounts due for monthly rents and other charges and (b) estimated unbilled amounts due for tenant reimbursement of common area maintenance charges and property taxes. Receivables are recorded at estimated net realizable value. An allowance for doubtful accounts of $17,226 is based on specific identification of uncollectible accounts and the Partnership's historical collection experience. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the financial statements. Principles of Consolidation The Partnership has one affiliate, Brauvin Raleigh, L.L.C. which is owned 100% by the Partnership. The accounts of the Partnership have been consolidated with its wholly-owned subsidiary in the accompanying financial statements. All significant intercompany balances and transactions have been eliminated upon consolidation. Investment in Joint Venture Partnership Until June 30, 2006, the Partnership owned a 47% equity interest in Sabal Palm Joint Venture (see Note 5). Sabal Palm was reported as an investment in an affiliated joint venture. The Partnership recorded its proportionate share of income and loss from joint venture operations. On December 7, 2005, the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. In 2006, the joint venture distributed all of its cash to its partners and liquidated. Investment in Real Estate Prior to the preparation of the financial statements on the liquidation basis of accounting, the operating properties acquired by the Partnership were stated at cost including acquisition costs, leasing commissions, tenant improvements and net of impairment. Depreciation and amortization expense were computed on a straight-line basis over approximately 31.5 years and the term of the applicable leases, respectively. Subsequent to the adoption of the liquidation basis of accounting, the Partnership adjusted its investment in real estate to estimated net realizable value, which was recorded as real estate held for sale. Additionally, the Partnership suspended recording any further depreciation expense. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. The Partnership maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. Management believes the Partnership is not exposed to any significant credit risk related to cash or cash equivalents. Estimated Fair Value of Financial Instruments In connection with the adoption of the liquidation basis of accounting, assets were adjusted to net realizable value, and liabilities were adjusted to estimated settlement amounts. Derivatives and Hedging Instruments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that all derivatives be recognized as assets and liabilities in the consolidated statements of net assets in liquidation and be measured at fair value and any change in fair value recorded in the statement of operations. SFAS 133 also requires changes in fair value of derivatives to be recorded each period in current earnings or comprehensive income depending on the intended use of the derivatives. In June, 2000, the FASB issued SFAS 138, which amends the accounting and reporting standards of SFAS 133 for certain derivatives and certain hedging activities. SFAS 133 and SFAS 138 were adopted by the Partnership effective January 1, 2001. (2) PARTNERSHIP AGREEMENT The Partnership Agreement (the "Agreement") provides that 99% of the net profits and losses from operations of the Partnership for each fiscal year shall be allocated to the Limited Partners and 1% of net profits and losses from operations shall be allocated to the General Partners. The net profit of the Partnership from the sale or other disposition of a Partnership property shall be allocated as follows: first, there shall be allocated to the General Partners the greater of: (i) 1% of such net profits; or (ii) the amount distributable to the General Partners as Net Sale Proceeds from such sale or other disposition in accordance with paragraph 2, section K of the Agreement; and second, all remaining profits shall be allocated to the Limited Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: 99% of such net loss shall be allocated to the Limited Partners and 1% of such net loss shall be allocated to the General Partners. The Agreement provides that distributions of Operating Cash Flow, as defined in the Agreement, shall be distributed 99% to the Limited Partners and 1% to the General Partners. The receipt by the General Partners of such 1% of Operating Cash Flow shall be subordinated to the receipt by the Limited Partners of Operating Cash Flow equal to a 10% per annum, cumulative, non-compounded return on their Adjusted Investment (the "Preferential Distribution"), as such term is defined in the Agreement. In the event the full Preferential Distribution is not made in any year (herein referred to as a "Preferential Distribution Deficiency") and Operating Cash Flow is available in following years in excess of the Preferential Distribution for said year, then the Limited Partners shall be paid such excess Operating Cash Flow until they have been paid any unpaid Preferential Distribution Deficiency from prior years. Net Sale Proceeds, as defined in the Agreement, received by the Partnership shall be distributed as follows: (a) first, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to the amount of their Adjusted Investment; (b) second, to the Limited Partners until such time as the Limited Partners have been paid an amount equal to any unpaid Preferential Distribution Deficiency; and (c) third, 85% of any remaining Net Sale Proceeds to the Limited Partners, and the remaining 15% of the Net Sale Proceeds to the General Partners. At December 31, 2007, the Preferential Distribution Deficiency exceeded the potential liquidation value of the remaining Partnership assets. (3) MORTGAGE NOTE PAYABLE On November 17, 2005, the Partnership paid off the prior loan (in the amount of $3,910,423) secured by Raleigh Springs Marketplace using the proceeds from a new first mortgage loan ("First Mortgage") in the amount of $4,400,000. This loan required payments of interest only and had a twelve-month maturity. In 2006, the Partnership extended the loan for an additional twelve-month period (with the payment of an additional fee of $11,000). Interest was payable based on the LIBOR rate plus 2.25%. The Partnership was also required to purchase interest rate caps with one year maturities at a cost of $5,000 and $2,500 at December 15, 2006 and 2005, respectively. The interest rate caps fixed the LIBOR rate at 6.45%. The notional amount of the interest rate cap agreements were identical to the notional amount of the mortgage loan. The fair market value of the interest rate cap agreements at December 31, 2006 was $0. The First Mortgage also required the establishment of a $300,000 escrow that can be used for the payment of tenant improvements and leasing commissions. The First Mortgage lender also required the Partnership to create a special purpose entity, Brauvin Raleigh L.L.C., which is fully owned by the Partnership. The Partnership transferred its ownership interest in the Raleigh Springs Marketplace to the special purpose entity. The Partnership was also required to enter into a limited guaranty agreement. Primarily, under the terms of the guaranty agreement the Partnership will not be personally liable unless the Partnership or Brauvin Raleigh LLC commit fraud by misapplication or misappropriation of cash receipts. Raleigh Springs Marketplace served as collateral under the respective nonrecourse debt obligation. On December 31, 2007, the Partnership paid off the balance of the note with proceeds from the sale of Raleigh Springs Marketplace. (4) TRANSACTIONS WITH AFFILIATES Fees and other expenses incurred or payable to the General Partners or their affiliates for the years ended December 31, 2007 and 2006 were as follows: 2007 2006 ------- ------- Management fees $51,786 $49,253 Reimbursable office expenses 117,900 110,525 The Partnership paid management fees equal to 6% of the receipts (as defined) from the Raleigh Springs Marketplace property. As of December 31, 2007, the Partnership had made all payments to affiliates except for $3,273 for management fees. (5) EQUITY INVESTMENT The Partnership owned a 47% interest in Sabal Palm Joint Venture ("Sabal Palm") and accounted for its investment under the equity method. On December 7, 2005, the joint venture sold the Sabal Palm property for a gross sales price of $4,350,000. The joint venture received net sales proceeds, after repayment of the first mortgage, of approximately $1,601,000 and recognized a gain on the sale of $1,189,925. Under the terms of the transaction, the joint venture was able to bill and retain the 2005 common area maintenance reimbursements. Accordingly, in late December 2005, the joint venture billed the Sabal Palm tenants approximately $75,000 for its common area reimbursement. In 2006, the joint venture distributed all its cash to its partners and liquidated. (6) PROPERTY SALE On December 28, 2007, Brauvin Raleigh, L.L.C., the affiliate of the Partnership, sold the Raleigh Springs Marketplace property for a gross sales price of $7,125,000, which was the Partnership's last property investment. The Partnership received net sales proceeds, after repayment of the First Mortgage, of approximately $2,423,000 and recognized a gain on the sale of approximately $797,000. Under the terms of the transaction, the Partnership was able to bill and retain the 2007 common area maintenance and real estate tax reimbursements. Accordingly, in early 2008, the Partnership billed the Raleigh Springs Marketplace tenants approximately $18,000 for reimbursements. The Partnership is endeavoring to collect the remaining receivables from the tenants. The Partnership was required to provide certain representations and warranties to the purchaser for six months from the date of sale. The Partnership anticipates making a final distribution to Unit Holders soon after the expiration of the representations and warranties in third quarter of 2008. (7) SUBSEQUENT EVENT On March 10, 2008, the Partnership made a distribution to Unit Holders in the amount of $1,000,000. EXHIBIT INDEX Exhibit (21) Subsidiaries of the Registrant Exhibit 21 Name of Subsidiary State of Formation Brauvin Sabal Palm Joint Venture Florida Brauvin Raleigh LLC Delaware