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 2 - Investments in and Advances to Local Partnerships

As of December 31, 2011 and 2010, the Partnership holds limited partnership interests in five and nine Local Partnerships, respectively, located in five and seven states and Puerto Rico, respectively. As a limited partner of the Local Partnerships, the Partnership does not have authority over day-to-day management of the Local Partnerships or their properties (the "Apartment Complexes"). The general partners responsible for management of the Local Partnerships (the "Local Operating General Partners") are not affiliated with the General Partner of the Partnership, except as discussed below.

At December 31, 2011 and 2010, the Local Partnerships own residential projects consisting of 674 and 911 apartment units, respectively. During the year ended December 31, 2011, the Partnership sold its partnership interests in four of the Local Partnerships owning residential projects consisting of 237 apartment units.

The projects owned by the Local Partnerships in which NTCI-II has invested were developed by the Local Operating General Partners who acquired the sites and applied for applicable mortgages and subsidies, if any. NTCI-II became the principal limited partner in these Local Partnerships pursuant to arm's-length negotiations with the Local Operating General Partners.  As a limited partner, NTCI-II's liability for obligations of the Local Partnerships is limited to its investment. The Local Operating General Partner of the Local Partnerships retains responsibility for developing, constructing, maintaining, operating and managing the Projects.  Under certain circumstances, an affiliate of NAPICO or NTCI-II may act as the Local Operating General Partner.  An affiliate, National Tax Credit Inc. II ("NTC-II") is acting either as a special limited partner or non-managing administrative general partner (the “Administrative General Partner”) of each Local Partnership in which the Partnership had an investment.

The Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 98.90% and 99%). The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Partnership. 

The individual investments are carried at cost plus the Partnership’s share of the Local Partnership’s profits less the Partnership’s share of the Local Partnership’s losses, distributions and impairment charges. See “Note 1 – 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 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 Partnerships reaches zero.  Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During the years ended December 31, 2011 and 2010, the Partnership received approximately $10,000 and $126,000, respectively, in operating distributions from Local Partnerships, of which approximately $10,000 and $29,000 was recognized as income in the statements of operations for the years ended December 31, 2011 and 2010, respectively, as these distributions were received from Local Partnerships in which the Partnership’s investment balance had previously been reduced to zero.

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 Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships.  Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

As of December 31, 2011, the investment balance in four of the five Local Partnerships had been reduced to zero and as of December 31, 2010, the investment balance in eight of the nine Local Partnerships had been reduced to zero. The Partnership’s remaining investment balance relates to the mortgage note receivable, which is discussed in “Note 4 – Mortgage Note Receivable”.

At times, advances are made to Local Partnerships in order to preserve the ability to receive applicable tax credits. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnership’s investment in limited partnerships.  Advances made to Local Partnerships in which the investment balance has been reduced to zero are charged to expense. The Partnership did not make any advances during the years ended December 31, 2011 and 2010. During the year ended December 31, 2010, the Partnership received approximately $19,000 as repayment of advances from Quivira Place Associates, LP and recognized this amount as a recovery of advances previously expensed in the statement of operations for the year ended December 31, 2010. The Partnership did not receive any advance repayments during the year ended December 31, 2011.

The following is a summary of the investments in and advances to Local Partnerships for the years ended December 31, 2011 and 2010 (in thousands):

	2011	2010
Investment balance, beginning of year	$    --	$   407
Equity in income (losses) of Local Partnerships
(see Note 4)	--	4
Distributions recognized as a return of investment	--	(309)
Distributions recognized as a return
on investment	--	(97)
Amortization of capitalized acquisition
costs and fees	--	(5)
Investment balance, end of year	$    --	$    --

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

The Partnership’s value of its investments and its equity in the income/loss and/or distributions from the Local Partnerships are, for certain Local Partnerships, individually, not material to the overall financial position of the Partnership. The financial information from the unaudited condensed combined financial statements of such Local Partnerships at December 31, 2011 and 2010 and for each of the two years in the period then ended is presented below.  The Partnership’s value of its investments in Michigan Beach Limited Partnership, (the “Material Investee”) is considered material to the Partnership’s financial position and amounts included below for the Material Investee are included on an audited basis.

The following are condensed combined statements of operations for the years ended December 31, 2011 and 2010 for the Local Partnerships in which the Partnership has investments (in thousands). The 2011 and 2010 amounts exclude Pineview Terrace, for which the Partnership sold its limited partnership interest in February 2011; Sitka III, Soldotna Apartments, and Torres del Plata II for which the Partnership sold its limited partnership interests in June 2011; Countryside Place which is classified as held for sale at December 31, 2011; Columbus Junction Park, Grimes Park Apartments and Norwalk Park Apartments, for which the Partnership sold its limited partnership interests in January 2010; Palm Springs View for which the Partnership sold its limited partnership interest in April 2010 and Fourth Street and Northwestern Partners due to the sale of the Local Partnership’s investment property in August and September 2010, respectively.

Condensed Combined Balance Sheets of the Local Partnerships
(in thousands)
	December 31, 2011
		Material
Assets	Unaudited	Investee	Total
Land	$    562	$    843	$  1,405
Building and improvements, net of
accumulated depreciation of $8,195
and $3,555, respectively	4,870	4,159	9,029
Other assets	619	1,002	1,621
Total assets	$  6,051	$  6,004	$ 12,055
Liabilities and Partners Deficit:
Liabilities:
Mortgage notes payable	$  8,179	$  9,124	$ 17,303
Other liabilities	1,269	9,201	10,470
	9,448	18,325	27,773
Partners’ deficit	(3,397)	(12,321)	(15,718)
Total liabilities and partners' deficit	$  6,051	$  6,004	$ 12,055

	December 31, 2010
		Material
Assets	Unaudited	Investee	Total
Land	$    562	$    843	$  1,405
Building and improvements, net of
accumulated depreciation of $7,821
and $3,118, respectively	5,214	4,467	9,681
Other assets	576	707	1,283
Total assets	$  6,352	$  6,017	$ 12,369
Liabilities and Partners Deficit:
Liabilities:
Mortgage notes payable	$  8,233	$  9,172	$ 17,405
Other liabilities	1,214	8,681	9,895
	9,447	17,853	27,300
Partners’ deficit	(3,095)	(11,836)	(14,931)
Total liabilities and partners' deficit	$  6,352	$  6,017	$ 12,369

Condensed Combined Results of Operations of the Local Partnerships
(in thousands)
	For the years ended December 31,
	2011	2011	2011	2010	2010	2010
		Material			Material
	Unaudited	Investee	Total	Unaudited	Investee	Total
Rental and other
revenue	$ 1,442	$ 2,200	$ 3,642	$ 1,409	$ 2,182	$ 3,591
Expenses:
Operating expenses	1,096	1,574	2,670	1,115	1,794	2,909
Interest	250	673	923	261	660	921
Depreciation and
amortization	399	437	836	399	448	847
Total expenses	1,745	2,684	4,429	1,775	2,902	4,677
Loss from continuing
operations	$  (303)	$  (484)	$  (787)	$  (366)	$  (720)	$(1,086)

Real Estate and Accumulated Depreciation of Local Partnerships

The following tables exclude the Local Partnerships sold in 2011 and 2010 or classified as held for sale, as described above.

(1) Schedule of Encumbrances and Investment Properties (all amounts unaudited except for those amounts relative to the Material Investee) (in thousands):

			Buildings
			And
			Related
			Personal		Accumulated
Description	Encumbrances	Land	Property	Total	Depreciation
Lincoln Grove	$ 2,048	$   185	$ 4,005	$ 4,190	$ 2,134
Michigan Beach	9,124	843	7,714	8,557	3,555
Virginia Park Meadows	3,399	79	5,389	5,468	4,174
Jamestown Terrace	2,732	298	3,671	3,969	1,887
Total	$17,303	$ 1,405	$20,779	$22,184	$11,750

(2) Reconciliation of real estate (all amounts unaudited except for those amounts relative to the Material Investee) (in thousands):

	Years Ended December 31,
	2011	2011	2011	2010	2010	2010
		Material			Material
	Unaudited	Investee	Total	Unaudited	Investee	Total
Real estate:
Balance at beginning of year	$13,597	$ 8,428	$22,025	$22,905	$ 8,217	$31,122
Improvements	30	129	159	21	211	232
Assets held for sale	--	--	--	(9,329)	--	(9,329)
Balance at end of year	$13,627	$ 8,557	$22,184	$13,597	$ 8,428	$22,025

(3) Reconciliation of accumulated depreciation (all amounts unaudited except for those amounts relative to the Material Investee) (in thousands):

	Years Ended December 31,
	2011	2011	2011	2010	2010	2010
		Material			Material
	Unaudited	Investee	Total	Unaudited	Investee	Total
Accumulated depreciation:
Balance at beginning
of year	$ 7,821	$ 3,118	$10,939	$13,173	$ 2,675	$15,848
Depreciation expense	374	437	811	394	443	837
Assets held for sale	--	--	--	(5,746)	--	(5,746)
Balance at end of year	$ 8,195	$ 3,555	$11,750	$ 7,821	$ 3,118	$10,939

An affiliate of the General Partner is currently the Local Operating General Partner in one of the Partnership’s four Local Partnerships included above, and another affiliate currently receives property management fees of approximately 5 percent of gross revenues from the same Local Partnership (see “Note 5 – Transactions with Affiliated Parties").

On February 4, 2011, the Partnership assigned its limited partnership interest in Pineview Terrace to a third party and received proceeds of $1,000,000, which was recognized as gain from sales of limited partnership interests in Local Partnerships during the year ended December 31, 2011. The Partnership’s investment balance in Pineview Terrace was zero at December 31, 2011 and 2010.

On June 7, 2011, the Partnership assigned its limited partnership interest in both Sitka III Associates and Soldotna Associates to a third party and received net proceeds of $3,000 for each interest, which was recognized as gain from sales of limited partnership interests in Local Partnerships during the year ended December 31, 2011. The Partnership’s investment balance in both Sitka III Associates and Soldotna Associates was zero at December 31, 2011 and 2010.

On June 15, 2011, the Partnership sold its limited partnership interest in Torres del Plata II Limited Partnership to a third party and received net proceeds of approximately $25,000, which was recognized as gain from sales of limited partnership interests in Local Partnerships during the year ended December 31, 2011. The Partnership’s investment balance in Torres del Plata II was zero December 31, 2011 and 2010.

During November 2011, the Partnership entered into an assignment and assumption agreement with a third party affiliated with the operating general partner of Countryside North American Partners, L.P. (“Countryside”). The agreement provided for an assignment of the Partnership’s 99% limited partnership interest in Countryside for $3,700,000. The assignment was subject to the consent of the Executive Director of New Jersey Housing and Mortgage Finance Agency which was received during December 2011. Upon receipt of approval from the Executive Director of New Jersey Housing and Mortgage Finance Agency, the assignment of the Partnership’s 99% limited partnership interest in Countryside became effective on December 30, 2011. Pursuant to the terms of the assignment agreement, the Partnership received a deposit of $150,000 in cash and a promissory note in the principal amount of $3,550,000 in December 2011. The promissory note has a maturity date of June 30, 2012 and bears interest at the annual rate of two percent if paid on or before March 31, 2012 and seven percent if paid after March 31, 2012. At December 31, 2011, this sale was accounted for under the deposit method, as it lacked adequate initial investment by the buyer to qualify as a sale transaction. Accordingly, the Partnership has recorded deferred revenues of $145,000 (cash portion of the sales price received less $5,000 of expenses incurred in connection with the assignment) and excluded the promissory note from its assets at December 31, 2011. Upon collection of the promissory note the Partnership will recognize a gain from sale of limited partnership interest of $3,695,000 and interest income upon receipt of any interest collected. The Partnership has no investment balance remaining in this Local Partnership at December 31, 2011 and 2010 and has accounted for the investment as asset held for sale at December 31, 2011.

On January 22, 2010, the Partnership sold its limited partnership interests in Norwalk, Columbus Junction Park and Grimes Park to a third party and received net proceeds of approximately $23,000, which was recognized as gain from sales of limited partnership interests in Local Partnerships during the year ended December 31, 2010. The Partnership’s investment balances in Norwalk, Columbus Junction Park and Grimes Park were zero at December 31, 2011 and 2010.

During September 2009, the Partnership entered into an assignment and assumption agreement with a third party affiliated with the local general partner of Palm Springs View Apartments, Ltd. The agreement provided for an assignment of the Partnership’s 50.49% limited partnership interest in Palm Springs View Apartments, Ltd. for $200,000. The assignment was subject to HUD approval which was received during the year ended December 31, 2010. Upon receipt of HUD approval the Partnership was able to complete the assignment of its 50.49% limited partnership interest in Palm Springs View Apartments, Ltd. and received $200,000 for the assignment in April 2010, which was recognized as gain from sales of limited partnership interests in Local Partnerships during the year ended December 31, 2010. The Partnership has no investment balance remaining in this Local Partnership at December 31, 2011 and 2010.

On August 27, 2010, a Local Partnership, Fourth Street Investors, LP sold its investment property to a third party for a gross sale price of $3,375,000. The Partnership received approximately $1,421,000 in distributable proceeds from the sale during the year ended December 31, 2010, of which approximately $1,112,000 was recognized as income. The Partnership’s investment balance in Fourth Street Investors, LP was zero at December 31, 2011 and 2010. On September 17, 2010, a Local Partnership, Northwestern Partners, Ltd sold its investment property to a third party for a gross sale price of $1,000,000. The Partnership received approximately $336,000 in distributable proceeds from the sale during the year ended December 31, 2010. The Partnership had no remaining investment balance in Northwestern Partners at December 31, 2011 and 2010.

During 2002, a Local Partnership, Michigan Beach, reached a settlement with the City of Chicago to complete necessary repairs to the exterior façade of the building.  In previous years, the Partnership had advanced Michigan Beach approximately $1,347,000 to complete these repairs and an additional approximately $1,138,000 for other operational items. These advances bear interest at prime plus 2% (approximately 5.25% at December 31, 2011) and interest earned by the Partnership was approximately $130,000 for both the years ended December 31, 2011 and 2010. The Partnership has charged to expense all of the advances to Michigan Beach and has not recognized the interest earned on the advances due to the uncertainty of collection of these amounts.