[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
California | 94-3158788 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
900 Veterans Blvd., Suite 500, Redwood City, CA | 94063 |
(Address of principal executive offices) | (Zip Code) |
Not Applicable |
Large accelerated | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 8,302 | $ | 7,054 | ||||
Loans | ||||||||
Secured by deeds of trust, net of discount of $2,881 at December 31, 2010 | ||||||||
Principal | 177,707 | 202,134 | ||||||
Advances | 18,693 | 18,190 | ||||||
Accrued interest | 11,887 | 13,119 | ||||||
Unsecured | 155 | 85 | ||||||
Allowance for loan losses | (79,230 | ) | (89,200 | ) | ||||
Net loans | 129,212 | 144,328 | ||||||
Real estate owned (REO) | ||||||||
Held for sale | 33,717 | 54,206 | ||||||
Held as investment, net | 123,866 | 115,411 | ||||||
REO, net | 157,583 | 169,617 | ||||||
Receivable from affiliate | — | 18 | ||||||
Other assets, net | 1,061 | 971 | ||||||
Total assets | $ | 296,158 | $ | 321,988 |
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
Cash and cash equivalents | $ | 6,765 | $ | 4,200 | ||||
Loans | ||||||||
Secured | ||||||||
Principal | 69,598 | 73,386 | ||||||
Advances | 7,062 | 6,870 | ||||||
Accrued interest | 1,582 | 2,446 | ||||||
Unsecured | 35 | 44 | ||||||
Allowance for loan losses | (22,035 | ) | (22,035 | ) | ||||
Net loans | 56,242 | 60,711 | ||||||
Real estate owned (REO) | ||||||||
Held for sale | 40,383 | 48,406 | ||||||
Held as investment, net | 161,159 | 161,402 | ||||||
REO, net | 201,542 | 209,808 | ||||||
Other assets, net | 882 | 680 | ||||||
Total assets | $ | 265,431 | $ | 275,399 |
LIABILITIES AND CAPITAL | ||||||||
Liabilities | ||||||||
Bank loan, secured | $ | 35,000 | $ | 50,000 | ||||
Mortgages payable | 30,834 | 36,270 | ||||||
Accounts payable | 2,424 | 2,609 | ||||||
Deferred revenue | — | 109 | ||||||
Payable to affiliate | 1,804 | 973 | ||||||
Total liabilities | 70,062 | 89,961 | ||||||
Capital | ||||||||
Partners’ capital | ||||||||
Limited partners’ capital, subject to redemption, net | 222,845 | 228,193 | ||||||
General partners’ capital (deficit), net | (780 | ) | (734 | ) | ||||
Total partners’ capital | 222,065 | 227,459 | ||||||
Non-controlling interest | 4,031 | 4,568 | ||||||
Total capital | 226,096 | 232,027 | ||||||
Total liabilities and capital | $ | 296,158 | $ | 321,988 |
Liabilities | ||||||||
Bank loan, secured | $ | 10,250 | $ | 16,789 | ||||
Mortgages payable | 43,010 | 43,681 | ||||||
Accounts payable | 8,167 | 7,625 | ||||||
Payable to affiliate | 417 | 725 | ||||||
Total liabilities | 61,844 | 68,820 | ||||||
Capital | ||||||||
Partners’ capital | ||||||||
Limited partners’ capital, subject to redemption, net | 202,200 | 204,137 | ||||||
General partners’ capital (deficit), net | (981 | ) | (968 | ) | ||||
Total partners’ capital | ||||||||
Non-controlling interest | 2,368 | 3,410 | ||||||
Total capital | 203,587 | 206,579 | ||||||
Total liabilities and capital | $ | 265,431 | $ | 275,399 |
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | ||||||||||||||||||
Revenue, net | |||||||||||||||||||||||
Interest income | |||||||||||||||||||||||
Loans | $ | 542 | $ | 1,944 | $ | 1,300 | $ | 5,018 | $ | 323 | $ | 758 | |||||||||||
Imputed interest on formation loan | 79 | 142 | 204 | 289 | 52 | 125 | |||||||||||||||||
Other interest income | 1 | 16 | 2 | 39 | 1 | 1 | |||||||||||||||||
Total interest income | 622 | 2,102 | 1,506 | 5,346 | 376 | 884 | |||||||||||||||||
Interest expense | |||||||||||||||||||||||
Bank loan, secured | 630 | 893 | 1,360 | 1,810 | 281 | 730 | |||||||||||||||||
Mortgages payable | 773 | 286 | 1,325 | 331 | 584 | 552 | |||||||||||||||||
Amortization of discount on formation loan | 79 | 142 | 204 | 289 | 52 | 125 | |||||||||||||||||
Other interest expense | 1 | — | |||||||||||||||||||||
Total interest expense | 1,482 | 1,321 | 2,889 | 2,430 | 918 | 1,407 | |||||||||||||||||
Net interest income/(expense) | (860 | ) | 781 | (1,383 | ) | 2,916 | (542 | ) | (523 | ) | |||||||||||||
Late fees | 1 | 4 | 4 | 28 | 7 | 3 | |||||||||||||||||
Other | 2 | 3 | 4 | 7 | 3 | 2 | |||||||||||||||||
Total revenues, net | (857 | ) | 788 | (1,375 | ) | 2,951 | (532 | ) | (518 | ) | |||||||||||||
Provision/(recovery) for loan losses | (1,262 | ) | 12,001 | (1,262 | ) | 12,302 | — | — | |||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Operating expenses | |||||||||||||||||||||||
Mortgage servicing fees | 1,091 | 303 | 1,273 | 886 | 180 | 182 | |||||||||||||||||
Asset management fees | 240 | 306 | 487 | 610 | 226 | 247 | |||||||||||||||||
Costs from Redwood Mortgage Corp. | 456 | 112 | 566 | 224 | 361 | 110 | |||||||||||||||||
Professional services | 398 | 420 | 522 | 782 | 331 | 303 | |||||||||||||||||
REO | |||||||||||||||||||||||
Rental operations, net | (224 | ) | 274 | (817 | ) | 134 | (805 | ) | (712 | ) | |||||||||||||
Holding costs | 455 | 278 | 805 | 333 | 430 | 291 | |||||||||||||||||
Loss on disposal | 54 | 338 | 54 | 561 | |||||||||||||||||||
Impairment loss | 1,593 | — | 1,593 | 89 | |||||||||||||||||||
Loss/(gain) on disposal | (6 | ) | — | ||||||||||||||||||||
Other | (3 | ) | 61 | 14 | 100 | 47 | 16 | ||||||||||||||||
Total operating expenses | 4,060 | 2,092 | 4,497 | 3,719 | 764 | 437 | |||||||||||||||||
Net income (loss) | $ | (3,655 | ) | $ | (13,305 | ) | $ | (4,610 | ) | $ | (13,070 | ) | $ | (1,296 | ) | $ | (955 | ) | |||||
Net income (loss) | |||||||||||||||||||||||
General partners (1%) | $ | (13 | ) | $ | (10 | ) | |||||||||||||||||
Limited partners (99%) | $ | (3,619 | ) | $ | (13,172 | ) | $ | (4,564 | ) | $ | (12,939 | ) | (1,283 | ) | (945 | ) | |||||||
General partners (1%) | (36 | ) | (133 | ) | (46 | ) | $ | (131 | ) | ||||||||||||||
$ | (3,655 | ) | $ | (13,305 | ) | $ | (4,610 | ) | $ | (13,070 | ) | $ | (1,296 | ) | $ | (955 | ) | ||||||
Net income (loss) per $1,000 invested by limited partners for entire period | |||||||||||||||||||||||
Net income (loss) per $1,000 invested by | |||||||||||||||||||||||
limited partners for entire period | |||||||||||||||||||||||
Where income is reinvested | $ | (13 | ) | $ | (40 | ) | $ | (17 | ) | $ | (39 | ) | $ | (6 | ) | $ | (4 | ) | |||||
Where partner receives income in monthly distributions | $ | (14 | ) | $ | (41 | ) | $ | (18 | ) | $ | (40 | ) | $ | (5 | ) | $ | (4 | ) |
Limited Partners | ||||||||||||||||
Capital | Total | |||||||||||||||
Account | Unallocated | Formation | Limited | |||||||||||||
Limited | Syndication | Loan, | Partners’ | |||||||||||||
Partners | Costs | Gross | Capital | |||||||||||||
Balance, December 31, 2010 | $ | 238,581 | $ | (1,016 | ) | $ | (9,372 | ) | $ | 228,193 | ||||||
Formation loan payments received | — | — | 582 | 582 | ||||||||||||
Net income (loss) | (4,564 | ) | — | — | (4,564 | ) | ||||||||||
Allocation of syndication costs | (174 | ) | 174 | — | — | |||||||||||
Withdrawals | (1,366 | ) | — | — | (1,366 | ) | ||||||||||
Early withdrawal penalties | — | — | — | — | ||||||||||||
Balance, June 30, 2011 | $ | 232,477 | $ | (842 | ) | $ | (8,790 | ) | $ | 222,845 |
General Partners | ||||||||||||||||
Capital/ | Total | |||||||||||||||
(Deficit) | General | |||||||||||||||
Account | Unallocated | Partners’ | Total | |||||||||||||
General | Syndication | Capital/ | Partners’ | |||||||||||||
Partners | Costs | (Deficit) | Capital | |||||||||||||
Balance, December 31, 2010 | $ | (724 | ) | $ | (10 | ) | $ | (734 | ) | $ | 227,459 | |||||
Formation loan payments received | — | — | — | 582 | ||||||||||||
Net income (loss) | (46 | ) | — | (46 | ) | (4,610 | ) | |||||||||
Allocation of syndication costs | (2 | ) | 2 | — | — | |||||||||||
Withdrawals | — | — | — | (1,366 | ) | |||||||||||
Early withdrawal penalties | — | — | — | — | ||||||||||||
Balance, June 30, 2011 | $ | (772 | ) | $ | (8 | ) | $ | (780 | ) | $ | 222,065 |
Limited Partners | ||||||||||||||||
Unallocated | ||||||||||||||||
Syndication | Formation | |||||||||||||||
Capital | Costs | Loan | Capital, net | |||||||||||||
Balance, December 31, 2011 | $ | 212,431 | $ | (667 | ) | $ | (7,627 | ) | $ | 204,137 | ||||||
Net income (loss) | (1,283 | ) | — | — | (1,283 | ) | ||||||||||
Allocation of syndication costs | (87 | ) | 87 | — | — | |||||||||||
Withdrawals | (654 | ) | — | — | (654 | ) | ||||||||||
Balance, March 31, 2012 | $ | 210,407 | $ | (580 | ) | $ | (7,627 | ) | $ | 202,200 |
General Partners | ||||||||||||||||
Unallocated | Total | |||||||||||||||
Syndication | Partners’ | |||||||||||||||
Capital | Costs | Capital, net | Capital | |||||||||||||
Balance, December 31, 2011 | $ | (961 | ) | $ | (7 | ) | $ | (968 | ) | $ | 203,169 | |||||
Net income (loss) | (13 | ) | — | (13 | ) | (1,296 | ) | |||||||||
Allocation of syndication costs | (1 | ) | 1 | — | — | |||||||||||
Withdrawals | — | — | — | (654 | ) | |||||||||||
Balance, March 31, 2012 | $ | (975 | ) | $ | (6 | ) | $ | (981 | ) | $ | 201,219 |
2011 | 2010 | 2012 | 2011 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income (loss) | $ | (4,610 | ) | $ | (13,070 | ) | $ | (1,296 | ) | $ | (955 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||||||||||
Adjustments to reconcile net income (loss) to | ||||||||||||||||
net cash provided by (used in) operating activities | ||||||||||||||||
Amortization of borrowings-related origination costs | 552 | 86 | 103 | 139 | ||||||||||||
Imputed interest on formation loan | (204 | ) | (289 | ) | (52 | ) | (125 | ) | ||||||||
Amortization of discount on formation loan | 204 | 289 | 52 | 125 | ||||||||||||
Provision/(recovery) for loan losses | (1,262 | ) | 12,302 | |||||||||||||
Depreciation from rental operations | 831 | 615 | 572 | 397 | ||||||||||||
REO-loss on disposal | 54 | — | ||||||||||||||
REO-impairment loss | 1,593 | 89 | ||||||||||||||
REO-loss/(gain) on disposal | (6 | ) | — | |||||||||||||
Change in operating assets and liabilities | ||||||||||||||||
Accrued interest | 54 | (1,261 | ) | 864 | 12 | |||||||||||
Advances on loans | (1,502 | ) | (733 | ) | (192 | ) | (755 | ) | ||||||||
Receivable from affiliate | 18 | (133 | ) | — | 18 | |||||||||||
Other assets | (620 | ) | (556 | ) | (305 | ) | (483 | ) | ||||||||
Accounts payable | (926 | ) | (152 | ) | 542 | (94 | ) | |||||||||
Deferred revenue | (109 | ) | — | |||||||||||||
Payable to affiliate | 831 | (938 | ) | (308 | ) | 105 | ||||||||||
Net cash provided by (used in) operating activities | (5,096 | ) | (3,751 | ) | (26 | ) | (1,616 | ) | ||||||||
Cash flows from investing activities | ||||||||||||||||
Loans originated | (60 | ) | (943 | ) | (7 | ) | (3 | ) | ||||||||
Principal collected on loans | 9,052 | �� | 18,026 | 3,804 | 5,879 | |||||||||||
Refund/(payments) for development of real estate | (114 | ) | (4,822 | ) | (322 | ) | 55 | |||||||||
Proceeds from disposition of real estate | 26,857 | 5,385 | 8,022 | 2,225 | ||||||||||||
Net cash provided by (used in) investing activities | 35,735 | 17,646 | 11,497 | 8,156 | ||||||||||||
Cash flows from financing activities | ||||||||||||||||
Payments on bank loan | (15,000 | ) | (25,500 | ) | (6,539 | ) | (7,500 | ) | ||||||||
Mortgages taken | — | 19,600 | ||||||||||||||
Payments on mortgages | (13,070 | ) | (1,452 | ) | (671 | ) | (224 | ) | ||||||||
Partners’ withdrawals | (1,366 | ) | (1,952 | ) | (654 | ) | (697 | ) | ||||||||
Formation loan payments received | 582 | 971 | — | 436 | ||||||||||||
Increase/(decrease) in non-controlling interest | (537 | ) | 340 | (1,042 | ) | (418 | ) | |||||||||
Net cash provided by (used in) financing activities | (29,391 | ) | (7,993 | ) | (8,906 | ) | (8,403 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 1,248 | 5,902 | 2,565 | (1,863 | ) | |||||||||||
Cash and cash equivalents, beginning of year | 7,054 | 11,161 | 4,200 | 7,054 | ||||||||||||
Cash and cash equivalents, end of period | $ | 8,302 | $ | 17,063 | $ | 6,765 | $ | 5,191 |
2011 | 2010 | 2012 | 2011 | |||||||||||||
Supplemental disclosures of cash flow information | ||||||||||||||||
Non-cash investing activities | ||||||||||||||||
Real estate acquired through foreclosure/settlement on loans, net of liabilities assumed | $ | 8,812 | $ | 34,872 | ||||||||||||
Real estate acquired through foreclosure/settlement on loans, | ||||||||||||||||
net of liabilities assumed | $ | — | $ | 3,712 | ||||||||||||
Cash paid for interest | $ | 2,685 | $ | 2,055 | $ | 865 | $ | 1,282 |
March 31, 2012 (unaudited) |
March 31, 2012 (unaudited) |
March 31, 2012 (unaudited) |
March 31, 2012 (unaudited) |
March 31, 2012 (unaudited) |
March 31, 2012 (unaudited) |
Formation loan made | $ | 22,567 | $ | 22,567 | ||||
Unamortized discount on imputed interest | (1,205 | ) | ||||||
Unamortized discount on formation loan | (1,289 | ) | ||||||
Formation loan made, net | 21,362 | 21,278 | ||||||
Repayments to date | (13,134 | ) | (14,297 | ) | ||||
Early withdrawal penalties applied | (643 | ) | (643 | ) | ||||
Formation loan, net | 7,585 | 6,338 | ||||||
Unamortized discount on imputed interest | 1,205 | |||||||
Balance, June 30, 2011 | $ | 8,790 | ||||||
Unamortized discount on formation loan | 1,289 | |||||||
Balance, March 31, 2012 | $ | 7,627 |
March 31, 2012 (unaudited) |
Three months ended June 30, | Six months ended June 30, | Three months ended March 31, | |||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | ||||||||||||||||||
Chargeable by RMC | $ | 1,636 | $ | 517 | $ | 1,909 | $ | 1,392 | $ | 270 | $ | 273 | |||||||||||
Waived by RMC | (545 | ) | (214 | ) | (636 | ) | (506 | ) | (90 | ) | (91 | ) | |||||||||||
Charged | $ | 1,091 | $ | 303 | $ | 1,273 | $ | 886 | |||||||||||||||
Charged to RMI VIII | $ | 180 | $ | 182 |
March 31, 2012 (unaudited) |
Six months ended June 30, | ||||||||
2011 | 2010 | |||||||
Principal, beginning of year | $ | 202,134 | $ | 268,445 | ||||
New loans added | 60 | 943 | ||||||
Borrower repayments | (8,997 | ) | (18,026 | ) | ||||
Foreclosures | (15,490 | ) | (11,309 | ) | ||||
Principal, end of period | $ | 177,707 | $ | 240,053 |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Number of secured loans | 64 | 79 | ||||||
Secured loans – principal | $ | 177,707 | $ | 202,134 | ||||
Secured loans – interest rates range (fixed) | 4.75-12.00 | % | 2.75-12.00 | % | ||||
Average secured loan – principal | $ | 2,777 | $ | 2,559 | ||||
Average principal as percent of total principal | 1.56 | % | 1.27 | % | ||||
Average principal as percent of partners’ capital | 1.25 | % | 1.12 | % | ||||
Average principal as percent of total assets | 0.94 | % | 0.79 | % | ||||
Largest secured loan – principal | $ | 37,923 | $ | 37,923 | ||||
Largest principal as percent of total principal | 21.34 | % | 18.76 | % | ||||
Largest principal as percent of partners’ capital | 17.08 | % | 16.67 | % | ||||
Largest principal as percent of total assets | 12.80 | % | 11.78 | % | ||||
Smallest secured loan – principal | $ | 79 | $ | 79 | ||||
Smallest principal as percent of total principal | 0.04 | % | 0.04 | % | ||||
Smallest principal as percent of partners’ capital | 0.04 | % | 0.03 | % | ||||
Smallest principal as percent of total assets | 0.03 | % | 0.02 | % | ||||
Number of counties where security is located (all California) | 24 | 27 | ||||||
Largest percentage of principal in one county | 30.25 | % | 28.80 | % | ||||
Number of secured loans in foreclosure status | 16 | 13 | ||||||
Secured loans in foreclosure – principal | $ | 116,008 | $ | 55,146 | ||||
Number of secured loans with an interest reserve | — | — | ||||||
Interest reserves | $ | — | $ | — |
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Loans | Principal | Percent | Loans | Principal | Percent | |||||||||||||||||||
San Francisco | 9 | $ | 53,781 | 30 | % | 11 | $ | 58,233 | 29 | % | ||||||||||||||
San Francisco Bay Area (1) | 27 | 66,237 | 38 | 33 | 77,555 | 38 | ||||||||||||||||||
Northern California (1) | 13 | 50,519 | 28 | 16 | 55,567 | 28 | ||||||||||||||||||
Southern California | 15 | 7,170 | 4 | 19 | 10,779 | 5 | ||||||||||||||||||
Total secured loans | 64 | $ | 177,707 | 100 | % | 79 | $ | 202,134 | 100 | % |
Complete Construction | Rehabilitation | |||||||
Disbursed funds | $ | — | $ | 17,000 | ||||
Undisbursed funds | $ | — | $ | — |
Three months ended March 31, | ||||||||
2012 | 2011 | |||||||
Principal, January 1 | $ | 73,386 | $ | 202,134 | ||||
New loans added | 7 | 3 | ||||||
Borrower repayments | (3,795 | ) | (5,824 | ) | ||||
Foreclosures | — | (6,502 | ) | |||||
Principal, March 31 | $ | 69,598 | $ | 189,811 |
March 31, 2012 (unaudited) |
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
Number of secured loans | 47 | 49 | ||||||
Secured loans – principal | $ | 69,598 | $ | 73,386 | ||||
Secured loans – interest rates range (fixed) | 3.00%-12.00 | % | 3.00%-12.00 | % | ||||
Average secured loan – principal | $ | 1,481 | $ | 1,498 | ||||
Average principal as percent of total principal | 2.13 | % | 2.04 | % | ||||
Average principal as percent of partners’ capital | 0.74 | % | 0.74 | % | ||||
Average principal as percent of total assets | 0.56 | % | 0.54 | % | ||||
Largest secured loan – principal | $ | 16,682 | $ | 16,675 | ||||
Largest principal as percent of total principal | 23.97 | % | 22.72 | % | ||||
Largest principal as percent of partners’ capital | 8.29 | % | 8.21 | % | ||||
Largest principal as percent of total assets | 6.28 | % | 6.05 | % | ||||
Smallest secured loan – principal | $ | 90 | $ | 92 | ||||
Smallest principal as percent of total principal | 0.13 | % | 0.12 | % | ||||
Smallest principal as percent of partners’ capital | 0.04 | % | 0.05 | % | ||||
Smallest principal as percent of total assets | 0.03 | % | 0.03 | % | ||||
Number of counties where security is located (all California) | 21 | 21 | ||||||
Largest percentage of principal in one county | 25.83 | % | 24.51 | % | ||||
Number of secured loans in foreclosure status | 6 | 7 | ||||||
Secured loans in foreclosure – principal | $ | 21,299 | $ | 21,915 | ||||
Number of secured loans with an interest reserve | — | — | ||||||
Interest reserves | $ | — | $ | — |
March 31, 2012 (unaudited) |
March 31, 2012 | December 31, 2011 | |||||||||||||
Loans | Principal | Percent | Loans | Principal | Percent | |||||||||
San Francisco | 5 | $ | 17,610 | 25 | % | 5 | $ | 17,606 | 24 | % | ||||
San Francisco Bay Area (1) | 22 | 40,379 | 58 | 23 | 42,206 | 58 | ||||||||
Northern California (1) | 8 | 7,362 | 11 | 8 | 7,373 | 10 | ||||||||
Southern California | 12 | 4,247 | 6 | 13 | 6,201 | 8 | ||||||||
Total secured loans | 47 | $ | 69,598 | 100 | % | 49 | $ | 73,386 | 100 | % |
(1) | Excludes line(s) above |
June 30, 2011 | December 31, 2010 | March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||||||
Loans | Principal | Percent | Loans | Principal | Percent | Loans | Principal | Percent | Loans | Principal | Percent | |||||||||||||||||||||||||||
First trust deeds | 29 | $ | 70,129 | 40 | % | 37 | $ | 85,535 | 43 | % | 20 | $ | 28,054 | % | 21 | $ | 29,361 | 40 | % | |||||||||||||||||||
Second trust deeds | 33 | 107,073 | 60 | 40 | 116,091 | 57 | 25 | 41,043 | 26 | 43,523 | 59 | |||||||||||||||||||||||||||
Third trust deeds | 2 | 505 | — | 2 | 508 | — | 2 | 501 | 2 | 502 | 1 | |||||||||||||||||||||||||||
Total secured loans | 64 | 177,707 | 100 | % | 79 | 202,134 | 100 | % | 47 | 69,598 | 100 | % | 49 | 73,386 | 100 | % | ||||||||||||||||||||||
Liens due other lenders at loan closing | 213,255 | 232,081 | 113,857 | 114,550 | ||||||||||||||||||||||||||||||||||
Total debt | $ | 390,962 | $ | 434,215 | $ | 183,455 | $ | 187,936 | ||||||||||||||||||||||||||||||
Appraised property value at loan closing | $ | 591,277 | $ | 688,494 | $ | 247,709 | $ | 275,909 | ||||||||||||||||||||||||||||||
Percent of total debt to appraised values (LTV) at loan closing (2) | 66.12 | % | 63.07 | % | ||||||||||||||||||||||||||||||||||
Percent of total debt to appraised | ||||||||||||||||||||||||||||||||||||||
values (LTV) at loan closing (2) | 74.06 | % | 68.12 | % |
(2) | Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last |
March 31, 2012 (unaudited) |
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Loans | Principal | Percent | Loans | Principal | Percent | |||||||||||||||||||
Single family | 51 | $ | 137,203 | 77 | % | 63 | $ | 155,241 | 77 | % | ||||||||||||||
Multi-family | 3 | 4,611 | 3 | 5 | 8,135 | 4 | ||||||||||||||||||
Commercial | 9 | 35,348 | 20 | 10 | 38,212 | 19 | ||||||||||||||||||
Land | 1 | 545 | — | 1 | 546 | — | ||||||||||||||||||
Total secured loans | 64 | $ | 177,707 | 100 | % | 79 | $ | 202,134 | 100 | % |
March 31, 2012 | December 31, 2011 | |||||||||||||
Loans | Principal | Percent | Loans | Principal | Percent | |||||||||
Single family | 36 | $ | 51,448 | 74 | % | 37 | $ | 52,085 | 71 | % | ||||
Multi-family | 3 | 2,757 | 4 | 3 | 4,609 | 6 | ||||||||
Commercial | 7 | 14,851 | 21 | 8 | 16,149 | 22 | ||||||||
Land | 1 | 542 | 1 | 1 | 543 | 1 | ||||||||
Total secured loans | 47 | $ | 69,598 | 100 | % | 49 | $ | 73,386 | 100 | % |
Scheduled maturities | Loans | Principal | Percent | Loans | Principal | Percent | |||||||||||||
2011 | 9 | $ | 9,786 | 6 | |||||||||||||||
2012 | 16 | 52,307 | 29 | 11 | $ | 19,437 | 28 | % | |||||||||||
2013 | 13 | 4,644 | 3 | 10 | 2,467 | 4 | |||||||||||||
2014 | 2 | 2,531 | 1 | 2 | 2,531 | 4 | |||||||||||||
2015 | 8 | 1,947 | 1 | 8 | 3,740 | 5 | |||||||||||||
2016 | 2 | 3,640 | 5 | ||||||||||||||||
Thereafter | 4 | 2,195 | 1 | 4 | 2,162 | 3 | |||||||||||||
Total future maturities | 52 | 73,410 | 41 | 37 | 33,977 | 49 | |||||||||||||
Matured at June 30, 2011 | 12 | 104,297 | 59 | ||||||||||||||||
Matured at March 31, 2012 | 10 | 35,621 | 51 | ||||||||||||||||
Total secured loans | 64 | $ | 177,707 | 100 | % | 47 | $ | 69,598 | 100 | % |
March 31, 2012 (unaudited) |
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
Secured loans past maturity | ||||||||||||||||
Number of loans (3) (4) | 12 | 13 | 10 | 9 | ||||||||||||
Principal | $ | 104,297 | $ | 95,264 | $ | 35,621 | $ | 40,393 | ||||||||
Advances | 18,191 | 14,424 | 6,995 | 6,829 | ||||||||||||
Accrued interest | 7,613 | 8,040 | 1,439 | 1,608 | ||||||||||||
Loan balance | $ | 130,101 | $ | 117,728 | $ | 44,055 | $ | 48,830 | ||||||||
Percent of loans | 59 | % | 47 | % | ||||||||||||
Percent of principal | 51 | % | 55 | % |
(3) | The secured loans past maturity include |
(4) | The secured loans past maturity include |
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
30-89 days past due | $ | 7,628 | $ | 8,083 | ||||||||||||
90-179 days past due | 6,138 | 2,511 | ||||||||||||||
180 or more days past due | 146,354 | 156,866 | ||||||||||||||
Past due | ||||||||||||||||
30-89 days | $ | 16,827 | $ | 5,370 | ||||||||||||
90-179 days | 1,066 | 1,254 | ||||||||||||||
180 or more days | 34,819 | 34,911 | ||||||||||||||
Total past due | 160,120 | 167,460 | 52,712 | 41,535 | ||||||||||||
Current | 17,587 | 34,674 | 16,886 | 31,851 | ||||||||||||
Total secured loans | $ | 177,707 | $ | 202,134 | $ | 69,598 | $ | 73,386 |
March 31, 2012 (unaudited) |
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
Secured loans in nonaccrual status | ||||||||||||||||
Number of loans | 25 | 28 | 18 | 19 | ||||||||||||
Principal | $ | 157,456 | $ | 167,500 | $ | 60,256 | $ | 62,739 | ||||||||
Advances | 18,644 | 18,153 | 7,045 | 6,859 | ||||||||||||
Accrued interest | 10,990 | 11,971 | 1,434 | 2,259 | ||||||||||||
Loan balance | $ | 187,090 | $ | 197,624 | $ | 68,735 | $ | 71,857 | ||||||||
Foregone interest | $ | 6,751 | $ | 12,012 | $ | 1,263 | $ | 3,957 |
March 31, 2012 (unaudited) |
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
Principal | $ | 161,818 | $ | 180,242 | $ | 63,830 | $ | 66,318 | ||||||||
Recorded investment (5) | $ | 192,079 | $ | 211,236 | $ | 72,364 | $ | 75,496 | ||||||||
Impaired loans without allowance | $ | 35,838 | $ | 39,354 | $ | 29,101 | $ | 32,363 | ||||||||
Impaired loans with allowance | $ | 156,241 | $ | 171,882 | $ | 43,263 | $ | 43,133 | ||||||||
Allowance for loan losses, impaired loans | $ | 75,701 | $ | 87,364 | $ | 21,535 | $ | 21,535 |
(5) | Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes. |
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
Average recorded investment | $ | 201,658 | $ | 192,706 | $ | 73,930 | $ | 143,783 | ||||||||
Interest income recognized | $ | 289 | $ | 1,379 | $ | 57 | $ | 695 | ||||||||
Interest income received in cash | $ | 153 | $ | 1,521 | $ | 749 | $ | 277 |
March 31, 2012 (unaudited) |
Six months ended June 30, | Three months ended March 31, | |||||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
Balance, beginning of year | $ | 89,200 | $ | 23,086 | ||||||||||||
Balance, January 1 | $ | 22,035 | $ | 89,200 | ||||||||||||
Provision/(recovery) for loan losses | (1,262 | ) | 12,302 | — | — | |||||||||||
Charge-offs, net | ||||||||||||||||
Charge-offs | (8,708 | ) | (570 | ) | — | (3,925 | ) | |||||||||
Recoveries | — | — | — | — | ||||||||||||
Charge-offs, net | (8,708 | ) | (570 | ) | — | (3,925 | ) | |||||||||
Balance, June 30 | $ | 79,230 | $ | 34,818 | ||||||||||||
Balance, March 31 | $ | 22,035 | $ | 85,275 | ||||||||||||
Specific reserves | $ | 75,701 | $ | 31,169 | $ | 21,535 | $ | 83,999 | ||||||||
General reserves | 3,529 | 3,649 | 500 | 1,276 | ||||||||||||
Balance, June 30 | $ | 79,230 | $ | 34,818 | ||||||||||||
Balance, March 31 | $ | 22,035 | $ | 85,275 | ||||||||||||
Ratio of charge-offs, net during the period to average | ||||||||||||||||
secured loans outstanding during the period | 4.43 | % | 0.23 | % | — | % | 1.93 | % |
June 30, 2011 | December 31, 2010 | March 31, 2012 | December 31, 2011 | |||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||
Allowance for loan losses | ||||||||||||||||||||||||||||
Secured loans by property type | ||||||||||||||||||||||||||||
Single family | $ | 71,150 | 77 | % | $ | 78,802 | 77 | % | $ | 21,475 | 74 | % | $ | 21,475 | 72 | % | ||||||||||||
Multi-family | 1,060 | 3 | 1,760 | 4 | 60 | 4 | 60 | 4 | ||||||||||||||||||||
Commercial | 7,010 | 20 | 8,628 | 19 | 490 | 21 | 490 | 23 | ||||||||||||||||||||
Land | 10 | — | 10 | — | 10 | 1 | 10 | 1 | ||||||||||||||||||||
Total for secured loans | $ | 79,230 | 100 | % | $ | 89,200 | 100 | % | $ | 22,035 | 100 | % | $ | 22,035 | 100 | % | ||||||||||||
Unsecured loans | $ | — | 100 | % | $ | — | 100 | % | $ | — | 100 | % | $ | — | 100 | % | ||||||||||||
Total allowance for loan losses | $ | 79,230 | 100 | % | $ | 89,200 | 100 | % | $ | 22,035 | 100 | % | $ | 22,035 | 100 | % |
Six months ended June 30, | ||||||||
2011 | 2010 | |||||||
REO held for sale, beginning of year | $ | 54,206 | $ | 8,102 | ||||
Acquisitions | — | 7,188 | ||||||
Dispositions | (18,664 | ) | (5,385 | ) | ||||
Improvements/betterments/(refunds) | (75 | ) | 9 | |||||
Charge-offs | — | (245 | ) | |||||
Changes in net realizable values | (1,750 | ) | (89 | ) | ||||
REO, held for sale, June 30, | $ | 33,717 | $ | 9,580 |
Three months ended March 31, | ||||||||
2012 | 2011 | |||||||
Balance, January 1 | $ | 48,406 | $ | 54,206 | ||||
Dispositions | (8,023 | ) | (2,225 | ) | ||||
Improvements/betterments/(refunds) | — | (80 | ) | |||||
Balance, March 31 | $ | 40,383 | $ | 51,901 |
June 30, | December 31, | |||||||
2011 | �� | 2010 | ||||||
Number of properties | 7 | 10 | ||||||
Property type | ||||||||
Single family | $ | 7,461 | $ | 7,099 | ||||
Multi-family | 14,556 | 32,777 | ||||||
Commercial | 11,700 | 14,330 | ||||||
Total REO, held for sale | $ | 33,717 | $ | 54,206 |
Property type | ||||||||
Single family | $ | 259 | $ | 8,356 | ||||
Multi-family | 12,724 | 30,095 | ||||||
Commercial | 27,400 | 13,450 | ||||||
Balance, March 31 | $ | 40,383 | $ | 51,901 | ||||
Number of properties, March 31 | 7 | 9 |
Three months ended June 30, | Six months ended June 30, | Three months ended March 31, | ||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||
Rental income | $ | 164 | $ | 146 | $ | 540 | $ | 226 | $ | 109 | $ | 376 | ||||||||||
Operating expenses | ||||||||||||||||||||||
Administration and payroll | 17 | 62 | ||||||||||||||||||||
Homeowner association fees | 2 | — | ||||||||||||||||||||
Receiver fees | 11 | 23 | ||||||||||||||||||||
Other | 4 | 5 | ||||||||||||||||||||
Utilities and maintenance | 22 | 73 | ||||||||||||||||||||
Advertising and promotions | — | 2 | ||||||||||||||||||||
Property taxes | 27 | 87 | 91 | 89 | 10 | 64 | ||||||||||||||||
Management, administration and insurance | 94 | 15 | 259 | 9 | ||||||||||||||||||
Utilities, maintenance and other | 45 | 27 | 118 | 51 | ||||||||||||||||||
Advertising and promotions | (1 | ) | 1 | 1 | 1 | |||||||||||||||||
Total operating expenses | 165 | 130 | 469 | 150 | 66 | 229 | ||||||||||||||||
Net operating income | (1 | ) | 16 | 71 | 76 | 43 | 147 | |||||||||||||||
Depreciation | — | — | — | — | — | — | ||||||||||||||||
Rental operations, net(1) | $ | (1 | ) | $ | 16 | $ | 71 | $ | 76 | |||||||||||||
Earnings | $ | 43 | $ | 147 |
Interest expense on the mortgages securing the rental property was $33,000 and $212,000 for the three month periods ended March 31, 2012 and 2011, respectively. 23 REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) Notes to Consolidated Financial Statements March 31, 2012 (unaudited) NOTE 5 – REAL ESTATE OWNED (REO), HELD FOR SALE (continued) During the first quarter of 2012 the partnership sold the following properties.
NOTE For REO, held as investment, the activity and changes in the impairment reserves are summarized in the following table for the
REO, held as investment, summarized by property type is presented in the following table ($ in thousands).
At 24 REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) Notes to Consolidated Financial Statements March 31, 2012 (unaudited) NOTE 6 – REAL ESTATE OWNED (REO), HELD AS INVESTMENT, NET (continued) The
NOTE 7 Bank loan, secured The partnership’s bank loan/line of credit matured on June 30, 2010, which maturity date was subsequently extended to October 18, 2010. The bank loan balance was The required remaining minimum principal payments are The bank loan balance at May 14, 2012 was approximately $7,500,000.
(A California Limited Partnership) Notes to Consolidated Financial Statements
NOTE Mortgages payable Mortgages payable are summarized in the following table (mortgage balance $ in thousands).
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) Notes to Consolidated Financial Statements
The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged monthly against partners’ capital and are being allocated to individual partners consistent with the partnership agreement. Syndication costs of $5,010,000 had been incurred by the partnership with the following distribution through
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. The partnership determines the fair values of its assets and liabilities based on the fair value hierarchy established in GAAP. The standard describes three levels of inputs that may be used to measure fair value (Level 1, Level 2 and Level 3). Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the partnership has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the partnership’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the partnership’s own data. The partnership does not record loans at fair value on a recurring basis. Non-recurring basis Assets and liabilities measured at fair value on a non-recurring basis as of
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) Notes to Consolidated Financial Statements
Non-recurring basis (continued) Assets and liabilities measured at fair value on a non-recurring basis as of December 31,
The following methods and assumptions were used to estimate the fair value.
REDWOOD MORTGAGE INVESTORS VIII (A California Limited Partnership) Notes to Consolidated Financial Statements
NOTE Legal proceedings In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business. NOTE Subsequent to ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto, which are included in Item 1 of this Report, as well as the audited consolidated financial statements and the notes thereto, and “Management Discussion and Analysis of Financial Condition and Results of Operations” included in the partnership’s Annual Report on Form 10-K for the year ended December 31, Forward-Looking Statements Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, expectations as to when the partnership’s bank loan will be repaid, additional foreclosures in Current Economic Conditions The statistical release by the Bureau of Economic Analysis regarding Gross Domestic Product for the first quarter of 2012 and the statements by two of our country’s economic leaders, give a quick summary of the economic conditions facing the company. Real estate finance continues to be challenging; general economic conditions are better (but not yet a recovery by historic standards), and the lending markets remain constricted. These conditions persist with the Federal Reserve Bank remaining accommodative, with interest rates at historic lows and United States’ federal deficits at historic highs.
30
The GDP reports of growth, although slow, give hope the economy is stabilizing/improving. Growth prospects are offset in some sectors, industries and geographies by the continuing affects of the Great Recession. There are significant uncertainties with sovereign debt both at home and in Europe and the stock market exhibits high volatility. The current economic environment may remain as is for a prolonged period. As such, these dynamics could restrain the ability of the partnership in its efforts to collect its loans due to the inability of borrowers to find replacement financing due to credit restrictions, higher underwriting standards and reduced protective equity. A slow rebound in real estate will elongate the time properties are held, as such, the partnership intends to hold a significant amount of the property it has acquired through foreclosure. To the extent the partnership can generate funds for placement in new loans, there will be limited competition resulting in desirable pricing for well qualified loan applicants. Critical Accounting Policies Management estimates See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of critical accounting policies. Related Parties See Note 1 (General) and Note 3 (General Partners and Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed presentation of various partnership activities for which the general partners and related parties are compensated, and other related-party transactions, including the formation loan. Results of Operations Changes to the partnership’s operating results are presented in the following table ($ in thousands).
Please refer to the above table and the Statement of Operations in the financial statements included in Part I, Item I of this report throughout the discussion of Results of Operations. Impact of general economic and market conditions on the partnership’s financial condition, results of operations and cash flows As we have noted in our prior reports on Form 10-Q and Form 10-K, the combination of the general economic conditions, the constrained credit and financial markets, the distressed real estate markets, and the terms and conditions of the amended and restated loan agreement (the “bank loan”) have resulted in significant changes in the lending and business operations of the partnership that are on-going. Real estate sales, investment, and construction continue to be at greatly reduced Since the inception of the financial crisis (2008) and the resultant Great Recession (2009), the partnership’s portfolio has continued to migrate from predominately performing loans to impaired loans and REO. Total assets, the sum of all assets owned by the partnership, decreased from $424,873,000 at December 31, 2008, to $265,431,000 at March 31, 2012 (a decline of $159,442,000 or 38%). Net loans, the total of loan principal, advances, accrued interest, net of the allowance for loan losses, declined over the same time period from $386,589,000 to $56,242,000 (a decline of $330,347,000 or 85%). REO increased from $25,693,000 at December 31, 2008, to $201,542,000 at March 31, 2012, as a consequence of the loan collection efforts undertaken by the general partners. Our ownership of the collateral which secured our loans is the most effective means of maintaining or improving the value of the properties and is the best alternative for preserving partners’ capital. The cash proceeds received by the partnership from loan payments, loan payoffs, sale of real estate owned (REO), and third-party mortgages obtained on stabilized properties that the partnership has taken back through foreclosure or otherwise obtained are used predominately to pay down the amount outstanding on the bank loan. The amount outstanding on the bank loan, after the The continuing primary focus of the general partners is the preservation of the limited partners’ capital while dealing with the historic declines in liquidity in the markets and the constraints imposed by the amended terms of the bank loan. While the financial markets continue in turmoil in Comparison of the three Revenue – Interest income - Loans The interest income on loans decreased for the three
(1) Portfolio Review - See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for a detailed presentation on the secured loan portfolio. Interest Expense – Bank Loan, secured, and other Borrowings The decreased interest expense related to the partnership’s bank loan (previously line of credit) for the three 33 The increased interest expense on mortgages for the three month period ended March 31, 2012 compared to the same period in 2011 is primarily due to Provision for losses on loans/allowance for loan losses The provision for losses on loans is primarily driven by the specific reserves maintained in the allowance for loan losses, associated with impaired loans as analyzed each quarter.
Operating Expenses The increase in costs from RMC for the three The The increase in rental operations for the three Operating expenses of rental operations and depreciation of rental properties are presented in the following table for the three
34 The increases in real estate owned holding costs for the three month period ended The Liquidity and Capital Resources Historically, the partnership Beginning with the worldwide financial crisis in 2008, and on-going into As of October 18, 2010, the partnership and the banks entered into an amended and restated loan agreement. The significant terms and conditions in the amended loan agreement include: 1) an extended maturity date of June 30, 2012; with continuing scheduled pay downs of the loan amount to maturity; 2) an interest rate of Prime plus 1.5% subject to a floor of 5.0%; 3) an annual facility fee (payable quarterly) of 0.5%; 4) required remittance to the banks of 70% of net proceeds from the sale or refinance of REO and/or net proceeds from loan payoffs in excess of $5 million; 5) required remittance of cash balances in excess of $12 million; 6) restrictions on use of cash including no new loans with the exception of refinance of existing loans, no expenditures in the ordinary course of business to preserve, maintain, repair, or operate property in excess of $1 million without prior written consent (subject to exclusions for funds set aside for REO projects and servicing of senior liens designated in the loan agreement), limitations on distributions to electing limited partners of an amount not to exceed a distribution rate of 2.1%; 7) a collateral covenant, and 8) a financial covenant. The bank loan balance at Cash received from loan payments, loan payoffs, the sale of real estate owned and third-party mortgages obtained on stabilized properties that we own and are included in REO is predominantly used to pay down the amount outstanding on the bank loan, to make the periodic interest and principal payments on the loan, to protect the security interest in the collateral securing the loans from senior debt and claims, to maintain and develop REO, to meet the operating expenses of the partnership, and to fund periodic payments to limited partners that elected monthly, quarterly and annual distributions. Contractual Obligations, Commitments, and Contingencies Contractual obligations of the partnership are summarized in the following table as of
See Note 4 (Loans) and Note 11 (Commitments and contingencies, other than loan commitments) to the financial statements included in Part I, Item I of this report for a detailed presentation of commitments and contingencies. 35 Distributions to limited partners At the time of their subscription to the partnership, limited partners elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound Under the terms of the amended and restated loan agreement dated October 2010, distributions to electing limited partners cannot exceed a distribution rate of 2.1%. Accordingly, the partnership is restricted in its ability to increase distributions to the limited partners until the bank loan is repaid in full, which the partnership currently anticipates will occur on or about the scheduled maturity date of June 30, 2012. However, Withdrawals of limited partners’ capital The partnership agreement also provides for the limited partners to withdraw their capital account subject to certain limitations and penalties. In March 2009, in response to economic conditions then existing, as to the financial-market crisis, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations and is not accepting new liquidation requests until further notice. Under the terms of the amended and restated loan agreement (dated October 2010) withdrawals of limited partners’ capital are not permitted. The bank loan is scheduled to be paid off in June 2012. Liquidation requests of approximately $2,700,000 remained unfulfilled at Liquidation requests submitted to Redwood after March 16, 2009 are not deemed to be accepted, nor do they serve as placeholders for the submitting limited partner. In addition, since March 16, 2009, the partnership significantly reduced the amount of the cash distributions made to the limited partners, who had made the election to receive distributions of their pro-rata share of the net income. Valuation of partners’ capital as units In some cases in order to satisfy broker-dealers and other reporting requirements, the general partners have valued the limited partners’ interest in the partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors’ capital account. This information has been reported in this manner in order to allow the partnership to integrate with certain software used by the broker-dealers and other reporting entities. In those cases, the partnership will report to broker-dealers, trust companies and others a “reporting” number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the limited partner’s capital account value divided by $1.00. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for broker-dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners’ right or interest in cash flow or any other economic benefit in the partnership. The amount of partnership earnings each investor is entitled to receive is determined by the ratio each investor’s capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any FINRA member client account statement in providing a per unit estimated value of the client’s investment in the partnership in accordance with NASD Rule 2340. 36 While the general partners have set an estimated value for the units, such determination may not be representative of the ultimate price realized by an investor for such units upon sale. No public trading market exists for the units and none is likely to develop. Thus, there is no certainty the units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the partnership, which may include early withdrawal penalties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not included as the partnership is a smaller reporting company. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The partnership carried out an evaluation, under the supervision and with the participation of the general partners of the effectiveness of the design and operation of the partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures were effective. Changes to Internal Control Over Financial Reporting There have not been any changes in the partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended PART II – OTHER INFORMATION ITEM 1. Legal Proceedings In the normal course of business, the partnership may become involved in various types of legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce provisions of the deeds of trust, collect the debt owed under promissory notes, or to protect, or recoup its investment from real property secured by the deeds of trust and resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions would typically be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business. ITEM 1A. Risk Factors Not included as the partnership is a smaller reporting company. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable. ITEM 3. Defaults Upon Senior Securities Not Applicable. ITEM 4. Mine Safety Disclosures Not Applicable. ITEM 5. Other Information
ITEM 6. Exhibits 31.1 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.3 Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.3 Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement of Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
39 |