10-Q 1 c14_901.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended September 30, 2001 Commission file number 0-15962 CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (Exact name of registrant as specified in its charter) Illinois 36-3256340 (State of organization) (IRS Employer Identification No.) 900 N. Michigan Ave., Chicago, IL 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312/915-1987 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements . . . . . . . . . . . . . . . 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . 17 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 23 Item 3. Defaults Upon Senior Securities. . . . . . . . . . 24 Item 5. Other Information. . . . . . . . . . . . . . . . . 25 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 26 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (UNAUDITED) ASSETS ------ SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ----------- Current assets: Cash and cash equivalents . . . . . $ 12,723,959 8,599,183 Interest, rents and other receivables. . . . . . . . . . . . 39,068 59,586 ------------ ------------ Total current assets. . . . . 12,763,027 8,658,769 ------------ ------------ Investment in unconsolidated ventures, at equity . . . . . . . . -- 895,930 Other assets. . . . . . . . . . . . . 210,375 210,375 ------------ ------------ $ 12,973,402 9,765,074 ============ ============ CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS) ----------------------------------------------------- SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ----------- Current liabilities: Accounts payable and other current liabilities. . . . . $ 59,574 46,036 Current portion of long-term debt . 40,366,007 -- ------------ ------------ Total current liabilities . . 40,425,581 46,036 Investment in unconsolidated ventures, at equity . . . . . . . . -- 7,579,733 Partnership's share of the maximum unfunded obligation under the indemnification agreement . . . . . . . . . . . . . -- 4,272,948 Distributions received in excess of recorded invest- ment, net . . . . . . . . . . . . . 1,322,572 1,322,572 Long-term debt, less current portion . . . . . . . . . . -- 37,562,558 ------------ ------------ Commitments and contingencies Total liabilities . . . . . . 41,748,153 50,783,847 Partners' capital accounts (deficits): General partners: Capital contributions . . . . . . 1,000 1,000 Cumulative net earnings (losses) . . . . . . . . . . . . (14,653,880) (14,894,586) Cumulative cash distributions . . (2,117,798) (2,117,798) ------------ ------------ (16,770,678) (17,011,384) ------------ ------------ Limited partners: Capital contributions, net of offering costs. . . . . . 351,746,836 351,746,836 Cumulative net earnings (losses) . . . . . . . . . . . . (262,274,631) (274,277,947) Cumulative cash distributions . . (101,476,278) (101,476,278) ------------ ------------ (12,004,073) (24,007,389) ------------ ------------ Total partners' capital accounts (deficits) . . . . (28,774,751) (41,018,773) ------------ ------------ $ 12,973,402 9,765,074 ============ ============ See accompanying notes to financial statements. CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)

CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . $12,244,022 (1,522,806) Items not requiring (providing) cash or cash equivalents: Long-term debt - deferred accrued interest. . . . . . . . 2,803,449 2,803,449 Partnership's share of the reduction of the maximum unfunded obligation under and income related to the termination of the indemni- fication agreement. . . . . . . (7,144,354) (134,202) Partnership's share of operations of unconsolidated ventures. . . . . . . . . . . . 37,099 (1,048,690) Partnership's share of gain on sale of indirect partnership interest. . . . . . . . . . . . (686,076) -- Extraordinary item for gain on forgiveness of indebtedness . . (8,039,165) -- Extraordinary item for write-off of deferred mortgage fees . . . 410,869 -- Changes in: Interest, rents and other receivables . . . . . . . . . . 20,518 15,319 Accounts payable and other current liabilities . . . . . . 13,538 (23,533) ------------ ----------- Net cash provided by (used in) operating activities. . . . . . . . (340,100) 89,537 ------------ ----------- Cash flows from investing activities: Partnership's distributions from unconsolidated ventures. . . 3,778,800 26,436,064 Cash proceeds from Partnership's share of gain on sale of indirect partnership interest . . 686,076 -- ------------ ----------- Net cash provided by (used in) investing activities. . . . . . . . 4,464,876 26,436,064 ------------ ----------- CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- Cash flows from financing activities: Distributions to General Partners . -- (300,424) Distributions to Limited Partners . -- (27,238,463) ------------ ----------- Net cash provided by (used in) financing activities. . . . . . . . . -- (27,538,887) ------------ ----------- Net increase (decrease) in cash and cash equi- valents . . . . . . . . . . 4,124,776 (1,013,286) Cash and cash equivalents, beginning of year . . . . . 8,599,183 9,715,669 ------------ ----------- Cash and cash equivalents, end of period . . . . . . . $ 12,723,959 8,702,383 ============ =========== See accompanying notes to financial statements. CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) GENERAL Readers of this quarterly report should refer to the Partnership's audited financial statements for the year ended December 31, 2000 which are included in the Partnership's 2000 Annual Report on Form 10-K filed on March 23, 2001 (File No. 0-15962) as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. Capitalized terms used but not defined in this quarterly report have the same meanings as in the Partnership's 2000 Annual Report on Form 10-K. The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Partnership adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") as required in the first quarter of 1996. The Partnership and its ventures' policy is to consider a property to be held for sale or disposition when the Partnership or venture has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term or the Partnership or venture has concluded that it may dispose of the property by no longer funding operating deficits or debt service requirements of the property thus allowing the lender to realize upon its security. In accordance with SFAS 121, any properties identified as "held for sale or disposition" are no longer depreciated. The unconsolidated venture's commitment to a plan for sale or disposal of the Piper Jaffray Tower had, as of June 30, 1999, not resulted in a sale or disposition. As a result, the unconsolidated venture made an adjustment to record depreciation expense as of that date that would have been recognized had the Piper Jaffray Tower not been considered "held for sale or disposition". Further, the unconsolidated venture began to record depreciation expense for this property commencing July 1, 1999. However, as discussed below, due to the commencement by the mortgage lender to realize upon its security in the property, the unconsolidated venture reclassified the property as held for sale or disposition as of July 1, 2000. In addition, the accompanying financial statements include for the nine month periods ended September 30, 2001 and 2000 operations of $(37,099) and $1,048,690, respectively, as the Partnership's shares of total property operations of $(55,344) and $2,334,481 of unconsolidated properties which were classified as held for sale or disposition or sold in the past two years. Certain amounts in the 2000 financial statements have been reclassified to conform with the 2001 presentation. TRANSACTIONS WITH AFFILIATES The Partnership, pursuant to the Partnership Agreement, is permitted to engage in various transactions involving the Corporate General Partner and its affiliates including the reimbursement for salaries and salary- related expenses of its employees and certain of its officers, and for other direct expenses relating to the administration of the Partnership and the operation of the Partnership's investments. Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of September 30, 2001 and for the nine months ended September 30, 2001 and 2000 were as follows: Unpaid at September 30, 2001 2000 2001 ------- ------- ------------- Insurance commissions . . . . . . $ -- 15,429 -- Management fees to Corporate General Partner . . . . . . . . -- 500,707 -- Reimbursement (at cost) for out-of-pocket salary and salary-related expenses and other costs for the Partner- ship and its investment properties. . . . . . . . . . . 77,749 81,597 16,750 ------- ------- ------- $77,749 597,733 16,750 ======= ======= ======= In connection with the distributions of cash flow from operations in February and August 2000, the General Partners received distributions aggregating approximately $134,000 and $167,000, respectively. The Corporate General Partner also received management fees (reflected in the table above) aggregating approximately $223,000 and $278,000 in February and August 2000, respectively. The manager of Piper Jaffray Tower (which was an affiliate of the Corporate General Partner through November 1994) had agreed to defer receipt of its property management fees pursuant to a loan modification. Such fees deferred by the former affiliate were approximately $1,839,000 (of which approximately $919,500 was the Partnership's share) and the former affiliate was to receive payment thereof out of the amount available, if any, from the escrow of the management fees, which had been required by the lender. However, in conjunction with the default under the mortgage loan and the subsequent appointment of the receiver for the Piper Jaffray Tower, the escrowed funds were applied to the outstanding principal balance of the mortgage loan, and the obligation to pay such deferred fees was released. As a result, such amounts were written off and are not reflected in the unconsolidated venture's balance sheets at September 30, 2001, and December 31, 2000. JMB/NYC As a result of the 1996 restructuring, JMB/NYC had an indirect limited partnership interest which, before taking into account significant preferences to other partners, equaled approximately 4.9% of the reorganized and restructured ventures owning 237 Park and 1290 Avenue of the Americas (the "Properties"). Neither O&Y nor any of its affiliates retained any direct or indirect continuing interest in the Properties. The new ownership structure gave control of the Properties to an unaffiliated real estate investment trust ("REIT") owned primarily by holders of the first mortgage debt that encumbered the Properties prior to the bankruptcy. JMB/NYC had, under certain limited circumstances, through January 1, 2001 rights of consent regarding sale of the Properties or the consummation of certain other transactions that would have significantly reduced indebtedness of the Properties. In general, at any time on or after January 2, 2001, an affiliate of the REIT had the right to purchase JMB/NYC's interest in the Properties for an amount based on a formula relating to the operations of the Properties (the "Formula Price"). The restructuring and reorganization discussed above eliminated any potential additional obligation of the Partnership in the future to provide additional funds under its previous joint venture agreements for the Properties (other than that related to a certain indemnification agreement provided in connection with such restructuring). Pursuant to the indemnification agreement, the Affiliated Partners were jointly and severally obligated to indemnify the REIT to the extent of $25 million to ensure their compliance with the terms and conditions relating to JMB/NYC's indirect limited partnership interests in the restructured and reorganized joint ventures that owned the Properties. The Affiliated Partners contributed approximately $7,800,000 (of which the Partnership's share was approximately $3,900,000) to JMB/NYC, which was deposited into an escrow account as collateral for such indemnification. These funds were invested in stripped U.S. Government obligations with a maturity date of February 15, 2001. Subsequent to that date, the remaining escrowed funds were invested in short-term U.S. Government obligations. Due to the Restructuring discussed below, the maximum indemnification obligation was reduced to $14,285,000 and a portion of the collateral (approximately $4,460,000 in face amount) was released in 1999 to JMB/NYC. On March 23, 2001, JMB/NYC sold its indirect interest in the 1290 Partnership, and as a result, the maximum indemnification obligation was reduced to $0 and the remaining collateral (approximately $5,700,000 face amount) was released in March 2001 to JMB/NYC. The Partnership's share of the reduction of the maximum unfunded obligation under the indemnification agreement recognized as income is a result of (i) interest earned on amounts contributed by the Partnership and held in escrow for JMB/NYC, (ii) the Partnership's share of the agreed upon reduction of the maximum obligation in November 1999 in connection with the Restructuring discussed below, and (iii) the Partnership's share of the remaining indemnification obligation that was released in March 2001 in connection with the sale of JMB/NYC's indirect interest in the 1290 Partnership. Interest income earned reduced the Partnership's share of the maximum unfunded obligation under the indemnification agreement, which was reflected as a liability in the accompanying financial statements. In November 1999, JMB/NYC closed a transaction (the "Restructuring") pursuant to which, among other things, JMB/NYC's interests in 237 Park Avenue ("237 Park") and 1290 Avenue of the Americas ("1290 Avenue of the Americas") were restructured. Under the Restructuring, the partnership that owns 237 Park was converted to a limited liability company ("237 Park LLC"). The membership interest in 237 Park LLC owned by 237/1290 Upper Tier Associates, L.P. (the "Upper Tier Partnership"), in which JMB/NYC is a limited partner with a 99% interest, was contributed to a partnership (the "237 Partnership") that acquired the other membership interests in 237 Park LLC from the REIT and one of its affiliates. In exchange for the interest in 237 Park LLC, the Upper Tier Partnership received a limited partnership interest in the 237 Partnership having a fair market value (determined in accordance with the partnership agreement of the 237 Partnership) of approximately $500,000. (JMB/NYC's total investment in the 237 Partnership is significantly less than 1% of the 237 Partnership.) The 237 Partnership owns a portfolio of investments in addition to 237 Park. JMB/NYC has the right, during the month of July of each calendar year commencing with 2001, to cause a sale of the interest in the 237 Partnership for a price equal to the greater of the fair market value of such interest (determined in accordance with the partnership agreement of the 237 Partnership) and a specified amount, of which JMB/NYC's share would be $500,000. In addition, the general partner of the 237 Partnership has the right, during the month of January of each calendar year commencing with 2002, to purchase the interest in the 237 Partnership for a price equal to the greater of the fair market value of such interest (determined as described above) and a specified amount, of which JMB/NYC's share would be $650,000. Although under the terms of the Restructuring JMB/NYC is not able to cause a sale of the interest in the 237 Partnership prior to 2001, the earliest date on which such interest may be purchased at the election of the general partner of the 237 Partnership is January 2002. In the absence of JMB/NYC's earlier election to cause a sale of its interest in the 237 Partnership, this extends by a year (to January 2002 from January 2001) the date on which JMB/NYC's indirect interest in 237 Park was previously subject to purchase at the election of an affiliate of the REIT. JMB/NYC's indirect interest through the Upper Tier Partnership in the partnership (the "1290 Partnership") that owned 1290 Avenue of the Americas was also modified, although the REIT continued to own the controlling interest in the property. In general, the REIT had the right to sell 1290 Avenue of the Americas or engage in certain other transactions during the period January 1, 2000 through February 28, 2001, provided that JMB/NYC received the greater of (i) an amount based on a formula relating to the operations of the property (the "1290 Formula Price") and (ii) $4,500,000. No such transaction occurred during that period. An affiliate of the REIT also had the right, during the month of March of each calendar year commencing with 2001, to purchase JMB/NYC's indirect interest in the 1290 Partnership for the greater of (x) the 1290 Formula Price and (y) $1,400,000. On March 2, 2001, JMB/NYC was notified that an affiliate of the REIT intended to exercise its right to purchase JMB/NYC's indirect interest in the 1290 Partnership and on March 23, 2001, the sale was completed and JMB/NYC received approximately $1,400,000 at closing (of which the Partnership's share was approximately $686,000 and is reflected in the accompanying financial statements). Such amount was paid in May of 2001 to the limited partners of JMB/NYC as holders of a tranche of the Purchase Note as discussed below. In addition, JMB/NYC received the remaining collateral (approximately $5,700,000, of which the Partnership's share was approximately $2,900,000 and is reflected in the accompanying financial statements) held pursuant to the indemnification agreement, including interest earned thereon, upon closing of the sale of its interest in the 1290 Partnership. The Partnership received its share of the sale proceeds and collateral amount in May 2001. A portion of the purchase price for JMB/NYC's indirect interests in the 1290 Avenue of the Americas and 237 Park Avenue office buildings is represented by a certain promissory note (the "Purchase Note") bearing interest at 12-3/4% per annum. The Purchase Note is secured by JMB/NYC's indirect interests in the 237 Partnership and the 1290 Partnership (prior to its sale in March 2001) and is non-recourse to JMB/NYC. The Purchase Note requires payment of principal and interest out of distributions made to JMB/NYC from the 1290 Partnership and the 237 Partnership and proceeds from sales of JMB/NYC's indirect interests in those partnerships. Unpaid interest accrues and is deferred, compounded monthly. Unpaid principal and interest were due at maturity on January 2, 2001. As expected, JMB/NYC does not have funds to pay the Purchase Note. The limited partners of JMB/NYC, as creditors, and the holder of the Purchase Note have agreed to certain steps if the Purchase Note is not repaid within one year of its maturity as discussed below. The outstanding principal and accrued and deferred interest on the Purchase Note at September 30, 2001, was approximately $164,760,000, including interest at the default rate (as defined) of 12-3/4% per annum. In December 1999, the Affiliated Partners advanced a total of approximately $425,000 (of which the Partnership advanced approximately $210,000) to the limited partners of JMB/NYC, which was used to acquire a $5,425,000 tranche of the Purchase Note and the related security agreement for the collateralization of such tranche. As a result of this purchase, such limited partners, as creditors of JMB/NYC, are entitled to receive up to $5,425,000 in proceeds otherwise payable to JMB/NYC in respect of its indirect interest in the 1290 Partnership or the 237 Partnership. Such amounts received by the limited partners will be distributed to the Affiliated Partners in proportion to their respective advances made to purchase the tranche (i.e., 50% to the Partnership and 50% in the aggregate to the other Affiliated Partners). In connection with their purchase of the $5,425,000 tranche of the Purchase Note, the limited partners of JMB/NYC agreed with the holder of the Purchase Note that in the event JMB/NYC has not repaid all amounts due and owing under the Purchase Note within one year after its maturity on January 2, 2001, the holder will take the appropriate steps necessary to foreclose upon and obtain JMB/NYC's interest in the Upper Tier Partnership in lieu of seeking any other damages. JMB/PIPER U.S. Bancorp Piper Jaffray Inc. ("PJI"), which occupied 335,684 square feet or approximately 46% of the building's rentable square feet vacated the majority of its space (approximately 222,000 square feet) and moved to a recently completed office tower upon expiration of its lease on May 31, 2000. However, PJI extended a portion of its former space (approximately 114,000 square feet) through May 31, 2002, although the new rental rates, while at market rates, were significantly less than rental rates under the previous PJI lease. Additionally, Piper executed new long-term leases representing an additional approximately 170,000 square feet. The property manager had been actively pursuing replacement tenants for the balance of the vacant space; however, given the extremely competitive nature of the downtown Minneapolis market due to a significant amount of new office construction, not all of the PJI space had been released quickly enough to generate sufficient cash flow to fund the required debt service payments. As a result, Piper did not make the required debt service payments under the mortgage loan since June 1, 2000, and was in monetary default under such loan. Such default led to the appointment of a receiver and a foreclosure sale of the property as described below. The mortgage loan had an original principal amount of $100,000,000. Prior to the default, the lender was essentially entitled to all operating cash flow (as defined) in excess of fixed interest and certain other costs. During 2000 (prior to the default), no such cash flow was generated. Aggregate amounts due to the lender at the time of the transfer (discussed below) were approximately $109,000,000, including certain default interest. On a monthly basis, Piper was required to deposit the property management fee into an escrow account to be used (including interest earned thereon) for future leasing costs to the extent cash flow was not sufficient to cover such items or to be applied to the outstanding loan balance in the event of a default. Prior to the execution of the stipulation agreement (discussed below), approximately $339,000 representing property management fees was deposited and approximately $970,000 was withdrawn from the escrow account for certain leasing costs in 2000. The escrow balance as of July 20, 2000 was approximately $5,146,000. Such balance was applied to the outstanding principal balance of the loan on July 20, 2000, as a result of the default. The manager of the property (which was an affiliate of the Corporate General Partner through November 1994) had agreed to defer receipt of its management fee and receive the payment thereof out of the amount available from the escrow account, if any. As of July 20, 2000, the manager had deferred approximately $5,395,000 ($1,839,000 of which represented deferred fees due to an affiliate of the Corporate General Partner through November 1994) of management fees. However, in conjunction with the appointment of the receiver at the property and the application of the funds in the escrow account to the outstanding loan balance, the obligation to pay the deferred fees was released. As a result, such fees were written off in the third quarter of 2000. JMB/Piper, on behalf of Piper, had been negotiating with the lender to transfer title to the property through a deed in lieu of foreclosure. JMB/Piper and the lender were unable to reach an agreement related to such a transaction. Consequently, and as a result of the monetary default discussed above, the lender began legal proceedings to realize upon its security in the property. In consideration for, among other things, Piper and all of its constituent partners (collectively, the "Defendants") being released under the loan documents upon the expiration of the redemption period for foreclosure on the property and for payment of the Defendants' expenses, within certain limitations, in connection with the transaction, the Defendants executed a stipulation agreement consenting to a foreclosure sale of the property, including the fee interest in the land underlying the building. On July 20, 2000, the Court approved the stipulation agreement and appointed a receiver on behalf of the lender. On September 26, 2000, a sheriff's sale of the property occurred and on October 2, 2000, the sheriff's sale received court approval. Such sale was subject to redemption of the property within six months of the date of such sale. No such redemption occurred and title to the property transferred to the lender effective April 2, 2001. As a result of the monetary default on the mortgage loan, the property had been classified as held for sale or disposition as of July 1, 2000, and therefore, it was not subject to continued depreciation beyond such date for financial reporting purposes. As a result of the transfer of the property to the lender, the Partnership realized extraordinary gain related to its share of the forgiveness of indebtedness and the write off of deferred mortgage fees in the net amount of approximately $7,600,000 for financial reporting purposes. The Defendants have no future liability for any representations, warranties and covenants as a result of the transfer. JMB/900 During 1999, JMB/900, through Progress Partners, sold the 900 Third Avenue Building to an unaffiliated third party. As is customary in such transactions, Progress Partners agreed to certain representations, warranties and covenants with a stipulated survival period, which expired on September 15, 2000. As required by the sale agreement, Progress Partners had placed $2,000,000 into an escrow account for possible payment to the buyer in event of a breach of such representations, warranties, covenants and for certain other costs. As a result of a claim made by the buyer under the sale contract, in September 2000, Progress Partners received only a portion, approximately $1,800,000, of such amount placed in escrow, plus interest earned thereon. Progress Partners was able to settle such claim with the buyer and the remaining amount (approximately $200,000) held in escrow, including interest earned thereon, was received by Progress Partners in the first quarter of 2001. In February 2000, the Partnership received a distribution of approximately $26,400,000 from JMB/900 representing the Partnership's share of sales proceeds and cash flow generated from the operations of the 900 Third Avenue office building. The Partnership's share of cash remaining at the venture (approximately $900,000) was distributed to the Partnership in May 2001. WELLS FARGO CENTER The mortgage note secured by the property (with a balance of approximately $183,000,000 as of September 30, 2001), as extended, bears interest at 10% per annum and matures September, 2003. All excess cash flow is being escrowed for future tenant improvements and principal payments. In addition, upon sale or refinancing of the property subsequent to September 1, 1999, the mortgage loan requires payment of participation interest (as defined) of any excess proceeds. As modified, the amended and restated promissory note secured by the Partnership's interest in the limited liability company, which has an adjusted principal balance of approximately $21,988,000, and accrued interest of approximately $18,378,000 at September 30, 2001, has a scheduled maturity date in September 2003. The note accrues interest at 17% per annum and requires payments of cash flow distributed by the limited liability company from either property operations or sales proceeds as well as a portion of the property management fee paid to the unaffiliated member in the limited liability company. The loan is nonrecourse and secured solely by the Partnership's interest in the limited liability company. During April 2001, the Partnership received notice of non-monetary defaults from the lender under the amended and restated promissory note secured by the Partnership's interest in the limited liability company. The Partnership has acknowledged certain of the defaults described in the notice of default. The lender may proceed to foreclose on the Partnership's interest in the limited liability company in 2001; however, it is more likely that such foreclosure will take place in 2002. In the event that the Partnership's interest in the limited liability company is foreclosed upon and transferred to the lender during 2001, the Partnership expects to recognize a significant amount of income for both Federal income tax and financial reporting purposes in 2001 with no corresponding proceeds. Due to the defaults as discussed above, the Partnership has reclassified the long-term debt to current portion of long-term debt at September 30, 2001 in the accompanying financial statements. Due to the restructuring of the Partnership's interest in Wells Fargo Center - South Tower in 1996, the Partnership has ceased loss recognition relative to its real estate investment and has reversed those previously recognized losses that the Partnership is no longer obligated to fund. The Partnership has no future funding obligation for its investment in Wells Fargo Center - South Tower. Accordingly, the Partnership has discontinued the application of the equity method of accounting and additional losses from the investment in Wells Fargo Center - South Tower will not be recognized. YERBA BUENA OFFICE BUILDING Due to the default of the joint venture that owned the Yerba Buena Office Building (a partnership comprised of the Partnership, two other partnerships sponsored by the Partnership's Corporate General Partner, and four unaffiliated limited partners) in the payment of required debt service, the former lender to such joint venture realized on its security by taking title to the property in June 1992. In return for a smooth transition of title and management of the property (relative to which the existing property manager that was affiliated with the Partnership's Corporate General Partner agreed to continue to manage the property), the joint venture was able to negotiate, among other things, a right of first opportunity to purchase the property during the time frame from June 1995 through May 1998 should the lender wish to market the property for sale. The lender sold the property in 1996. However, the joint venture was not given an opportunity to purchase the property on the same terms for which it was sold. As previously reported, the joint venture filed a lawsuit against the lender for breach of its obligations. In June 1998, the court granted the lender's motion for summary judgment and dismissed the lawsuit. The joint venture appealed the dismissal. During the second quarter of 1999, the joint venture reached an agreement in principle with the lender to settle the lawsuit. In February 2000, the settlement was finalized and the former lender paid $1,400,000 to the joint venture in resolution of the dispute. Simultaneously, the joint venture paid to its limited partners $27,000 in settlement of any of their potential claims related to the matter. The Partnership's share of the settlement proceeds and cash held at the joint venture was approximately $876,000, which the Partnership received in the second quarter of 2000. UNCONSOLIDATED VENTURES - SUMMARY INFORMATION Summary income statement information for JMB/Piper, JMB/Piper II and JMB/900 for the nine months ended September 30, 2001 and 2000 are as follows: 2001 2000 ----------- ---------- Total income from properties (unconsolidated). . . . . . . . . . . $ 3,894,705 13,981,019 =========== ========== Operating profit (loss) of ventures . . $ (55,344) 2,334,481 Extraordinary items . . . . . . . . . . 15,247,014 -- ----------- ---------- Net earnings (loss) . . . . . . . . . . $15,191,670 2,334,481 =========== ========== Partnership's share of income (loss) . . . . . . . . . . . . $ 7,591,196 1,048,690 =========== ========== ADJUSTMENTS In the opinion of the Corporate General Partner, all adjustments (consisting solely of normal recurring adjustments and adjustments to reflect treatment given certain transactions in the Partnership's 2000 Annual Report) necessary for a fair presentation have been made to the accompanying figures as of September 30, 2001 and for the three and nine months ended September 30, 2001 and 2000. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the notes (the "Notes") to the accompanying consolidated financial statements for additional information concerning certain of the Partnership's investment properties. At September 30, 2001, the Partnership had cash and cash equivalents of approximately $12,724,000. Such funds were available for working capital requirements and potential future distributions to the General Partners and Holders of Interests. In May 2001, the Partnership received from JMB/900 approximately $900,000 as its share of remaining sale proceeds and cash flow from the operations of the 900 Third Avenue Building. The Partnership had previously received a distribution from JMB/900 in February 2000 of approximately $26,400,000, representing a portion of the Partnership's share of sale proceeds and cash flow from operations of the 900 Third Avenue Office Building. As discussed below, JMB/NYC sold its indirect interest in the 1290 Partnership in March 2001. The Partnership received its share of the proceeds from such sale (approximately $686,000), as well as its share of the remaining funds (approximately $2,900,000) held as collateral pursuant to the indemnification agreement in May 2001. As discussed in more detail in the Notes, a receiver was appointed for the Piper Jaffray Tower in July 2000 as a result of the monetary default under the mortgage loan secured by the property, and cash flow generated by the property since then was under control of the receiver. Title transferred to the lender effective April 2, 2001, as discussed below. The Wells Fargo Center - South Tower investment property is restricted as to the use of excess cash flows by an escrow agreement negotiated pursuant to loan modifications. The Partnership does not consider its remaining investment properties to be potential sources of a significant amount of future cash generated from sales or operations. The Partnership has not budgeted any amounts for its share of tenant improvements and other capital expenditures as it has no funding obligations for its remaining investment properties. In November 1999, JMB/NYC closed a transaction (the "Restructuring") pursuant to which, among other things, JMB/NYC's interests in 237 Park Avenue ("237 Park") and 1290 Avenue of the Americas ("1290 Avenue of the Americas") were restructured. Under the Restructuring, the partnership that owns 237 Park was converted to a limited liability company ("237 Park LLC"). The membership interest in 237 Park LLC owned by 237/1290 Upper Tier Associates, L.P. (the "Upper Tier Partnership"), in which JMB/NYC is a limited partner with a 99% interest, was contributed to a partnership (the "237 Partnership") that acquired the other membership interests in 237 Park LLC from the REIT and one of its affiliates. In exchange for the interest in 237 Park LLC, the Upper Tier Partnership received a limited partnership interest in the 237 Partnership having a fair market value (determined in accordance with the partnership agreement of the 237 Partnership) of approximately $500,000. (JMB/NYC's total investment in the 237 Partnership is significantly less than 1% of the 237 Partnership.) The 237 Partnership owns a portfolio of investments in addition to 237 Park. JMB/NYC has the right, during the month of July of each calendar year commencing with 2001, to cause a sale of the interest in the 237 Partnership for a price equal to the greater of the fair market value of such interest (determined in accordance with the partnership agreement of the 237 Partnership) and a specified amount, of which JMB/NYC's share would be $500,000. JMB/NYC elected not to exercise its right to cause a sale of its interest in the 237 Partnership during July 2001. In addition, the general partner of the 237 Partnership has the right, during the month of January of each calendar year commencing with 2002, to purchase the interest in the 237 Partnership for a price equal to the greater of the fair market value of such interest (determined as described above) and a specified amount, of which JMB/NYC's share would be $650,000. The general partner of the 237 Partnership has indicated that it intends to exercise its right to purchase the interest in the 237 Partnership in January 2002. The Partnership does not expect to receive any significant proceeds upon the disposition of JMB/NYC's interest in the 237 Partnership. Although under the terms of the Restructuring JMB/NYC is not able to cause a sale of the interest in the 237 Partnership prior to 2001, the earliest date on which such interest may be purchased at the election of the general partner of the 237 Partnership is January 2002. In the absence of JMB/NYC's earlier election to cause a sale of its interest in the 237 Partnership, this extends by a year (to January 2002 from January 2001) the date on which JMB/NYC's indirect interest in 237 Park was previously subject to purchase at the election of an affiliate of the REIT. JMB/NYC's indirect interest through the Upper Tier Partnership in the partnership (the "1290 Partnership") that owned 1290 Avenue of the Americas was also modified, although the REIT continued to own the controlling interest in the property. In general, the REIT had the right to sell 1290 Avenue of the Americas or engage in certain other transactions during the period January 1, 2000 through February 28, 2001, provided that JMB/NYC received the greater of (i) an amount based on a formula relating to the operations of the property (the "1290 Formula Price") and (ii) $4,500,000. No such transaction occurred during that period. An affiliate of the REIT also had the right, during the month of March of each calendar year commencing with 2001, to purchase JMB/NYC's indirect interest in the 1290 Partnership for the greater of (x) the 1290 Formula Price and (y) $1,400,000. On March 2, 2001, JMB/NYC was notified that an affiliate of the REIT intended to exercise its right to purchase JMB/NYC's indirect interest in the 1290 Partnership and on March 23, 2001, the sale was completed and JMB/NYC received approximately $1,400,000 at closing (of which the Partnership's share was approximately $686,000 and is reflected in the accompanying financial statements). Such amount was paid to the limited partners of JMB/NYC as holders of a tranche of the Purchase Note as discussed below. In addition, JMB/NYC received the remaining collateral (approximately $5,700,000, of which the Partnership's share was approximately $2,900,000 and is reflected in the accompanying financial statements) held pursuant to the indemnification agreement, including interest earned thereon, upon closing of the sale of its interest in the 1290 Partnership. The Partnership received its share of the sale proceeds and collateral amount in May 2001. A portion of the purchase price for JMB/NYC's indirect interests in the 1290 Avenue of the Americas and 237 Park Avenue office buildings is represented by a certain promissory note (the "Purchase Note") bearing interest at 12-3/4% per annum. The Purchase Note is secured by JMB/NYC's indirect interests in the 237 Partnership and the 1290 Partnership (prior to its sale in March 2001) and is non-recourse to JMB/NYC. The Purchase Note requires payment of principal and interest out of distributions made to JMB/NYC from the 1290 Partnership and the 237 Partnership and proceeds from sales of JMB/NYC's indirect interests in those partnerships. Unpaid interest accrues and is deferred, compounded monthly. Unpaid principal and interest were due at maturity on January 2, 2001. As expected, JMB/NYC does not have funds to pay the Purchase Note. The limited partners of JMB/NYC, as creditors, and the holder of the Purchase Note have agreed to certain steps if the Purchase Note is not repaid within one year of its maturity as discussed below. The outstanding principal and accrued and deferred interest on the Purchase Note at September 30, 2001, was approximately $164,760,000, including interest at the default rate (as defined) of 12-3/4% per annum. In December 1999, the Affiliated Partners advanced a total of approximately $425,000 (of which the Partnership advanced approximately $210,000) to the limited partners of JMB/NYC, which was used to acquire a $5,425,000 tranche of the Purchase Note and the related security agreement for the collateralization of such tranche. As a result of this purchase, such limited partners, as creditors of JMB/NYC, are entitled to receive up to $5,425,000 in proceeds otherwise payable to JMB/NYC in respect of its indirect interest in the 1290 Partnership or the 237 Partnership. Such amounts received by the limited partners will be distributed to the Affiliated Partners in proportion to their respective advances made to purchase the tranche (i.e., 50% to the Partnership and 50% in the aggregate to the other Affiliated Partners). In connection with their purchase of the $5,425,000 tranche of the Purchase Note, the limited partners of JMB/NYC agreed with the holder of the Purchase Note that in the event JMB/NYC has not repaid all amounts due and owing under the Purchase Note within one year after its maturity on January 2, 2001, the holder will take the appropriate steps necessary to foreclose upon and obtain JMB/NYC's interest in the Upper Tier Partnership in lieu of seeking any other damages. Pursuant to the indemnification agreement, the Affiliated Partners were jointly and severally obligated to indemnify the REIT to the extent of $25 million to ensure their compliance with the terms and conditions relating to JMB/NYC's indirect limited partnership interests in the restructured and reorganized joint ventures that owned the Properties. The Affiliated Partners contributed approximately $7,800,000 (of which the Partnership's share was approximately $3,900,000) to JMB/NYC, which was deposited into an escrow account as collateral for such indemnification. These funds were invested in stripped U.S. Government obligations with a maturity date of February 15, 2001. Subsequent to that date, the remaining escrowed funds were invested in short-term U.S. Government obligations. Due to the Restructuring discussed above, the maximum indemnification obligation was reduced to $14,285,000 and a portion of the collateral (approximately $4,460,000 in face amount) was released in 1999 to JMB/NYC. As a result of the sale of JMB/NYC's indirect interest in the 1290 Partnership, the maximum indemnification obligation was reduced to $0 and the remaining collateral (approximately $5,700,000 face amount of which the Partnership's share was approximately $2,900,000) was released in March 2001 to JMB/NYC. The Partnership's share of the reduction of the maximum unfunded obligation under the indemnification agreement recognized as income is a result of (i) interest earned on amounts contributed by the Partnership and held in escrow for JMB/NYC, (ii) the Partnership's share of the agreed upon reduction of the maximum obligation in November 1999 in connection with the Restructuring discussed above, and (iii) the Partnership's share of the remaining indemnification obligation that was released in March 2001 in connection with the sale of JMB/NYC's indirect interest in the 1290 Partnership. Interest income earned reduced the Partnership's share of the maximum unfunded obligation under the indemnification agreement, which was reflected as a liability as of December 31, 2000 in the accompanying financial statements. As discussed in the Notes, JMB/Piper, on behalf of Piper, had been negotiating with the lender to transfer title to the Piper Jaffray Tower through a deed in lieu of foreclosure. JMB/Piper and the lender were unable to reach an agreement related to such a transaction. Consequently, and as a result of the monetary default under the mortgage loan secured by the property, the lender began legal proceedings to realize upon its security in the building. In consideration for, among other things, Piper and all of its constituent partners (collectively, the "Defendants") being released under the loan documents upon the expiration of the redemption period for foreclosure on the property and for payment of the Defendants' fees in connection with the transaction, within certain limitations, the Defendants executed a stipulation agreement consenting to a foreclosure sale of the property, including the fee interest in the land underlying the building. On July 20, 2000, the Court approved the stipulation agreement and appointed a receiver on behalf of the lender. On September 26, 2000, a sheriff's sale of the property occurred at which the lender received a sheriff's certificate of sale. On October 2, 2000, the court approved such sale subject to redemption of the property at any time within six months from the date of such sale. No such redemption occurred and title to the property transferred to the lender effective April 2, 2001. As a result of the transfer, the Partnership realized extraordinary gain related to its share of the forgiveness of indebtedness and the write off of deferred mortgage fees in the net amount of approximately $7,600,000 for financial reporting purposes. The Partnership also expects to recognize a substantial amount of gain for Federal income tax purposes as a result of the transfer. The Defendants have no future liability for any representations, warranties and covenants as a result of the transfer. The Wells Fargo Center - South Tower continues to suffer from the effects of the high level of debt secured by the property, and provides no cash flow to the Partnership. The lender has had discussions with the Partnership regarding alleged defaults under the loan agreements secured by the Partnership's interest in the limited liability company that owns the property. During April 2001, the Partnership received a notice of non- monetary defaults from the lender. The Partnership has acknowledged certain defaults described in the notice of defaults. The lender may proceed to foreclose on the Partnership's interest in the limited liability company in 2001; however, it is more likely that such foreclosure will take place in 2002. In the event that the Partnership's interest in the limited liability company is foreclosed upon and transferred to the lender during 2001, the Partnership expects to recognize a significant amount of income for both Federal income tax and financial reporting purposes in 2001 with no corresponding proceeds. In connection with the sale of the 900 Third Avenue Building in November 1999, Progress Partners agreed to certain representations, warranties and covenants with a stipulated survival period, which expired on September 15, 2000. As required by the sale agreement, Progress Partners had placed $2,000,000 into an escrow account for possible payment to the buyer in the event of a breach of such representations, warranties, covenants and for certain other costs. As a result of a claim made by the buyer under the sale contract, in September 2000, Progress Partners received only a portion, approximately $1,800,000, of such amount placed in escrow, plus interest earned thereon. Progress Partners was able to settle such claim with the buyer and the remaining amount (approximately $200,000) held in escrow, including interest earned thereon, was received by Progress Partners in the first quarter of 2001. The Partnership's and its ventures' mortgage obligations generally are or have been separate non-recourse loans secured individually by the investment properties and are or were not obligations of the entire investment portfolio, and the Partnership and its ventures are or were not personally liable for the payment of the indebtedness. Although the Partnership expects to make minimal future cash distributions, aggregate distributions received by Holders of Interest over the entire term of the Partnership will be approximately one-fourth of their original investment. However, in connection with sales or other dispositions (including transfers to lenders) of properties (or interests therein) owned by the Partnership or its ventures, Holders of Interests will be allocated a substantial amount of gain for Federal income tax purposes, regardless of whether any proceeds are distributed from such sales or other dispositions. The remaining investment properties have high levels of debt secured by the properties and by the Partnership's interests in the properties. Reference is made to the Notes for a description of such indebtedness. The Partnership does not expect to receive any substantial proceeds from operations or sales of its remaining properties (or the Partnership's interests therein). However, upon disposition of each of these properties or the Partnership's (or JMB/NYC's) interest therein, the Partnership, and therefore the Holders of Interests, will recognize a substantial amount of taxable income with little or no distributable proceeds. For certain Holders of Interest, such taxable gain may be offset by their suspended passive activity losses (if any). Each Holder's tax consequences will depend on such Holder's own tax situation. The Partnership's interest, through JMB/NYC, in 1290 Avenue of the Americas was sold in March 2001. Title to the Piper Jaffray Tower transferred to the lender on April 2, 2001. The Partnership's only remaining investment properties are its indirect interest through JMB/NYC in the 237 Partnership and its interest in Wells Fargo Center - South Tower. The general partner of the 237 Partnership has indicated that it intends to exercise its right to purchase JMB/NYC's interest in the 237 Partnership in January 2002. In addition, the lender under the amended and restated promissory note secured by the Partnership's interest in the limited liability company that owns Wells Fargo Center - South Tower has given the Partnership a notice of defaults under the loan (certain of which the Partnership has acknowledged) and is expected to seek to foreclose on the Partnership's interest in the limited liability company. Such foreclosure could occur in 2001; however it is more likely that such foreclosure will take place in 2002. The Partnership currently expects that its liquidation and termination will occur no later than the end of 2002, barring unforeseen circumstances. RESULTS OF OPERATIONS The increase in cash and cash equivalents at September 30, 2001 as compared to December 31, 2000 is primarily due to receipt of the Partnership's share of the collateral amount returned to JMB/NYC upon termination of the indemnification agreement in 2001 and the Partnership's share of the proceeds of the March 23, 2001 sale of JMB/NYC's indirect interest in the 1290 Partnership. The Partnership received such amounts in May 2001. The increase is also partially due to the receipt of the Partnership's share of cash remaining at the JMB/900 venture in May 2001. The decrease in interest, rents and other receivables at September 30, 2001 as compared to December 31, 2000 is primarily due to lower interest rates on invested funds during September of 2001. The decrease in the asset investment in unconsolidated ventures, at equity, at September 30, 2001 as compared to December 31, 2000 is primarily due to receipt of the Partnership's share of cash remaining at the JMB/900 venture in May 2001. The increase in accounts payable at September 30, 2001 as compared to December 31, 2000 is primarily due to the timing of payment for certain of the administrative expenses of the Partnership. The increase in current portion of long-term debt and the corresponding decrease in long-term debt, less current portion at September 30, 2001, as compared to December 31, 2000 is due to the reclassification of the promissory note secured by the Partnership's interest in the limited liability company that owns the Wells Fargo Center - South Tower as a result of certain non-monetary defaults under the promissory note acknowledged by the Partnership. The decrease in the liability investment in unconsolidated ventures, at equity, at September 30, 2001 as compared to December 31, 2000 is primarily due to the transfer of title to the Piper Jaffray Tower to the lender on April 2, 2001, as described more fully in the Notes. The decrease in the Partnership's share of the maximum unfunded obligation under the indemnification agreement as of September 30, 2001, compared to December 31, 2000, is primarily due to the termination of such indemnification agreement upon sale of JMB/NYC's indirect interest in the 1290 Partnership on March 23, 2001. The decrease in interest income for the three and nine months ended September 30, 2001, as compared to the same periods in 2000 is primarily due to temporary investment of the cash received from the sale of JMB/900 in November 1999. Portions of such funds were distributed to the General Partners and Holders of Interests in late February 2000 and August 2000, which resulted in lower amounts available for investment during the three and nine month periods of 2001. The decrease is also due in part to a lower average interest rate on invested funds during 2001. The decrease in other income for the nine months ended September 30, 2001, as compared to the same period in 2000 is the result of the Partnership's receipt of its share of the proceeds from settlement of the Yerba Buena litigation during the second quarter of 2000. The decrease in management fees to Corporate General Partner for the three and nine month periods ended September 30, 2001, as compared to the same periods in 2000, is due to the distributions of cash flow from operations to the General Partners and the Holders of Interest in February and August 2000. The management fee is based upon a percentage of the distributions of cash flow from operations. The decrease in general and administrative expenses for the nine months ended September 30, 2001, as compared to the same period in 2000 is primarily due to the payment in the first quarter of 2000 by the Partnership for state income taxes owed as a result of the sale of the Louis Joliet Mall in July 1999. The Partnership's share of the reduction of the maximum unfunded obligation under and income related to termination of the indemnification agreement recognized as income during 2001 of $7,144,354 is a result of the sale of JMB/NYC's indirect interest in the 1290 Partnership in March of 2001 and release of the Partnership's and other Affiliated Partners' indemnification obligation relating to the interest in the 1290 Partnership, as well as interest earned during 2001 on amounts contributed by the Partnership and held in escrow by JMB/NYC. Such interest income earned reduced the Partnership's proportionate share of the maximum unfunded obligation under the indemnification agreement. The Partnership's share of the reduction of the maximum unfunded obligation under the indemnification agreement recognized as income for the three and nine months ended September 30, 2000 is a result of interest earned on amounts contributed by the Partnership and held in escrow for JMB/NYC. The decrease in Partnership's share of operations of unconsolidated ventures for the three and nine months ended September 30, 2001, as compared to the same periods in 2000 is primarily due to the third quarter 2000 write-off to income of a liability for certain deferred management fees upon the appointment of the receiver at the Piper Jaffray Tower in July 2000. The decrease is also due to the transfer of title to the Piper Jaffray Tower to the lender on April 2, 2001, as described more fully in the Notes. The Partnership's share of gain on sale of indirect partnership interest for the nine months ended September 30, 2001 is the Partnership's share of the gain from JMB/NYC's sale of its indirect partnership interest in the 1290 Partnership on March 23, 2001. The extraordinary items of gain on forgiveness of indebtedness and write-off of deferred mortgage fees for the nine months ended September 30, 2001 are due to the transfer of title to the Piper Jaffray Tower to the lender on April 2, 2001, as described more fully in the Notes. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 20, 2000, an action entitled TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA V. 222 SOUTH NINTH STREET LIMITED PARTNERSHIP, OB JOINT VENTURE, JMB/PIPER JAFFRAY TOWER ASSOCIATES, CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XIV, JMB/PIPER JAFFRAY TOWER ASSOCIATES II, CAMPBELL- MITHUN-ESTY, L.L.C., U.S. BANCORP PIPER JAFFRAY INC. JMB REALTY CORPORATION, OB JOINT VENTURE II AND LHDL REALTY LIMITED PARTNERSHIP was initiated in and an order for judgement entered by Minnesota District Court of Hennepin County, Minnesota. In the proceeding, Teachers Insurance and Annuity Association of America ("Teachers"), as the holder of the mortgage note secured by the Piper Jaffray Tower, sought the enforcement of its security interest and the appointment of a receiver for the benefit of the lender to take exclusive possession, control and operation of the property. Due to a substantial amount of space vacated by a major tenant at the expiration of its lease in May 2000, the property owning venture had not made all of the scheduled debt service payments on the mortgage note since June 1, 2000. In consideration for, among other things, being released under the mortgage loan documents upon the expiration of the redemption period for foreclosure on the property and for payment of their fees in connection with the transaction, within certain limitations, the defendants listed above executed a stipulation agreement consenting to the foreclosure sale of the property. In July 2000, the Court approved the stipulation agreement, granted Teachers' application and entered an order for a receiver to take exclusive possession, control and operation of the property. Accordingly, the receiver assumed control of the property and its operations. In September 2000, a sheriff's sale of the property was held, and in October 2000 the Court approved the sheriff's sale. Such sale was subject to redemption of the property within six months from the date of sale. No redemption of the property occurred, and title to the property transferred to Teachers effective April 2, 2001. The Partnership is not subject to any other material legal proceedings. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The joint venture that owned the Piper Jaffray Tower had not made all of the scheduled debt service payments on the mortgage note secured by the property since June 1, 2000. Aggregate amounts due to the lender at the time of the transfer to it of the property were approximately $109,000,000, including certain default interest. Title transferred to the lender effective April 2, 2001 as a result of the lender's foreclosure of its mortgage and sheriff's sale of the property. Reference is made to the subsection entitled "JMB/Piper" in the Notes to the Financial Statements filed with this report for a further discussion of the default under the mortgage loan secured by the Piper Jaffray Tower, which discussion is hereby incorporated herein by reference. The lender of the loan secured by the Partnership's interest in the limited liability company that owns the Wells Fargo Center - South Tower has had discussions with the Partnership regarding alleged defaults under that loan. During April 2001, the Partnership received a notice of non- monetary defaults from the lender. The Partnership has acknowledged certain of the defaults described in the notice of defaults. The lender may proceed to foreclose on the Partnership's interest in the limited liability company in 2001; however, it is more likely that such foreclosure will take place in 2002. As of September 30, 2001, the promissory note secured by the Partnership's interest in the limited liability company had an adjusted principal balance of approximately $21,988,000 and accrued interest of approximately $18,378,000. Reference is made to the subsection entitled "Wells Fargo Center" in the Notes to the Financial Statements filed with this report for a further discussion of the defaults under the loan agreements secured by the Partnership's interest in the limited liability company that owns the Wells Fargo Center - South Tower, which discussion is hereby incorporated herein by reference. A portion of the purchase price for JMB/NYC's indirect interests in the 1290 Avenue of the Americas and 237 Park Avenue office buildings is represented by a certain promissory note (the "Purchase Note") bearing interest at 12-3/4% per annum. The Purchase Note is secured by JMB/NYC's indirect interests in the 1290 Partnership (prior to its sale in March 2001) and the 237 Partnership and is non-recourse to JMB/NYC. The Purchase Note requires payment of principal and interest out of distributions made to JMB/NYC from the 1290 Partnership and the 237 Partnership and proceeds from the sales of JMB/NYC's indirect interests in those partnerships. Unpaid interest accrues and is deferred, compounded monthly. Unpaid principal and interest were due at maturity on January 2, 2001. As expected, JMB/NYC does not have funds to pay the Purchase Note. The limited partners of JMB/NYC, as creditors of JMB/NYC through their acquisition of a tranche of the Purchase Note, and the holder of the Purchase Note have agreed to certain steps if the Purchase Note is not repaid within one year of its maturity. The outstanding principal and accrued and deferred interest on the Purchase Note at September 30, 2001, was approximately $164,760,000 including interest at the default rate (as defined) of 12-3/4% per annum. Reference is made to the subsection entitled "JMB/NYC" in the Notes to the Financial Statements filed with this report for a further discussion of the default under the Purchase Note, which discussion is hereby incorporated herein by reference. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION OCCUPANCY The following is a listing of approximate occupancy levels by quarter for the Partnership's investment properties owned during 2001.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3-A.* Amended and Restated Agreement of Limited Partnership. 3-B.* Assignment Agreement by and among the Partnership, the General Partners and the Initial Limited Partner. 3-C. Acknowledgement of rights and duties of the General Partners of the Partnership between ABPP Associates, L.P. (a successor Associate General Partner of the Partnership) and JMB Realty Corporation as of December 31, 1995 is incorporated herein by reference to the Partnership's Report for September 30, 1996 on Form 10-Q (File No. 0-15962) dated November 8, 1996. -------------- * Previously filed as Exhibits 3-B and 3-C, respectively, to the Partnership's Report for December 31, 1992 on Form 10-K of the Securities Exchange Act (File No. 0-15962) filed on March 30, 1993 and hereby incorporated herein by reference. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XIV BY: JMB Realty Corporation (Corporate General Partner) By: GAILEN J. HULL Gailen J. Hull, Senior Vice President Date: November 9, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person in the capacity and on the date indicated. By: GAILEN J. HULL Gailen J. Hull, Principal Accounting Officer Date: November 9, 2001

CARLYLE REAL ESTATE LTD PARTNERSHIP XIV /IL/ 10-Q