SEC Company Response from REAL ESTATE ASSOCIATES LTD VI (CIK 0000715578) — May 10, 2005
REAL ESTATE ASSOCIATES LTD VI (CIK 0000715578)
Date: May 10, 2005 · CIK: 0000715578 · Accession: 0000711642-05-000106
AI Filing Summary & Sentiment
Referenced dates: April 18, 2005
Letter
Re: Real Estate Associates Limited VI Form 10-KSB for the year ended December 31, 2004 File No. 0-13112
REAL ESTATE ASSOCIATES LIMITED VI 55 Beattie Place, P.O. Box 1089 Greenville, SC 29602
May 10, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission Division of Corporation Finance Mail Stop 0409 450 Fifth Street, NW Washington, D.C. 20549 Attn: Mr. Daniel Gordon
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange Commission (the "Staff") addressed to Real Estate Associates Limited VI, a California limited partnership (the "Partnership"), in a letter dated April 18, 2005. The Partnership appreciates the Staff's willingness to provide an extension of time for this response. The Partnerships' response to the Staff's comments are set forth below and are numbered to correspond to the numbering of the Staff's comments in the Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Note 1 - Organization and Summary of Significant Accounting Policies
Principles of Consolidation
1. Comment: Please confirm to us that you are consolidating Real Estate Limited Associates III (REA III). Also, tell us the percentage ownership of REA III and your basis for consolidation.
Response: The Partnership consolidates the accounts of Real Estate Associates III ("REA III"), a general partnership. The Registrant holds a 99.9% partnership interest in REA III. The Partnership consolidates the accounts of REA III due to its ownership of 99.9% of the partnership interest and its control over the activities of REA III.
Recent Accounting Pronouncements
2. Comment: We note that you adopted FIN 46R and you determined that you held variable interests in 15 VIE's for which the Partnership was not the primary beneficiary. Please tell us how you determined that the interests the company holds in the partnerships are variable interests. In addition, please tell us how you determined that you were not considered the primary beneficiary considering that you own 95 to 99% of the local limited partnerships. Reference is made to paragraphs 14-17 of FIN 46R.
Response: The Partnership first became involved with the local limited partnerships in the early 1980's. The Partnership historically has used the equity method of accounting for their investments in local limited partnerships. The individuals involved with the creation of the Partnership are no longer employed by National Partnership Investments Corp ("NAPICO"), the corporate general partner of the Partnership. With the exception of one general partner that is a wholly-owned subsidiary of NAPICO and serves as the general partner of five local limited partnerships, the general partners of the local limited partnerships are not affiliated with the Partnership or NAPICO. Accordingly, the Partnership's initial consideration of the requirements of FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities (FIN 46R) was based primarily on documents relating to the formation of local limited partnerships and financial information available as of December 31, 2003 and 2004. There may be other facts and circumstances related to the Partnership's involvement with the local limited partnerships that might be relevant in making determinations required by FIN 46R; however, the Partnership necessarily based its determination upon those written documents and other information currently available to the Partnership.
The Partnership's determination that the 15 local limited partnerships are variable interest entities ("VIE") was made based on consideration of paragraphs 5, 9 and 10 of FIN 46R. The Partnership specifically determined that twelve of the local limited partnerships are VIEs based on paragraph 5(b)(1) and that three of the local limited partnerships are VIE's based on paragraphs 5(a), 9 and 10.
With respect to the local limited partnerships that were determined to be VIEs under paragraph 5(b)(1), the group of equity holders at risk was comprised only of its limited partners (the group that contributed the capital necessary to fund the acquisition of properties owned by the local limited partnerships). The general partners were not considered to have equity at risk because their capital contributions were insignificant. Based on the terms of the related limited partnership agreements, the limited partners were not deemed to have the right to make decisions that have a significant effect on the operations or success of the local limited partnership. Therefore, these local limited partnerships were determined to be VIEs and no further evaluation under paragraph 5 was necessary.
With respect to the local limited partnerships that were determined to be VIEs under paragraphs 5(a), 9 and 10 the Partnership determined based on review of the audited financial statements of the local limited partnership and other available financial information that these local limited partnerships had insufficient equity investment at risk to permit the local limited partnerships to finance their activities. Accordingly, these local limited partnerships were determined to be VIEs.
The Partnership made its determination of the primary beneficiary of the local limited partnerships identified as VIEs based on a qualitative analysis with reference to paragraphs 16 and 17 of FIN 46R.
Paragraph 16 of FIN 46R states, in part, "For purposes of determining whether it is the primary beneficiary of a variable interest entity, an enterprise with a variable interest shall treat variable interests in that same entity held by its related parties as its own interests. For purposes of this Interpretation, the term related parties includes those parties identified in FASB Statement No. 57, Related Party Disclosures, and certain other parties that are acting as de facto agents or de facto principals of the variable interest holder." Paragraph 16(d) of FIN 46R further provides that de facto agents of an enterprise include "A party that has (1) an agreement that it cannot sell, transfer, or encumber its interest in the entity without the prior approval of the enterprise...The right of prior approval creates a de facto agency relationship only if that right could constrain the others party's ability to manage the economic risks or realize the economic rewards from its interests in a variable interest entity through the sale, transfer, or encumbrance of those interests."
With respect to the local limited partnerships identified as VIEs, a provision of each of the partnership agreements prohibits the general partner from selling, assigning, transferring, mortgaging, pledging, or otherwise encumbering or disposing of its interest in the local limited partnership for which it serves as the general partner. Accordingly, in order for the general partner to take any of these actions, a modification of the local limited partnership agreement would be necessary and such modification would require written consent or vote of a majority interest of the general partner and the limited partner, voting as one class, in proportion to ownership interest. Another provision of each of the partnership agreements for the local limited partnerships prohibits any limited partner from assigning in whole or any part of its interest in a local limited partnership unless the limited partner first receives consent of the general partner of the local limited partnership (which consent may be withheld at the sole discretion of the general partner). These provisions of the partnership agreements establish de facto agency relationships, as contemplated in paragraph 16(d) of FIN 46R, between the Partnership, as limited partner in the local limited partnerships, and the respective general partners of the local limited partnerships.
Having determined under paragraph 16 that the Partnership and the respective general partners of the local limited partnerships are a related party group for purposes of FIN 46R, the Partnership considered the guidance in paragraph 17 of FIN 46R to identify the primary beneficiary of each local limited partnership. Paragraph 17 of FIN 46R states, "If two or more related parties (including the de facto agents described in paragraph 16) hold variable interests in the same variable interest entity, and the aggregate variable interest held by those parties would, if held by a single party, identify that party as the primary beneficiary, then the party, within the related party group, that is most closely associated with the variable interest entity is the primary beneficiary". The Partnership believes that the variable interests held by the related party group, consisting of the Partnership and the general partners, would, if held by a single party, identify that party as the primary beneficiary. Accordingly, the Partnership believes that based on a qualitative evaluation, that a party within the related party group must be the primary beneficiary.
Paragraph 17 of FIN 46R goes on to state "the determination of which party within the related party group is most closely associated with the variable interest entity requires judgment and shall be based on an analysis of all relevant facts and circumstances, including:
a. The existence of a principal-agency relationship between parties within the related party group b. The relationship and significance of the activities of the variable interest entity to the various parties within the related party group c. A party's exposure to the expected losses of the variable interest entity d. The design of the variable interest entity."
The Partnership believes that in the application of paragraph 17 of FIN 46R, the factors listed need to be considered together in conjunction with the structure of the local limited partnership and how the Partnership believes other entities would view the role of the general partner and the limited partner (i.e. the Partnership).
The Partnership's consideration of the requirements of paragraph 17 of FIN 46 revealed factors that individually could identify either the general partner or the Partnership as the party with the characteristics most closely associated with the respective local limited partnerships.
Ultimately, as discussed below, the Partnership concluded that the general partner is the party within the related party group, that has the characteristics most closely associated with the local limited partnerships. Factors considered most relevant include:
o Although the de facto agency relationship that was identified in connection with paragraph 16 of FIN 46R does not clearly indicate which party is the principal or agent, the Partnership believes the general partner has characteristics that are commonly associated with the principal. In this regard, the Partnership noted that the general partner is the party an outside entity would contact regarding a local limited partnership matter. For example, the United States Department of Housing and Urban Development, or one of its agencies, ("HUD"), is the outside entity with the most direct contact and or communication with the local limited partnerships due to the interest and tenant subsidies and mortgage insurance that exist at the local limited partnership level. In all instances HUD contacts the general partner with respect to matters involving the local limited partnership and the general partner acts with authority in addressing those matters.
o The Partnership noted that each general partner's relationship with the local limited partnerships involves the following significant activities related to its rights and obligations under the related limited partnership agreements:
o The general partner shall manage and conduct the business of the local limited partnership;
o Employees of the general partner (or its affiliates) are actively involved in managing the operations of the local limited partnerships
o The general partner has the obligation to fund any recourse obligations of the local limited partnership
o The general partner is authorized to develop land acquired by the local limited partnership with off-site and on-site improvements, and to construct, rehabilitate, maintain, operate and manage the housing units and other facilities of the respective local limited partnership
o The general partner is authorized to borrow funds, execute and issue mortgage notes and other evidences of indebtedness
o The general partner is authorized to apply for and obtain from the respective government agency, contracts for leasing, interest subsidies, tax abatement and tax limitation, as well as other supplemental payments and subsidies
o The general partner shall promptly take any and all action which may be necessary or appropriate to perfect and maintain the local limited partnership, as a limited partnership under state law, and to develop, maintain, and operate the respective local limited partnerships in accordance with provisions of the local limited partnership agreement and applicable Federal, state and local laws and regulations
o The general partner shall cause the local limited partnership to obtain and maintain at all times, insurance in such amounts and at terms customary for a project similar to the local limited partnership
o The general partner is responsible for obtaining a management agent for the respective local limited partnership
o In addition, the local limited partnership agreements each state that the Partnership, as limited partner, shall not take part in the management of the local limited partnership's business or transact any business for the local limited partnership, nor have any power to sign for or to bind the local limited partnership or to subject the local limited partnership to any liability or obligation.
These factors strongly indicate that the general partner is the party most closely associated with the local limited partnerships.
Although the Partnership has not performed a quantitative analysis to determine the relative exposures
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
REAL ESTATE ASSOCIATES LIMITED VI
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
May 10, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 0409
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Daniel Gordon
Re: Real Estate Associates Limited VI
Form 10-KSB for the year ended December 31, 2004 File No. 0-13112
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to Real Estate Associates Limited VI, a
California limited partnership (the "Partnership"), in a letter dated April 18,
2005. The Partnership appreciates the Staff's willingness to provide an
extension of time for this response. The Partnerships' response to the Staff's
comments are set forth below and are numbered to correspond to the numbering of
the Staff's comments in the Staff's letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Note 1 - Organization and Summary of Significant Accounting Policies
Principles of Consolidation
1. Comment: Please confirm to us that you are consolidating Real Estate
Limited Associates III (REA III). Also, tell us the percentage
ownership of REA III and your basis for consolidation.
Response: The Partnership consolidates the accounts of Real Estate
Associates III ("REA III"), a general partnership. The Registrant
holds a 99.9% partnership interest in REA III. The Partnership
consolidates the accounts of REA III due to its ownership of 99.9% of
the partnership interest and its control over the activities of REA
III.
Recent Accounting Pronouncements
2. Comment: We note that you adopted FIN 46R and you determined that you held
variable interests in 15 VIE's for which the Partnership was not the
primary beneficiary. Please tell us how you determined that the interests
the company holds in the partnerships are variable interests. In addition,
please tell us how you determined that you were not considered the primary
beneficiary considering that you own 95 to 99% of the local limited
partnerships. Reference is made to paragraphs 14-17 of FIN 46R.
Response: The Partnership first became involved with the local limited
partnerships in the early 1980's. The Partnership historically has used the
equity method of accounting for their investments in local limited
partnerships. The individuals involved with the creation of the Partnership
are no longer employed by National Partnership Investments Corp ("NAPICO"),
the corporate general partner of the Partnership. With the exception of one
general partner that is a wholly-owned subsidiary of NAPICO and serves as
the general partner of five local limited partnerships, the general
partners of the local limited partnerships are not affiliated with the
Partnership or NAPICO. Accordingly, the Partnership's initial consideration
of the requirements of FASB Interpretation No. 46 (Revised December 2003),
Consolidation of Variable Interest Entities (FIN 46R) was based primarily
on documents relating to the formation of local limited partnerships and
financial information available as of December 31, 2003 and 2004. There may
be other facts and circumstances related to the Partnership's involvement
with the local limited partnerships that might be relevant in making
determinations required by FIN 46R; however, the Partnership necessarily
based its determination upon those written documents and other information
currently available to the Partnership.
The Partnership's determination that the 15 local limited partnerships are
variable interest entities ("VIE") was made based on consideration of
paragraphs 5, 9 and 10 of FIN 46R. The Partnership specifically determined
that twelve of the local limited partnerships are VIEs based on paragraph
5(b)(1) and that three of the local limited partnerships are VIE's based on
paragraphs 5(a), 9 and 10.
With respect to the local limited partnerships that were determined to be
VIEs under paragraph 5(b)(1), the group of equity holders at risk was
comprised only of its limited partners (the group that contributed the
capital necessary to fund the acquisition of properties owned by the local
limited partnerships). The general partners were not considered to have
equity at risk because their capital contributions were insignificant.
Based on the terms of the related limited partnership agreements, the
limited partners were not deemed to have the right to make decisions that
have a significant effect on the operations or success of the local limited
partnership. Therefore, these local limited partnerships were determined to
be VIEs and no further evaluation under paragraph 5 was necessary.
With respect to the local limited partnerships that were determined to be
VIEs under paragraphs 5(a), 9 and 10 the Partnership determined based on
review of the audited financial statements of the local limited partnership
and other available financial information that these local limited
partnerships had insufficient equity investment at risk to permit the local
limited partnerships to finance their activities. Accordingly, these local
limited partnerships were determined to be VIEs.
The Partnership made its determination of the primary beneficiary of the
local limited partnerships identified as VIEs based on a qualitative
analysis with reference to paragraphs 16 and 17 of FIN 46R.
Paragraph 16 of FIN 46R states, in part, "For purposes of determining
whether it is the primary beneficiary of a variable interest entity, an
enterprise with a variable interest shall treat variable interests in that
same entity held by its related parties as its own interests. For purposes
of this Interpretation, the term related parties includes those parties
identified in FASB Statement No. 57, Related Party Disclosures, and certain
other parties that are acting as de facto agents or de facto principals of
the variable interest holder." Paragraph 16(d) of FIN 46R further provides
that de facto agents of an enterprise include "A party that has (1) an
agreement that it cannot sell, transfer, or encumber its interest in the
entity without the prior approval of the enterprise...The right of prior
approval creates a de facto agency relationship only if that right could
constrain the others party's ability to manage the economic risks or
realize the economic rewards from its interests in a variable interest
entity through the sale, transfer, or encumbrance of those interests."
With respect to the local limited partnerships identified as VIEs, a
provision of each of the partnership agreements prohibits the general
partner from selling, assigning, transferring, mortgaging, pledging, or
otherwise encumbering or disposing of its interest in the local limited
partnership for which it serves as the general partner. Accordingly, in
order for the general partner to take any of these actions, a modification
of the local limited partnership agreement would be necessary and such
modification would require written consent or vote of a majority interest
of the general partner and the limited partner, voting as one class, in
proportion to ownership interest. Another provision of each of the
partnership agreements for the local limited partnerships prohibits any
limited partner from assigning in whole or any part of its interest in a
local limited partnership unless the limited partner first receives consent
of the general partner of the local limited partnership (which consent may
be withheld at the sole discretion of the general partner). These
provisions of the partnership agreements establish de facto agency
relationships, as contemplated in paragraph 16(d) of FIN 46R, between the
Partnership, as limited partner in the local limited partnerships, and the
respective general partners of the local limited partnerships.
Having determined under paragraph 16 that the Partnership and the
respective general partners of the local limited partnerships are a related
party group for purposes of FIN 46R, the Partnership considered the
guidance in paragraph 17 of FIN 46R to identify the primary beneficiary of
each local limited partnership. Paragraph 17 of FIN 46R states, "If two or
more related parties (including the de facto agents described in paragraph
16) hold variable interests in the same variable interest entity, and the
aggregate variable interest held by those parties would, if held by a
single party, identify that party as the primary beneficiary, then the
party, within the related party group, that is most closely associated with
the variable interest entity is the primary beneficiary". The Partnership
believes that the variable interests held by the related party group,
consisting of the Partnership and the general partners, would, if held by a
single party, identify that party as the primary beneficiary. Accordingly,
the Partnership believes that based on a qualitative evaluation, that a
party within the related party group must be the primary beneficiary.
Paragraph 17 of FIN 46R goes on to state "the determination of which party
within the related party group is most closely associated with the variable
interest entity requires judgment and shall be based on an analysis of all
relevant facts and circumstances, including:
a. The existence of a principal-agency relationship between parties
within the related party group
b. The relationship and significance of the activities of the
variable interest entity to the various parties within the
related party group
c. A party's exposure to the expected losses of the variable interest
entity
d. The design of the variable interest entity."
The Partnership believes that in the application of paragraph 17 of
FIN 46R, the factors listed need to be considered together in
conjunction with the structure of the local limited partnership and
how the Partnership believes other entities would view the role of
the general partner and the limited partner (i.e. the Partnership).
The Partnership's consideration of the requirements of paragraph 17
of FIN 46 revealed factors that individually could identify either
the general partner or the Partnership as the party with the
characteristics most closely associated with the respective local
limited partnerships.
Ultimately, as discussed below, the Partnership concluded that the
general partner is the party within the related party group, that has
the characteristics most closely associated with the local limited
partnerships. Factors considered most relevant include:
o Although the de facto agency relationship that was identified in connection
with paragraph 16 of FIN 46R does not clearly indicate which party is the
principal or agent, the Partnership believes the general partner has
characteristics that are commonly associated with the principal. In this
regard, the Partnership noted that the general partner is the party an
outside entity would contact regarding a local limited partnership matter.
For example, the United States Department of Housing and Urban Development,
or one of its agencies, ("HUD"), is the outside entity with the most direct
contact and or communication with the local limited partnerships due to the
interest and tenant subsidies and mortgage insurance that exist at the
local limited partnership level. In all instances HUD contacts the general
partner with respect to matters involving the local limited partnership and
the general partner acts with authority in addressing those matters.
o The Partnership noted that each general partner's relationship with the
local limited partnerships involves the following significant activities
related to its rights and obligations under the related limited partnership
agreements:
o The general partner shall manage and conduct the business of the local
limited partnership;
o Employees of the general partner (or its affiliates) are actively involved
in managing the operations of the local limited partnerships
o The general partner has the obligation to fund any recourse obligations of
the local limited partnership
o The general partner is authorized to develop land acquired by the local
limited partnership with off-site and on-site improvements, and to
construct, rehabilitate, maintain, operate and manage the housing units and
other facilities of the respective local limited partnership
o The general partner is authorized to borrow funds, execute and issue
mortgage notes and other evidences of indebtedness
o The general partner is authorized to apply for and obtain from the
respective government agency, contracts for leasing, interest subsidies,
tax abatement and tax limitation, as well as other supplemental payments
and subsidies
o The general partner shall promptly take any and all action which may be
necessary or appropriate to perfect and maintain the local limited
partnership, as a limited partnership under state law, and to develop,
maintain, and operate the respective local limited partnerships in
accordance with provisions of the local limited partnership agreement and
applicable Federal, state and local laws and regulations
o The general partner shall cause the local limited partnership to obtain and
maintain at all times, insurance in such amounts and at terms customary for
a project similar to the local limited partnership
o The general partner is responsible for obtaining a management agent for the
respective local limited partnership
o In addition, the local limited partnership agreements each state that
the Partnership, as limited partner, shall not take part in the
management of the local limited partnership's business or transact any
business for the local limited partnership, nor have any power to sign
for or to bind the local limited partnership or to subject the local
limited partnership to any liability or obligation.
These factors strongly indicate that the general partner is the party
most closely associated with the local limited partnerships.
Although the Partnership has not performed a quantitative analysis to
determine the relative exposures