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Part II – Item 5 – Market for the Registrant’s “Limited Partnership Units,” Related Unitholder Matters and Issuer Purchases of Equity Securities
Part III – Item 11 –Executive Compensation
Part III – Item 13 – Certain Relationships and Related Transactions, and Director Independence”
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REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
Index to Form 10-K
December 31, 2011
Part I
Page No.
Item 1
– Business
4
Item 1A
– Risk Factors (Not included as smaller reporting company)
11
Item 1B
– Unresolved Staff Comments (Not applicable)
Item 2
– Properties
Item 3
– Legal Proceedings
12
Item 4
– Mine Safety Disclosures
Part II
Item 5
– Market for the Registrant’s “Limited Partnership Units,” Related Unitholder Matters and
Issuer Purchases of Equity Securities
Item 6
– Selected Consolidated Financial Data (Not included as smaller reporting company)
Item 7
– Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
– Quantitative and Qualitative Disclosures About Market Risk (Not included as smaller reporting company)
19
Item 8
– Consolidated Financial Statements and Supplementary Data
Item 9
– Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
60
Item 9A
– Controls and Procedures
Item 9B
– Other Information
Part III
Item 10
– Directors, Executive Officers and Corporate Governance
61
Item 11
– Executive Compensation
62
Item 12
– Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters
63
Item 13
– Certain Relationships and Related Transactions, and Director Independence
Item 14
– Principal Accountant Fees & Services
Part IV
Item 15
– Exhibits and Financial Statement Schedules
64
Signatures
65
Certifications
67
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Forward-Looking Statements
Certain statements in this Report on Form 10-K which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, estimates of future limited partner withdrawals, 2012 annualized yield estimates, additional foreclosures in 2012, expectations regarding the level of loan delinquencies, plans to develop certain properties, beliefs relating to the impact on the partnership from current economic conditions and trends in the financial and credit markets, expectations as to when liquidations will resume, beliefs regarding the partnership’s ability to recover its investment in certain properties, beliefs regarding the effect of borrower foreclosures on liquidity, the use of excess cash flow and the intention not to sell the partnership’s loan portfolio. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, the impact of competition and competitive pricing and downturns in the real estate markets in which the partnership has made loans. All forward-looking statements and reasons why results may differ included in this Form 10-K are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.
Item 1 – Business
Overview
Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993, to engage in the business of mortgage lending, primarily loans secured by deeds of trusts on California real estate. Loans are arranged and serviced by Redwood Mortgage Corp., a California corporation (“RMC”). As of December 31, 2011, 8,063 limited partners had an aggregate capital balance of $204,137,000. The address of the partnership and the general partners is 900 Veterans Blvd., Suite 500, Redwood City, California 94063.
The general partners are solely responsible for managing the partnership business, subject to the rights of the limited partners to vote on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. A majority of the outstanding limited partnership interests may, without the consent of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership and (iv) remove or replace one or all of the general partners. The approval of the majority of limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal.
The general partners of the partnership are RMC and its wholly-owned subsidiary, Gymno LLC, a California limited liability company originally incorporated as Gymno Corporation (“Gymno”), and Michael R. Burwell (“Burwell”), an individual. Prior to September 30, 2011, The Redwood Group, Ltd., a California corporation (“Redwood Group”), owned all of the outstanding shares of RMC, and, as of September 30, 2011, acquired all of the outstanding shares of Gymno Corporation in exchange for shares of Redwood Group’s common stock. Redwood Group then merged with and into its wholly-owned subsidiary RMC, which resulted in Gymno becoming a wholly-owned subsidiary of RMC. Gymno Corporation converted into Gymno LLC, a California limited liability company, with Burwell, the majority owner and president of RMC, as its manager.
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Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after 1% of the profits and losses are allocated to and among the general partners. The limited partners elect, at the time of their subscription for units, to (a) receive a monthly, quarterly or annual cash distributions of their pro-rata share of profits or (b) have profits credited to their capital accounts and used to invest in partnership activities. The election to receive cash distributions is irrevocable. Subject to certain limitations, a compounding investor may subsequently change his election. Monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Income taxes – federal and state – are the obligation of the partners, if and when income taxes apply, other than for the minimum annual California franchise tax paid by the partnership. Investors should not expect the partnership to provide tax benefits of the type commonly associated with limited partnership tax shelter investments.
There are substantial restrictions on transferability of units and accordingly an investment in the partnership is non-liquid. Limited partners have no right to withdraw from the partnership or to obtain the return of their capital account for at least one year from the date of purchase of partnership units. In order to provide a certain degree of liquidity to the limited partners after the one-year period, limited partners may withdraw all or part of their capital accounts from the partnership in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable to the amount withdrawn as stated in the notice of withdrawal and will be deducted from the capital account. Once a limited partner has been in the partnership for the minimum five-year period, no penalty is imposed if the withdrawal is made in twenty quarterly installments or longer. Notwithstanding the minimum withdrawal period, the general partners, at their discretion, may liquidate all or part of a limited partner’s capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to when such sums could have been withdrawn without penalty.
The partnership does not establish a reserve from which to fund withdrawals and, accordingly, the partnership’s capacity to return a limited partner’s capital account is restricted to the availability of partnership cash flow. Furthermore, no more than 20% of the total limited partners’ capital accounts outstanding at the beginning of any year may be liquidated during any calendar year.
In March 2009, in response to economic conditions then existing, as to the financial-market crisis, the dysfunction of the credit markets, the distress in the real estate markets, and the expected cash needs of the partnership, the partnership suspended capital liquidations and is not accepting new liquidation requests until further notice. The partnership entered into an amended and restated loan agreement (dated October 2010) which includes additional restrictions on liquidations and distributions of partners’ capital. The bank loan is scheduled to be paid off in June 2012.
Principal Investment Objectives and General Standards for Mortgage Loans
The partnership’s primary objectives are to make investments which will:
(i)
provide the maximum possible cash returns;
(ii)
preserve and protect the partners’ capital; and
(iii)
generate and distribute cash flow from operations/investments to the partners
The partnership is engaged in the business of making loans with first and second deeds of trust on real property located in California, including:
single-family property includes owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes,