REAL ESTATE PARTNERS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP)

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REAL ESTATE PARTNERS LIMITED

(A CALIFORNIA LIMITED PARTNERSHIP)

INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS

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REAL ESTATE PARTNERS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP)

TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS' REPORT 1

FINANCIAL STATEMENTS:

Balance Sheets, December 31, 1999 and 1998 2

Statements of Operations, for the Years Ended

December 31, 1999 and 1998 3

Statements of Partners' Equity, for the Years Ended

December 31, 1999 and 1998 4

Statements of Cash Flows

for the Years Ended December 31, 1999 and 1998 5

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INDEPENDENT AUDITORS' REPORT

To the Partners of

Real Estate Partners Limited (A California limited partnership)

We have audited the accompanying balance sheets of Real Estate Partners Limited (a California limited partnership) as of December 31, 1999 and 1998, and the related statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The investments in these limited partnerships represent $1,571,414 and $1,611,414 of total assets as of December 31, 1999 and 1998, respectively, and the equity in income of these limited partnerships represents $15,899 of the total net income (loss) of the Partnership for the year ended December 31, 1998, $0 for 1998, and represent a substantial portion of the investee information in Note 2. The financial statements of these limited partnerships were audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Partners Limited as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

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1999 1998 INVESTMENT IN AND ADVANCES TO

LIMITED PARTNERSHIPS $ 1,463,414 $ 1,571,414

CASH AND CASH EQUIVALENTS 331,468 463,231 CASH DUE FROM ESCROW - 40,000 DUE FROM GENERAL PARTNER AND

AFFILIATED PARTNERSHIP 42,189 80,576 $ 1,837,071 $ 2,155,221

LIABILITIES AND PARTNERS' EQUITY

ACCOUNTS PAYABLE $ 28,937 $ 2,912

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)

PARTNERS' EQUITY 1,808,134 2,152,309

$ 1,837,071 $ 2,155,221

The accompanying notes are an integral part of these financial statements. 2

ASSETS

REAL ESTATE PARTNERS LIMITED

(a California limited partnership)

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1999 1998 REVENUE:

Interest income $ 9,901 $ 27,702

OPERATING EXPENSES:

Management fees 40,395 62,992

Legal and accounting 27,224 16,664

Other 9,238 71,836

76,857

151,492

LOSS FROM OPERATIONS (66,956) (123,790)

GAIN ON SALE OF LIMITED PARTNERSHIP INTEREST - 12,637

DISTRIBUTIONS RECOGNIZED AS INCOME 40,994 40,647

EQUITY IN INCOME (LOSS) OF LIMITED PARTNERSHIPS 21,193 (40,000)

NET LOSS $ (4,769) $ (110,506)

NET LOSS PER LIMITED PARTNER UNIT $ (1) $ (34)

STATEMENTS OF OPERATIONS

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General Limited

Partners Partners Total PARTNER UNITS,

December 31, 1999 - 3,255 3,255

PARTNERS' EQUITY

Balance, January 1, 1998 $ 7,971 $ 2,254,844 $ 2,262,815

Net loss for 1998 (1,105) (109,401) (110,506)

Balance, December 31, 1998 6,866 2,145,443 2,152,309

Distributions to partners (3,400) (336,006) (339,406)

Net loss for 1999 (48) (4,721) (4,769)

Balance, December 31, 1999 $ 3,418 $ 1,804,716 $ 1,808,134

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 REAL ESTATE PARTNERS LIMITED

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1999 1998

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ (4,769) $ (110,506)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Gain on sale of limited partnership interest - (12,637) Decrease (increase) in fees and expenses refundable

from affiliate and general partner 38,387 (80,576) Equity in (income) loss of limited partnerships (21,193) 40,000 Increase (decrease) in accounts payable 26,025 (1,404) Net cash provided by (used in) operating activities 38,450 (165,123)

CASH FLOWS FROM INVESTING ACTIVITIES:

Collection of advances to limited partnership 108,000 -Release from escrow 40,000 -Distributions recognized as a return of capital 21,193 -Cost related to sale of partnership interest - (27,363) Net cash provided by (used in) investing activities 169,193 (27,363)

CASH FLOWS FROM FINANCING ACTIVITIES:

Distributions to partners (339,406)

-NET DECREASE IN CASH

AND CASH EQUIVALENTS (131,763) (192,486)

CASH AND CASH EQUIVALENTS, beginning of year 463,231 655,717

CASH AND CASH EQUIVALENTS, end of year $ 331,468 $ 463,231

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STATEMENTS OF CASH FLOWS

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REAL ESTATE PARTNERS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization

Real Estate Partners Limited (the "Partnership") was formed under the California Limited Partnership Act on September 15, 1977. The Partnership was formed to invest in other limited partnerships which provide tax benefits through ownership of federal, state and local government assisted housing projects. The general partners are National Partnership Investments Corp. (the "Corporate General Partner" or "NAPICO") and Charles H. Boxenbaum. The Partnership issued 3,255 units of limited partner interests under a private placement. The general partners have a 1 percent interest in profits and losses of the Partnership and the limited partners have the remaining 99 percent of the interest in proportion to their respective investments.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation (“CIC”), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the “Operating Partnership”), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO.

The Partnership shall be dissolved only upon the expiration of 53 complete calendar years (December 31, 2030) from the date of the formation of the Partnership or the occurrence of various other events as specified in the terms of the Partnership agreement.

Upon total or partial liquidation of the Partnership and distribution of the proceeds, NAPICO will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive an amount from the sale of the project(s) or project interest(s) sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The liquidation fees may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions.

Estimates and Assumptions

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DECEMBER 31, 1999 AND 1998

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include investments in money market mutual funds and/or U.S. Treasury Bills with maturities of three months or less.

Method Of Accounting For Investment In Limited Partnerships

The investment in limited partnerships is accounted for under the equity method. Investment in limited partnership balances are not recorded in excess of their net realizable value. Acquisition and selection fees and other costs related to the acquisition of the projects have been capitalized as a part of the investment account.

Net Loss Per Limited Partner Unit

Net loss per limited partner unit was computed on the basis of the actual number of limited partner units outstanding during 1999 and 1998, which was 3,255.

NOTE 2 - INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIPS

The Partnership held limited partnership interests in three limited partnerships as of December 31, 1999 and 1998. The limited partnerships own and operate multi-family residential rental properties. The mortgage loans on these projects are insured by various governmental agencies.

On December 30, 1998, the Partnership sold its interest in one limited partnership to the Operating Partnership. The sale resulted in cash proceeds to the Partnership of $40,000 and a net gain of $12,637, after deducting selling costs. The cash proceeds were held in an escrow account at December 31, 1998 and released in 1999.

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DECEMBER 31, 1999 AND 1998

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NOTE 2 - INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIPS (Continued) The Partnership, as a limited partner, is allocated between zero and 99 percent of the profits and losses in the limited partnerships.

On August 11, 1995, Stanton-Wellington Associates (ASWA@), one of the limited partnerships in which the Partnership originally invested, received a notice of default from HUD on its mortgage obligations due to regulatory and financial difficulties. SWA subsequently filed for Chapter 11 bankruptcy. In 1998, the general partner of the Partnership agreed to assign the Partnership=s interest in SWA to the local general partner of SWA. The Partnership=s withdrawal from SWA resulted in a taxable gain to the Partnership in 1998. For financial reporting purposes, the Partnership=s remaining investment in SWA of $148,000 was written down to the $108,000 collected in 1999.

Equity in losses of the limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account, including future commitments, is reduced to zero are not recognized. The cumulative amount of unrecognized losses from the limited partnerships was approximately $448,000 and $447,000 as of December 31, 1999 and 1998, respectively.

Additional losses will not be recognized until the limited partnerships generate profits. These profits, if any, will first be offset against the cumulative unrecognized losses and will be reflected in income only when the unrecognized losses have been fully absorbed. Income recognition is evaluated and may be suspended when the limited partnership is required to deposit net income into restricted reserves. Cash distributions from the limited partnerships are accounted for as a return of capital until the investment balance is reduced to zero. Subsequent distributions received are recognized as income.

The following is a summary of the investment in and advances to limited partnerships and reconciliation to the limited partnerships accounts as of December 31, 1999 and 1998:

1999 1998

Investment balance, beginning of year $1,571,414 $1,611,414

Equity in income (loss) of limited partnerships 21,193 (40,000)

Collection of advances to limited partnership

Stanton-Wellington Associates (108,000) -

Cash distributions from limited partnership

recognized as a return of capital (21,193) -

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DECEMBER 31, 1999 AND 1998

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NOTE 2 - INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIPS (Continued) Selected financial information from the combined financial statements at December 31, 1999 and 1998 of the limited partnerships in which the Partnership has invested (except for one partnership which represents approximately 68% and 65% of the total assets in the selected financial information at December 31, 1999 and 1998, respectively, and has a year end of May 31) are as follows (1998 balance sheets exclude the accounts of the Partnership interest sold):

Balance Sheets

1999 1998 (in thousands)

Land and buildings, net $ 1,974 $ 2,121

Total assets $ 5,877 $ 5,761

Mortgages payable $ 5,508 $ 5,774

Total liabilities $ 5,906 $ 6,092

Equity of Real Estate Partners Limited $ 750 $ 433

Equity deficiency of other partners $ (779) $ (764)

Statements of Operations

1999 1998 (in thousands)

Total revenue $ 2,193 $ 2,834

Interest expense $ 430 $ 568

Depreciation and amortization $ 164 $ 203

Total expenses $ 1,783 $ 2,253

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DECEMBER 31, 1999 AND 1998

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NOTE 2 - INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIPS (Continued) The Partnership's investment in limited partnerships, as shown in the accompanying balance sheets at December 31, 1999 and 1998 is greater than the Partnership's equity deficiency as shown in the limited partnerships' combined financial statements at that date. This difference is due primarily to cumulative unrecognized losses of certain limited partnerships, costs capitalized to the investment account and cumulative distributions recognized as income.

A NAPICO affiliate is a general partner in one of the limited partnerships included above as of December 31, 1999 and 1998. Another related affiliate receives a fee for managing the rental operations of this limited partnership. The following sets forth the significant operating data for this partnership: 1999 1998 (in thousands) Total assets $ 1,275 $ 1,344 Total liabilities $ 3,395 $ 3,406

Equity (deficiency) of Real Estate Partners Limited $(1,153) $(1,112)

Equity (deficiency) of other partners $ (967) $ (950)

Cash distributions to Real Estate Partners Limited $ 70 $ 41

Total revenue $ 812 $ 804

Net income $ 30 $ 119

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DECEMBER 31, 1999 AND 1998

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NOTE 2 - INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIPS (Continued) are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ( AMAHRAA@), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.

On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 2000.

When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure their mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.

As a result of the foregoing, the Partnership conducted an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. Expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs amounted to $61,404 for the year ended December 31, 1998, and is included in other expenses. NOTE 3 - FEES AND EXPENSES DUE GENERAL PARTNER

An annual management fee equal to 2 of 1 percent of the original invested assets (reduced by the assets of interests disposed) including the Partnership's allocable share of the mortgages of the limited partnerships, is to be paid to NAPICO.

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DECEMBER 31, 1999 AND 1998

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NOTE 3 - FEES AND EXPENSES DUE GENERAL PARTNER (Continued)

At December 31, 1999, the Partnership is owed $42,189 ($33,200 as of December 31, 1998) for fees refundable from the Corporate General Partner. This amount will be collected in 2000. In addition, $47,376 of expenses refundable from an affiliate was collected during 1999.

NOTE 4 - CONTINGENCIES

NAPICO is a plaintiff in various lawsuits and has also been named as defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and NAPICO, the claims are not expected to result in any material liability to the Partnership.

NOTE 5 - INCOME TAXES