Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS.
The Registrant, Dean Witter Realty Income Partnership III, L.P. (the "Partnership"), is a limited partnership formed in August 1985 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing primarily in income-producing office, industrial and retail properties.
The Managing General Partner of the Partnership is Dean Witter Realty Income Properties III Inc. (the "Managing General Partner"), a Delaware corporation which is wholly owned by Dean Witter Realty Inc. The Associate General Partner is Dean Witter Realty Income Associates III, L.P. (the "Associate General Partner"), a Delaware limited partnership, the general partner of which is Dean Witter Realty Income Properties III Inc., a wholly-owned subsidiary of the Managing General Partner. The Managing General Partner manages and controls all aspects of the business of the Partnership. The terms of transactions between the Partnership and its affiliates are set forth in Item 13 below.
The Partnership issued 534,020 units of limited partnership interest (the "Units") with gross proceeds from the offering of $267,010,000. The offering has been terminated and no additional Units will be sold.
The proceeds from the offering were used to make equity investments in six office properties and five retail properties which have been acquired without mortgage debt. The properties are described below in Item 2, the Operations section of Item 7 and footnotes 4 and 5 to the consolidated financial statements included in Item 8.
The Partnership considers its business to include one industry segment, investment in real property.
The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. In recent years, an oversupply condition has persisted nationally and many markets have experienced high vacancy rates. Currently, many real estate markets are beginning to stabilize, primarily due to the continued absence of significant construction activity; however, the recovery is expected to be slow. Further information regarding competition in the markets where the Partnership's properties are located is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Partnership has no employees.
All of the Partnership's business is conducted in the United States.
ITEM 2.



ITEM 2. PROPERTIES.
The Partnership owns directly or through a partnership interest the following eleven property interests, none of which is encumbered by indebtedness. Generally, the leases pertaining to the properties provide for pass-throughs to the tenants of their pro-rata share of certain operating expenses.
1. The remaining general partnership ("GP") interest is held by the Managing General Partner.
2. The remaining GP interests are held by Dean Witter Realty Income Partnership II, L.P. (14.8%) and Dean Witter Realty Income Partnership IV, L.P. (40.6%). The total cost of the property was $51.8 million
3. The remaining GP interest is held by Dean Witter Realty Income Partnership IV, L.P. The total cost of the property was $57.6 million.
4. The remaining GP interests are held by Dean Witter Realty Income Partnership IV, L.P. (41.2%) and an affiliate of the Managing General Partner (32.1%). The total cost of the property was $1
Each property has been built with on-site parking facilities.
An affiliate of the Partnership is the property manager for Laurel Lakes Centre, Taxter Corporate Park, Hall Road Crossing, Delta Center, Fashion Corners and Westland Crossing and the co-property manager for the Glenhardie buildings and five buildings at the Chesterbrook Corporate Center.
Further information relating to the Partnership's properties is included in Item 7 below and footnotes 4 and 5 to the consolidated financial statements included in Item 8 below.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
Neither the Partnership nor any of its properties is subject to any material pending legal proceedings.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year to a vote of Unit holders.
PART II.
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
An established public trading market for the Units does not exist, and it is not anticipated that such a market will develop in the future. Accordingly, information as to the market value of a Unit at any given date is not available. However, the Partnership does allow its limited partners (the "Limited Partners") to transfer their Units if a suitable buyer can be located.
As of October 31, 1994, there were 38,732 holders of limited partnership interests.
The Partnership is a limited partnership and, accordingly, does not pay dividends. It does, however, make quarterly distributions of cash to its partners. Pursuant to the partnership agreement, distributable cash, as defined, is paid 90% to the Limited Partners and 10% to the general partners (the "General Partners").
During the year ended October 31, 1994, the Partnership paid cash distributions aggregating $11,867,112, with $10,680,400 distributed to the Limited Partners and $1,186,712 to the General Partners. The distributions aggregated $20.00 per Unit to the Limited Partners.
On November 29, 1994, the Partnership paid the fourth quarter distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $2,966,778, with $2,670,100 distributed to the Limited Partners and $296,678 to the General Partners.
The Partnership anticipates making regular distributions to its partners in the future.
Sale or financing proceeds will be distributed, to the extent available, first, to each Limited Partner, until there has been a return of the Limited Partner's capital contribution plus cumulative distributions of distributable cash and sale or refinancing proceeds in an amount sufficient to provide a 9% cumulative annual return on the Limited Partner's adjusted capital contribution. Thereafter, any remaining sale or financing proceeds will be distributed 85% to the Limited Partners and 15% to the General Partners after the Managing General Partner receives a brokerage fee of up to 3% of the selling price of any equity investment.
Taxable income generally will be allocated in the same proportions as distributions of distributable cash or sale or financing proceeds. In the event there is no distributable cash or sale or financing proceeds, taxable income will be allocated 90% to the Limited Partners and 10% to the General Partners. Any tax loss will be allocated 90% to the Limited Partners and 10% to the General Partners.
ITEM 7.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership raised $267,010,000 in a public offering of 534,020 units which was terminated in 1987. The Partnership has no plans to raise additional capital.
The Partnership has purchased eight properties and has made three investments in partnerships on an all-cash basis. The Partnership's acquisition program has been completed. No additional investments are planned.
Many real estate markets are stabilizing, primarily due to the continued absence of significant construction activity. However, the recovery of the office market will be slow, because tenant demand is weak, as a result of continued downsizing by many major corporations. Increased consumer spending has helped the retail property market although increased interest rates have slowed spending.
Real estate markets are generally divided into sub-markets by geographic location and property type. Not all sub-markets have been affected equally by the above factors.
The Partnership's liquidity depends in part upon cash flow from operations of its properties, expenditures for tenant improvements and leasing commissions in connection with the leasing of vacant space. In 1994, all of the Partnership's properties and joint venture interests generated positive cash flow from operations, and it is anticipated that they will continue to do so.
In 1994, Partnership cash flow from operations and distributions received from its joint venture investment exceeded distributions to investors and capital expenditures. The Partnership expects that such cash flows will be sufficient to fund capital expenditures and distributions to investors in 1995. The Partnership expects to increase the cash distribution rate from 4.0% to 4.75% per Unit beginning with the cash distribution for the first fiscal quarter of 1995.
Also, in 1994, the Partnership incurred approximately $2,605,000 of tenant improvements and leasing commissions, primarily relating to the Glenhardie and Holcomb Woods properties. The Partnership also invested approximately $1,234,000, representing its share of building improvements, tenant improvements and leasing commissions at the Taxter and Chesterbrook joint ventures.
The Vanguard Group, the largest tenant in the Chesterbrook joint venture, vacated its space in two of the buildings in November 1993 and October 1994 and will vacate its remaining space upon the expiration of its leases in November 1995. In September 1994, the Partnership signed leases with two new tenants to fill a significant portion of the space vacated by Vanguard to date. The Partnership's share of capital expenditures which will result from these new leases in 1995 is approximately $777,000. The Partnership expects to incur significant additional capital expenditures in order to attract new tenants to the Holcomb Woods and Glenhardie properties, where there is also significant vacant space.
In fiscal 1993, the Partnership concluded that there was a decline in the value of the Taxter Corporate Park property, and that the decline was other-than-temporary. Accordingly, the general partners of the partnership which owns the property recorded a loss on impairment of its investment in the property of approximately $27.8 million at October 31, 1993. The Partnership's share of this loss, which was included in equity in earnings (losses) of joint ventures was $12,411,356.
On November 29, 1994, the Partnership paid the fourth quarter distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $2,966,778 with $2,670,100 distributed to the Limited Partners and $296,678 to the General Partners.
Operations
Fluctuations in the Partnership's operating results for the year ended October 31, 1994 compared to 1993 and for the year ended October 31, 1993 compared to 1992 are primarily attributable to the following:
The increase in equity in earnings (losses) of joint ventures in 1994 compared to 1993 and the decrease in 1993 compared to 1992 are primarily attributable to the loss incurred in 1993 when the Partnership recorded its share ($12,411,356) of the loss on impairment of the Taxter property. Excluding the 1993 loss, the equity in earnings (losses) of joint ventures decreased by approximately $254,000 in 1994 compared to 1993. This decrease was primarily caused by lower rental income from the Chesterbrook and Taxter joint ventures. These decreases were partially offset by lower depreciation charges from the Taxter joint venture (due to the writedown of the property in 1993).
The decrease in property operating expenses for 1994 compared to 1993 is primarily due to lower real estate taxes incurred at most of the Partnership's properties in 1994 and lower building services costs at the Partnership's office buildings. The increase in property operating expenses in 1993 compared to 1992 was primarily due to write-offs of uncollectible tenant receivables at various properties of $190,000 and higher real estate taxes incurred at the Partnership's retail properties.
A summary of the markets in which the Partnership's office properties are located and the performance of each property is as follows:
The office market in suburban Atlanta, the location of Business Park at Holcomb Woods, is improving; the current vacancy in this market is approximately 16%. During 1994, average occupancy at the property was 76%, and at October 31, 1994, the property was 88% leased to 29 tenants (including one tenant which moved into its space in November 1994). No single tenant occupies more than 15% of the property's space. Leases on approximately 21% and 34% of the property's space are scheduled to expire in 1995 and 1996, respectively.
Chesterbrook Corporate Center is located in Valley Forge, Pennsylvania, a market in which the vacancy rate is approximately 14%. During 1994, average occupancy at the property was 87%, and at October 31, 1994, the property was 90% leased to 20 tenants (including two tenants which moved into their space in December 1994). Vanguard has been vacating its space to move into its own newly-constructed space in this market. This, and other new construction in the Valley Forge area, will cause the office market to deteriorate further. The leases of Philadelphia Electric company, the other major tenant at the property (occupying 25% of the space), expire in 1998. No other significant leases are scheduled to expire in the near future.
Glenhardie Corporate Center III and IV is also located in Valley Forge, Pennsylvania. During 1994, average occupancy at the property was 74% and at October 31, 1994, the property was 80% leased to 21 tenants. No single tenant occupies more than 15% of the property's space. No significant leases are scheduled to expire before 1999.
The office market in Westchester County, New York, the location of Taxter Corporate Park, has experienced a significant decline. The current vacancy level in the Westchester office market is approximately 25%. It is unlikely that this vacant space will be absorbed in the market for several years. However, during 1994, average occupancy at the property was 98%, and at October 31, 1994, the property was 99% leased to 26 tenants. One of the tenants purchased a long-term leasehold interest in approximately 20% of the space at the property. The leases of Fuji Photo Film, the other major tenant (covering 21% of the property's space) expire in 1996. No other significant leases are scheduled to expire in the near future.
The Reston market in Virginia, the location of Tech Park Reston, has a vacancy rate of 12% due to the contraction of the high-tech and defense firms which are the major tenants in the market. The leases with Sprint Communications, the sole tenant, expire in 2003. Sprint has the option to terminate its leases on two of the three buildings beginning in 1997 and 1998.
A summary of the markets in which the Partnership's retail properties are located and the leasing status of each property is as follows:
Laurel Lakes Centre is located in a suburb of Baltimore and Washington, D.C. Retail centers in this market have generally experienced lower net rental rates and, currently, a vacancy rate of approximately 16%. However, the property's design, location and tenant mix has enabled it to maintain an average occupancy rate of 94% in 1994 and retain relatively stable rental rates. At October 31, 1994, the property was 95% leased to 46 tenants (including one tenant which moved into its space in November 1994). The lease of K-Mart (covering approximately 18% of the space) expires in 2005; other leases totaling approximately 10% of the space are scheduled to expire in 1995.
The Partnership owns four shopping centers in Michigan. Sterling Heights, the location of Hall Road Crossing, is currently a strong and expanding market with a vacancy rate of less than 5%. During 1994, average occupancy at the property was 75%, and at October 31, 1994 the property was 95% leased to 16 tenants (including two tenants who moved into their spaces in November 1994). No significant leases are scheduled to expire before 1997. The lease of Gander Mountain (covering approximately 21% of the property's space) expires in 2009.
Saginaw, Michigan, the location of Fashion Corners, has a vacancy rate of approximately 10%. During 1994, and at October 31, 1994, the property was 94% leased to 21 tenants. In the third quarter of 1994, Best Products, which occupies approximately 21% of the property's space and whose lease expires in 2005, emerged from bankruptcy, and is now current on all rental payments. The lease of Best Buy (covering approximately 19% of the space) expires in 2009, and the lease of another tenant (covering approximately 12% of the space) expires in 1996.
A retail center is under construction near Fashion Corners. This center as well as a nearby center may compete with Fashion Corners for larger tenants.
Lansing, Michigan, the location of Delta Center, is a strong and stable market with a vacancy rate of approximately 7%. During 1994, average occupancy at the property was 97%, and at October 31, 1994, the property was 98% leased to 23 tenants. In May 1994, Pet Food Warehouse moved into approximately 15% of the property's space under a sub-lease from Perry Drugs who vacated its space in 1991 but continued to pay rent pursuant to its lease (which expires in 2005). The lease of Service Merchandise (covering approximately 18% of the space) expires in 2006, and the lease of another tenant (covering approximately 13% of the space) expires in 1995.
Westland Crossing is situated outside downtown Detroit and is in an overbuilt market. Several large retailers left their locations during the first quarter of 1994, and the vacancy rate in this market is currently 16%. During 1994, average occupancy at the property was 89%, and at October 31, 1994, the property was 90% leased to 21 tenants (including one tenant who moved into its space in December 1994). Toys R Us owns a 47,800 square foot store at the property. The leases of Marshall's (covering approximately 18% of the space) and Frank's Supercrafts (covering approximately 16% of the space) expire in 1996 and 2006, respectively.
A 110,000 square foot retail center is under construction near Westland Crossing. When complete, this center as well as a nearby center which recently lost a large anchor tenant to the new retail center may compete with Westland Crossing for tenants.
Inflation
Inflation has been consistently low during the periods presented in the financial statements and, as a result, has not had a significant effect on the operations of the Partnership or its properties.
5. Investments in Joint Ventures
Taxter Corporate Park, Westchester County, New York
In 1986, the Partnership purchased a 44.6% partnership interest in the general partnership which owns the property. Affiliates of the Partnership, Dean Witter Realty Income Partnership II, L.P., and Dean Witter Realty Income Partnership IV, L.P., purchased the remaining interests of 14.8% and 40.6%, respectively.
The partners each receive cash flow and profits and losses according to their pro rata shares.
In fiscal 1993, because of continuing weakness in the Westchester County, New York office market, and the likelihood that such weakness would persist for several years, the general partners of the partnership which owns the property concluded that there was a decline in its value and that the decline was other-than-temporary. Accordingly, the partnership which owns the property recorded a loss on impairment of the property of $27,828,152 at October 31, 1993. The Partnership's share of this loss ($12,411,356) was included in equity in earnings (losses) of joint ventures in 1993.
Summarized balance sheet information of the joint venture is as follows:
Tech Park Reston, Reston, Virginia
In 1987, the Partnership purchased a 35% partnership interest in the general partnership which owns the property. The remaining 65% interest in the general partnership is owned by Income Partnership IV, L.P.
The partners receive cash flow and profits and losses according to their pro rata shares.
Summarized balance sheet information of the joint venture is as follows:
Chesterbrook Corporate Center, Valley Forge, Pennsylvania
In 1987, the Partnership, Income Partnership IV, and affiliates of the Managing General Partner acquired 26.7%, 41.2% and 32.1% interests in the general partnership which owns the property.
The partners receive cash flow and profits and losses according to their pro rata shares.
6. Leases
Minimum future rental income under noncancellable operating leases as of October 31, 1994 is as follows:
Year ending October 31: 1995 $12,767,145 1996 10,814,987 1997 9,189,072 1998 8,091,929 1999 7,118,424 Thereafter 37,654,035 Total $ 85,635,592
The Partnership has determined that all leases relating to its properties are operating leases. The terms range from one to twenty-five years, and generally provide for fixed minimum rents with rental escalation and/or expense reimbursement clauses.
7. Related Party Transactions
An affiliate of the Managing General Partner provided property management services for eight properties in 1994 and 1993 and six properties in 1992, as well as for five buildings at the Chesterbrook Corporate Center. The Partnership incurred management fees of $459,128, $449,164 and $429,159 for the years ended October 31, 1994, 1993 and 1992, respectively.
Another affiliate of the Managing General Partner performs administrative functions, processes investor transactions and prepares tax information for the Partnership. The Partnership incurred approximately $761,000 for these services in each of the years ended October 31, 1994, 1993 and 1992.
As of October 31, 1994, the affiliates were owed a total of approximately $138,000 for these services.
8. Subsequent Event
On November 29, 1994, the Partnership paid a cash distribution of $5.00 per Unit to the Limited Partners. The total cash distribution amounted to $2,966,778, with $2,670,100 distributed to the Limited Partners and $296,678 to the General Partners.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership is a limited partnership which has no directors or officers.
The directors and executive officers of the Managing General Partner are as follows:
Position with the Name Managing General Partner
William B. Smith Chairman of the Board of Directors E. Davisson Hardman, Jr. President and Director Lawrence Volpe Controller, Assistant Secretary and Director Ronald T. Carman Secretary and Director
All of the directors have been elected to serve until the next annual meeting of the shareholder of the Managing General Partner or until their successors are elected and qualify. Each of the officers has been elected to serve until his successor is elected and qualifies.
William B. Smith, age 51, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since April 1982.
E. Davisson Hardman, Jr., age 45, is a Managing Director of Dean Witter Realty Inc. and has been with Dean Witter Realty Inc. since April 1982.
Lawrence Volpe, age 47, is a Director and the Controller of Dean Witter Realty Inc. He is a Senior Vice President and Controller of Dean Witter Reynolds Inc., which he joined in 1983.
Ronald T. Carman, age 43, is a Director and the Secretary of Dean Witter Realty Inc. He is a Senior Vice President and Associate General Counsel of Dean Witter Reynolds Inc., which he joined in 1984.
There is no family relationship among any of the foregoing persons.
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive cash distributions, when and as cash distributions are made to the Limited Partners, and a share of taxable income or tax loss. Descriptions of such distributions and allocations are in Item 5 above. The General Partners received cash distributions of $1,186,712, $1,186,712 and $1,854,236 during the years ended October 31, 1994, 1993 and 1992, respectively.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 7 to the Consolidated Financial Statements in Item 8








ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) No person is known to the Partnership to be the beneficial owner of more than five percent of the Units.
(b) The directors of the Managing General Partner and the current and former officers and directors of the Managing General Partner as a group own the following Units as of January 27, 1995:
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As a result of their being partners of a limited partnership which is the Limited Partner of the Associate General Partner, certain current and former officers and directors of the Managing General Partner also own indirect partnership interests in the Partnership. The Partnership Agreement of the Partnership provides that cash distributions and allocations of income and loss to the General Partners be distributed or allocated 50% to the Managing General Partner and 50% to the Associate General Partner. The General Partners' share of cash distributions and income or loss is described in Item 5 above.
All of the outstanding shares of common stock of the Managing General Partner are owned by Dean Witter Realty Inc. ("Realty"), a Delaware corporation which is a wholly-owned subsidiary of Dean Witter, Discover & Co. The general partner of the Associate General Partner is the Managing General Partner. The limited partner of the Associate General Partner is LSA 86 L.P., a Delaware limited partnership. Realty and certain current and former officers and directors of the Managing General Partner are partners of LSA 86 L.P. Additional information with respect to the directors and executive officers and compensation of the Managing General Partner and affiliates is contained in Items 10 and 11 above.
The General Partners and their affiliates were paid certain fees and reimbursed for certain expenses. Information concerning such fees and reimbursements is contained in Note 7 to the Consolidated Financial Statements in Item 8 above.
PART IV.
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
2. Financial Statement Schedules (see Index to Financial Statements filed as part of Item 8 of this Annual Report).
3. Exhibits (3) Amended and Restated Agreement of Limited Partnership dated as of February 11, 1986 set forth in Exhibit A to the Prospectus included in the Registration Statement Number 33-1912 is incorporated herein by reference.
(4) Not applicable.
(9) Not applicable.
(10) Purchase and Sale Agreements for properties purchased were filed as Exhibits to Form 8-K on June 27, 1986, December 29, 1986, December 30, 1986, June 1, 1987, December 7, 1987, and December 15, 1987 and are incorporated herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(18) Not applicable.
(19) Not applicable.
(22) Subsidiaries: Part Six Associates, a Pennsylvania limited partnership. Laurel Vincent Place Associates, a Maryland limited partnership. (23) Not applicable.
(24) Not applicable.
(25) Not applicable.
(28) Not applicable.
(29) Not applicable.
(b) No Forms 8-K were filed by the Partnership during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.