Investments in Equity Affiliates

12 Months Ended

Dec. 31, 2020

Investments in Equity Affiliates

Investments in Equity Affiliates

Note 8 —Investments in Equity Affiliates

We account for all investments in equity affiliates under the equity method. A summary of our investments in equity affiliates is as follows (in thousands):

					UPB of Loans to
	Investments in Equity Affiliates at				Equity Affiliates at
Equity Affiliates	December 31, 2020		December 31, 2019		December 31, 2020
Arbor Residential Investor LLC	$	59,150	$	26,520	$	—
AMAC Holdings III LLC		10,308		10,520		—
North Vermont Avenue		2,496		2,440		—
Lightstone Value Plus REIT L.P.		1,895		1,895		—
JT Prime		425		425		—
West Shore Café		—		—		1,687
Lexford Portfolio		—		—		—
East River Portfolio		—		—		—
Total	$	74,274	$	41,800	$	1,687

Arbor Residential Investor LLC. In 2015, we invested $9.6 million for a 50% interest in Arbor Residential Investor LLC (“ARI”), with our former manager (ACM) holding the remaining 50%. ARI was formed to hold a 50% interest in Wakefield Investment Holdings LLC (“Wakefield”), an entity that was formed with a third party to hold a controlling interest (65)% in a residential mortgage banking business. ARI has no other assets, liabilities or activity other than its investment in Wakefield. At December 31, 2020, our indirect interest in the residential mortgage banking business was 16.3%. We account for our ownership interest in ARI under the equity method of accounting and ARI accounts for its ownership interest in Wakefield under the equity method of accounting. During 2020, 2019 and 2018, we recorded income of $75.7 million, $7.2 million and $0.7 million, respectively, to income from equity affiliates in the consolidated statements of income, and during 2020, we received $43.2 million in cash distributions from this investment, which were classified as a return on capital. During 2018, we made a $2.4 million payment for our proportionate share of the litigation settlement, which was distributed back to us by our equity affiliate. Because of the significance of the operating results of this investment in 2020, we have included the audited financial statements of Wakefield in this report.

Subsequent Event. In January 2021, an equity investor in the underlying residential mortgage banking business exercised their right to purchase an additional interest in this investment, which decreased our indirect interest to 12.3%.

AMAC Holdings III LLC (“AMAC III”). In 2019, we committed to a $30.0 million investment (of which $11.7 million was funded as of December 31, 2020) for an 18% interest in a multifamily-focused commercial real estate investment fund that is sponsored and managed by our chief executive officer and one of his immediate family members. During 2020 and 2019, we received cash distributions from this investment totaling $0.1 million and $0.2 million, respectively, which were classified as a return of capital. The loss associated with this investment for 2020 was $0.9 million and the operating results for 2019 were de minimis.

North Vermont Avenue. In 2019, we invested $2.4 million for an initial 85% noncontrolling interest in a joint venture that acquired three parcels of land, which currently has three residential structures, a commercial structure and a parking lot. The joint venture intends to tear down the existing structures and construct a new 202 unit multifamily complex with ground floor retail. Operating results from this investment were de minimis for all periods presented.

Lightstone Value Plus REIT L.P. / JT Prime. We own a $1.9 million interest in an unconsolidated joint venture that holds common operating partnership units of Lightstone Value Plus REIT L.P. (“Lightstone”). We also own a 50% noncontrolling interest in an unconsolidated joint venture, JT Prime, which holds common operating partnership units of Lightstone at a carrying value of $0.4 million. Operating results from these investments were de minimis for all periods presented.

West Shore Café. We own a 50% noncontrolling interest in the West Shore Lake Café, a restaurant/inn lakefront property in Lake Tahoe, California. We provided a $1.7 million first mortgage loan to an affiliated entity to acquire property adjacent to the original property, which is scheduled to mature in September 2025 and bears interest at LIBOR plus 4.0%. During 2018, we determined that this investment exhibited indicators of impairment and, as a result of an impairment analysis performed; we recorded an other-than-temporary impairment of $2.2 million for the full carrying amount of this investment, which was recorded in income from equity affiliates in the consolidated statements of income. Also during 2018, we recorded a provision for loan loss of $1.7 million, fully reserving the first mortgage loan.

Lexford Portfolio. We own a $44,000 noncontrolling equity interest in Lexford, a portfolio of multifamily assets. In 2020, 2019 and 2018, we received distributions from this investment and recognized income totaling $1.1 million, $3.5 million and $2.5 million, net of expenses, respectively. As a result of COVID-19, Lexford has temporarily suspended paying distributions to its equity holders.

East River Portfolio. We invested $0.1 million for a 5% interest in a joint venture that owns two multifamily properties. The joint venture is comprised of a consortium of investors (which includes, among other unaffiliated investors, certain of our officers, our chief executive officer and certain other related parties) who together own an interest of 95%. Operating results from this investment were de minimis for all periods presented.

See Note 19 for details of certain investments described above.