REAL ESTATE HELD FOR INVESTMENT

9 Months Ended

Sep. 30, 2024

As of September 30, 2024, the Company consolidated nine office complexes, encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were 66% occupied. In addition, the Company owned one residential home portfolio consisting of 2,145 residential homes, and one apartment property, containing 317 units, which were 94% and 95% occupied, respectively. The Company also owned one hotel property with 196 rooms, four investments in undeveloped land with approximately 581 developable acres and one office/retail development property. The following table summarizes the Company’s real estate held for investment as of September 30, 2024 and December 31, 2023, respectively (in thousands):


	September 30, 2024		December 31, 2023
Land	$	226,777	$	229,434
Buildings and improvements	833,142		888,964
Tenant origination and absorption costs	11,809		15,423
Total real estate, cost	1,071,728		1,133,821
Accumulated depreciation and amortization	(153,873)		(155,639)
Total real estate held for investment, net	$	917,855	$	978,182

Operating Leases

Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2024, the leases, excluding options to extend, apartment leases and residential home leases, which have terms that are generally one year or less, had remaining terms of up to 15.9 years with a weighted-average remaining term of 3.3 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets totaled $6.3 million and $5.9 million as of September 30, 2024 and December 31, 2023, respectively.

During the three and nine months ended September 30, 2024, the Company recognized deferred rent from tenants of $0.5 million and $0.9 million, net of lease incentive amortization, respectively. During the three and nine months ended September 30, 2023, the Company recognized deferred rent expense of $1.0 million and deferred rent income of $0.5 million, both net of lease incentive amortization, respectively. As of September 30, 2024 and December 31, 2023, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $20.4 million and $19.1 million, respectively, and is included in rents and other receivables in the accompanying consolidated balance sheets. The cumulative deferred rent balance included $2.8 million and $2.5 million of unamortized lease incentives as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, the future minimum rental income from the Company’s office complexes, under non-cancelable operating leases was as follows (in thousands):



October 1, 2024 through December 31, 2024	$	15,100
2025	56,831
2026	45,633
2027	37,339
2028	30,244
Thereafter	69,933
	$	255,080

Geographic Concentration Risk

As of September 30, 2024, the Company’s real estate investments in California and Georgia represented 11.8% and 11.5%, respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California and Georgia real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

Hotel Property

The following table provides detailed information regarding the Company’s hotel revenues during the three and nine months ended September 30, 2024 and 2023 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Hotel revenues:
Room	$	994	$	988	$	5,407	$	5,794
Other	192		207		818		879
Hotel revenues	$	1,186	$	1,195	$	6,225	$	6,673

Contract Liabilities

The Company’s contract liabilities are comprised of: hotel advanced deposits, deferred proceeds received from the buyers of the Park Highlands undeveloped land sales, and value of Park Highlands undeveloped land that was contributed to a master association. As of September 30, 2024 and December 31, 2023, contract liabilities were $17.2 million and $23.8 million, respectively, which are included in other liabilities on the accompanying consolidated balance sheets. During nine months ended September 30, 2024 and 2023, the Company released $7.3 million and $1.8 million, respectively, of deferred proceeds related to the Park Highlands undeveloped land sales.

Impairment of Real Estate

During the nine months ended September 30, 2024, the Company recorded impairment charges on real estate and related intangibles of $76.1 million to write down the carrying value of five of the Company’s strategic opportunistic properties and one hotel due to declines in market conditions and projected cash flows, changes in sales comparisons, and also based on a quoted price. During the nine months ended September 30, 2023, the Company recorded impairment charges on real estate and related intangibles of $64.8 million to write down the carrying value of three strategic opportunistic properties to their estimated fair values due to increases in the discount and terminal cap rate assumptions, decreases in projected cash flows, and changes in sales comparisons.

Real Estate Sales

In September 2024, the Company, through an indirect wholly owned subsidiary, sold the Lofts at NoHo Commons, from the strategic opportunistic properties segment for gross sale proceeds of $92.5 million, before closing costs and credits. The Company recorded a loss on sale of real estate of $0.4 million and the Company repaid $68.5 million of the outstanding principal due under the secured mortgage loan. The purchaser is not affiliated with the Company or with the Company’s external advisor, Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”).

Pending Real Estate Sales

In March 2024, the Company, through indirect wholly owned subsidiaries, entered into a purchase and sale agreement for the sale of approximately 454 developable acres of Park Highlands undeveloped land, from the Company’s strategic opportunistic properties segment for gross sale proceeds of approximately $195.0 million, before closing costs, credits and taxes. Following a recent amendment to the purchase and sale agreement, the sale is now expected to be completed in three phases. The phases are anticipated to be sold to the buyer for approximately $91.0 million, $52.3 million and $51.7 million in December 2024, December 2026 and December 2027, respectively. Note that the anticipated closing dates may be changed in certain circumstances.

In addition, the land parcels are held through the Company’s taxable REIT subsidiaries (“TRS”) for certain tax planning purposes and to ensure preservation of the Company’s REIT status. A portion of the acres to be sold are pledged as collateral for the Series C bonds. There can be no assurance that the Company will complete the sale. The purchaser is not affiliated with the Company or Pacific Oak Capital Advisors.