Investment in Unconsolidated Entities

6 Months Ended

Jun. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

On June 9, 2014, the Company acquired a 10.3% interest in the NewINK JV, a joint venture between affiliates of NorthStar Realty Finance Corp. ("NorthStar") and the Operating Partnership. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNY, which owned a 89.7% interest in the NewINK JV. Chatham sold its interest in the NewINK JV in March 2021 for $2.8 million which resulted in Chatham recording a gain on sale of investment in unconsolidated real estate entities of $23.8 million during the six months ended June 30, 2021. The Company accounted for this investment under the equity method.

On November 17, 2014, the Company acquired a 10.0% interest in the Inland JV, a joint venture between affiliates of NorthStar and the Operating Partnership. NorthStar merged with Colony on January 10, 2017 to form a new company, CLNY, which owns a 90% interest in the Inland JV. The value of Inland JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. The Company serves as managing member of the Inland JV. The Company accounts for this investment under the equity method. During the three and six months ended June 30, 2021 and 2020, the Company received no cash distributions from the Inland JV.

The Company’s ownership interest in the Inland JV is subject to change in the event that either the Company or CLNY calls for additional capital contributions to the JV necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. In connection with the non-recourse mortgage loan secured by the Inland JV properties, the Operating Partnership provided the lender with customary environmental indemnities, as well as a guarantee of certain customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. In some circumstances, such as the bankruptcy, the guarantee is for the full amount of the outstanding debt, but in most circumstances, the guarantee is capped at 20% of the debt outstanding at the time in question. In connection with the Inland JV loan, the Operating Partnership has entered into a contribution agreement with its JV partner whereby the JV partner is, in most cases, responsible to cover such JV partner’s pro rata share of any amounts due by the Operating Partnership under the guarantee and environmental indemnities. CLNY may also approve certain actions by the JV without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.

During the three months ended March 31, 2020, the Company determined that an other than temporary decline in the value of its equity investment in the Inland JV had occurred. The Inland JV’s operating performance has been significantly impacted by the COVID-19 pandemic. The Inland JV has high leverage, limited liquidity and limited ability to fund the level of operating losses caused by the COVID-19 pandemic for a sustained period of time. Based on these factors, we assessed that the fair market value of our equity investment in the Inland JV is zero and the Company did not consider the investment recoverable and therefore recorded an impairment of $15.3 million on the investment. Since the Company’s basis in the Inland JV is now zero and we expect that ongoing losses are not sustainable, we stopped recording any equity income or losses from the Inland JV as of March 31, 2020.

On April 9, 2020 the Inland JV failed to make a debt service payment related to its $780.0 million loan and has not made any of its subsequent monthly debt service payments. The failure to make the required debt service payments is an event of default under the Inland loan agreement. The Inland JV has not been successful in negotiating a forbearance agreement with its lenders. At the direction of the special servicer for the Inland JV loan, control of Inland JV properties has transitioned to a court appointed receiver. The receiver, LW Hospitality Advisors, has been appointed for Inland JV hotels, and has replaced IHM with new hotel management companies. The Inland JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the Inland JV loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.

The Company's recorded investments in the NewINK JV and the Inland JV were $0.0 million and $0.0 million, respectively, at June 30, 2021. The following table sets forth the combined components of net income (loss), including the Company’s share, related to all JVs for the three and six months ended June 30, 2021 and 2020 (in thousands):


	For the three months ended				For the six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenue	$	—	$	37,897	$	24,690	$	128,767
Total hotel operating expenses	—		39,987		24,106		111,952
Hotel operating (loss) income	$	—	$	(2,090)	$	584	$	16,815
Impairment loss	$	—	$	561,494	$	—	$	575,375
Loss from continuing operations	$	—	$	(604,721)	$	(13,109)	$	(645,006)
Gain (loss) on sale of hotels	—		68		—		(14)
Net loss	$	—	$	(604,653)	$	(13,109)	$	(645,020)

Loss allocable to the Company	$	—	$	(1,905)	$	(1,347)	$	(5,977)
Basis difference adjustment	—		327		116		726
Total loss from unconsolidated real estate entities attributable to the Company	$	—	$	(1,578)	$	(1,231)	$	(5,251)