INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES

6. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES

The following is a summary of the Company’s investments in and advances to unconsolidated joint ventures, which we account for using the equity method, as of December 31, 2019 and 2018 ($ in thousands):

Entity	December 31, 2019		December 31, 2018
Grace Lake JV, LLC	$	3,047	$	5,316
24 Second Avenue Holdings LLC	45,386		35,038
Investment in unconsolidated joint ventures	$	48,433	$	40,354

The following is a summary of the Company’s allocated earnings (losses) based on its ownership interests from investment in unconsolidated joint ventures for the years ended December 31, 2019, 2018 and 2017 ($ in thousands):

	Year Ended December 31,
Entity	2019		2018			2017
Grace Lake JV, LLC	$	1,047	$	1,658		1,189
24 Second Avenue Holdings LLC	2,385		(868		)	(1,100		)
Earnings (loss) from investment in unconsolidated joint ventures	$	3,432	$	790		$	89

Grace Lake JV, LLC

In connection with the origination of a loan in April 2012, the Company received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, the loan was refinanced, and the Company converted its interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”), which holds an investment in an office building complex. After taking into account the preferred return of 8.25% and the return of all equity remaining in the property to the Company’s operating partner, the Company is entitled to 25% of the distribution of all excess cash flows and all disposition proceeds upon any sale. The Company is not legally required to provide any future funding to Grace Lake JV. The Company accounts for its interest in Grace Lake JV using the equity method of accounting, as it has a 19% investment, compared to the 81% investment of its operating partner and does not control the entity.

The Company’s investment in Grace Lake LLC is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on the fact there are disproportionate voting and economic rights within the joint venture. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has a passive investment and no control of this entity and therefore does not have controlling financial interests in this VIE. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this VIE that it was not previously contractually required to provide.

During the year ended December 31, 2019, the Company received $3.3 million of distributions from its investment in Grace Lake JV, LLC. During the year ended December 31, 2018, the Company received $1.3 million of distributions from its investment in Grace Lake JV, LLC.

The Company holds its investment in Grace Lake LLC in a TRS.

24 Second Avenue Holdings LLC

On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an operating partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium development and construction project located at 24 Second Avenue, New York, NY. The Company accounted for its interest in 24 Second Avenue using the equity method of accounting as its joint venture partner was the managing member of 24 Second Avenue and had substantive management rights.

During the three months ended March 31, 2019, the Company converted its existing $35.0 million common equity interest into a $35.0 million priority preferred equity position. The Company also provided $50.4 million in first mortgage financing in order to refinance the existing $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the new $50.4 million first mortgage loan, the Company also funded a $6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and all additional capital for necessary expenses.

Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company accounts for the new loans as additional investments in the joint venture.

During the years ended December 31, 2019, 2018 and 2017, the Company recorded $2.4 million, $(0.9) million and $(1.1) million, respectively, in income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During 2019, 2018 and 2017, the Company capitalized interest related to the cost of its investment in 24 Second Avenue, as 24 Second Avenue had activities in progress necessary to construct and ultimately sell condominium units. During the years ended December 31, 2019, 2018 and 2017, the Company capitalized $0.1 million, $1.5 million and $1.3 million of interest expense, using a weighted average interest rate. The capitalized interest expense was recorded in investment in unconsolidated joint ventures in the consolidated balance sheets. As a result of the transactions described above, during the three months ended March 31, 2019, the Company no longer capitalizes interest related to this investment, and income generated from the new loans is accounted for as earnings from investment in unconsolidated joint ventures.

As of December 31, 2019, 24 Second Avenue had $11.3 million of loans payable to a third-party lender. 24 Second Avenue consists of 30 residential condominium units and one commercial condominium unit. 24 Second Avenue started closing on the existing sales contracts during the quarter ended March 31, 2019, upon receipt of New York City Building Department approvals and a temporary certificate of occupancy for a portion of the project. As of December 31, 2019, 24 Second Avenue sold 19 residential condominium units for $49.6 million in total gross sale proceeds. As of December 31, 2019, the Company had no additional remaining capital commitment to 24 Second Avenue.

The Company’s investment in 24 Second Avenue is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on (i) the fact that the total equity investment at risk (inclusive of the additional financing the Company provided through the first mortgage and mezzanine loans) is sufficient to permit the entities to finance activities without additional subordinated financial support provided by any parties, including equity holders; and (ii) the voting and economic rights are not disproportionate within the joint venture. The Company determined that it was not the primary beneficiary of this VIE because it does not have a controlling financial interest.

The Company holds its investment in 24 Second Avenue in a TRS.

Combined Summary Financial Information for Unconsolidated Joint Ventures

The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of December 31, 2019 and 2018 ($ in thousands):

	December 31, 2019		December 31, 2018
Total assets	$	118,727	$	167,837
Total liabilities	78,762		116,667
Partners’/members’ capital	$	39,965	$	51,170

The following is a summary of the combined results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the years ended December 31, 2019, 2018 and 2017 ($ in thousands):

	Year Ended December 31,
	2019			2018		2017
Total revenues	$	7,630		$	19,122	$	18,482
Total expenses	14,930			13,381		15,291
Net income (loss)	$	(7,300	)	$	5,741	$	3,191