Note 8 — Commitments and Contingencies

Lessee Arrangement - Ground Lease

The Company entered into a ground lease agreement in 2016 related to the acquisition of 1140 Avenue of the Americas under a leasehold interest arrangement. On January 1, 2019, the Company adopted ASU 2016- 02 and recorded an ROU asset and lease liability related to this lease, which is considered an operating lease under the new standard (see Note 2 — Summary of Significant Accounting Polices for additional information on the impact of adopting the new standard).

As of March 31, 2019, the Company’s balance sheet includes an ROU asset and liability of $55.7 million and $54.9 million, respectively, which are included in operating lease right-of-use asset and operating lease liability, respectively, on the consolidated balance sheet. In determining operating ROU asset and lease liability for the Company’s existing operating lease upon the adoption of the new lease guidance, the Company was required to estimate an appropriate incremental borrowing rate, which it estimated to be 8.57% on a fully-collateralized basis for the term of the lease. Since the term of the Company’s ground lease is significantly longer than the terms of borrowings available to the Company on a fully-collateralized basis, the Company’s estimate of this rate required significant judgment.

The Company’s ground operating lease has a weighted-average remaining lease term of 47.8 years as of March 31, 2019. For the three months ended March 31, 2019, the Company paid cash of $1.2 million for amounts included in the measurement of lease liabilities and recorded expense of $1.2 million on a straight-line basis in accordance with the standard. The Company incurred ground rent expense of $1.2 million during the three months ended March 31, 2018. The lease expense is recorded in property operating expenses in the consolidated statements of operations and comprehensive loss. The Company did not enter into any additional ground leases as lessee during the three months ended March 31, 2019.

The following table reflects the ground lease rent payments due from the Company as of March 31, 2019, as well as a reconciliation to the net present value of those payments as of March 31, 2019:



(In thousands)	Future Base Rent Payments
2019 (remainder)	$	3,560
2020	4,746
2021	4,746
2022	4,746
2023	4,746
Thereafter	211,992
Total	$	234,536
Less: Effects of discounting	(179,638		)
Total present value of lease payments	$	54,898

The following table reflects the ground lease rent payments due from the Company as of December 31, 2018:



(In thousands)	Future Base Rent Payments
2019	$	4,746
2020	4,746
2021	4,746
2022	4,746
2023	4,746
Thereafter	211,992
Total	$	235,722

Litigation and Regulatory Matters

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. As of March 31, 2019, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.