Investments in Unconsolidated Entities

3 Months Ended

Mar. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

Office Joint Venture

On August 26, 2022, the Company completed the sale of a majority interest in a 41-property office portfolio (the “Initial Office Portfolio”) for a sale price of approximately $1.1 billion. On December 27, 2022, the Company completed a companion sale of a majority interest in a five-property office portfolio (“Companion Office Portfolio”, and together with the Initial Office Portfolio, the “Office Portfolio”) for a sale price of approximately $170.4 million.

In connection with the sale of the Office Portfolio, the Company, through its subsidiary GRT VAO OP, LLC (“GRT VAO Sub”), invested a combined $184.2 million for a 49% interest in a joint venture in which it is a member (the “Office Joint Venture”), through which it owns indirectly an approximate 49% interest in the Office Portfolio. As of March 31, 2023, the book value of the Company’s interest in the Office Joint Venture is equal to approximately $164.9 million.

The Office Joint Venture is managed and accounted for by RVMC Capital LLC, an affiliate of Workspace Property Trust (the “Managing Member”). The Managing Member of the Office Joint Venture has general authority to manage the operations of the Office Joint Venture. The Managing Member also has day-to-day management authority over the Office Joint Venture, subject to certain major decision rights held by another minority interest holder. The Managing Member may be removed from its management positions upon the occurrence of specified events.

GRT VAO Sub has approval rights over certain major decisions regarding actions by the Office Joint Venture, including certain fundamental decisions that the Office Joint Venture may approve. GRT VAO Sub’s obligation is generally limited to its initial contribution. GRT VAO Sub is not obligated to make any additional capital contributions beyond its initial capital contribution.

The Office Joint Venture, through various subsidiary borrowers, obtained acquisition financing for the Initial Office Portfolio comprised of (a) a $736.0 million mortgage loan (the “Initial Mortgage Loan”), and (b) a $194.8 million mezzanine loan (the “Mezzanine Loan”, and together with the Initial Mortgage Loan, the “Initial Office JV Loans”). The initial maturity date of the Initial Office JV Loans is September 9, 2023, subject to two, one-year extension options. The interest rates during the initial term of the Initial Mortgage Loan and the Mezzanine Loan are Term SOFR (1-month) (with a 3% interest rate cap on SOFR) + 3.635% (subject to a 0.25% increase during each extension term) and Term SOFR (1-month) with a 3% interest rate cap on SOFR + 6.574% (subject to a 0.25% increase during each extension term), respectively. The Office Joint Venture paid approximately $6.7 million for the interest rate caps.

The Office Joint Venture, through various subsidiary borrowers, also obtained acquisition financing for the sale of the Companion Office Portfolio, comprised of a $142.1 million mortgage loan, having an initial maturity date of January 6, 2024 (subject to two, one-year extension options), and an interest rate during the initial term of Term SOFR (1-month with a 4% interest rate cap on SOFR) + 4.25% (subject to a 0.25% increase during each extension term) (the “Companion Office JV Loan”, and together with the Initial Office JV Loans, the “Office JV Loans”). The Company has not guaranteed any debt obligations and has not otherwise committed to providing financial support in respect of the Office JV Loans. In addition, the Company does not anticipate receiving any near-term cash flow distributions from the assets that are part of the Office Portfolio. Considering the Company’s limited economic exposure to the Office Joint Venture, the Company excludes interests in the assets in the Office Joint Venture from operating data.

The interests discussed above are deemed to be variable interests in variable interest entities ("VIE") and based on an evaluation of the variable interests against the criteria for consolidation, the Company determined that it is not the primary beneficiary of the investment, as the Company does not have power to direct the activities of the entities that most significantly affect their performance. As such, the interest in the VIE is recorded using the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the investments in the unconsolidated entities are

stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the allocation of cash distributions upon liquidation of the investment at book value in accordance with the operating agreements. The Company records the net earnings or losses on investment on a one quarter lag. The Company's maximum exposure to losses associated with its unconsolidated investments is primarily limited to its carrying value in the investments.

The table below summarizes the Company’s investment in the unconsolidated Office Joint Venture, which the Company determined is related to corporate activities and is excluded from its segment reporting:


	Office Joint Venture
Investment in Office Joint Venture
Balance at December 31, 2022	$	178,647
Contributions	—
Net loss	(14,661)
Other Comprehensive Income	890
Balance at March 31, 2023	$	164,876

The table below presents the condensed balance sheet for the unconsolidated Office Joint Venture:


	March 31, 2023 (1)		December 31, 2022 (2)
Assets
Real estate properties, net	$	1,120,137	$	981,354
Other assets	294,951		240,447
Total Assets	$	1,415,088	$	1,221,801

Liabilities
Mortgages payable, net	$	1,007,419	$	856,765
Other liabilities	73,590		52,018
Total Liabilities	$	1,081,009	$	908,783

(1)Amounts are as of December 31, 2022 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

(2)Amounts are as of September 30, 2022 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

The table below presents condensed statements of operations of the unconsolidated Office Joint Venture:


	March 31, 2023 (1)		March 31, 2022
Total revenues	$	44,789	$	—
Total expenses	(74,717)		—
Net Loss	$	(29,928)	$	—

(1)Amounts represent the period of October 1, 2022 to December 31, 2022 due to the recording of the Office Joint Venture’s activity on a one quarter lag.