Acquisition, Disposition, Leasing and Financing Activities

12 Months Ended

Dec. 31, 2011

Acquisition, Disposition, Leasing and Financing Activities [Abstract]

Acquisition, Disposition, Leasing and Financing Activities

4. Acquisition, Disposition, Leasing and Financing Activities

Operating Properties

Operating Properties—Acquisition Activities

450 West 14th Street / 446 High Line LLC Investment—On May 13, 2011 the Trust committed to invest up to $15,000,000 for a preferred equity interest in the entity that holds the leasehold interest in a newly constructed 70.4% pre-leased 105,000 square foot retail and office property located on the High Line at 450 West 14th Street, New York, New York. At December 31, 2011, the Trust had invested $9,539,000. The investment is subject to a first mortgage loan with an outstanding balance of $49,585,000 at December 31, 2011 subject to future advances up to $54,000,000. The Trust’s preferred equity entitles it to a 10% current cash return on its invested balance. In October 2011, the joint venture that owns the property obtained its temporary certificate of occupancy from the New York City Buildings Department. The Trust exercised its right to become the managing member of the entity effective November 1, 2011. As a result of the Trust becoming the managing member and the ensuing change in control, the Trust now consolidates the operations of the property and has accounted for such change in control as a business combination. The Trust recognized a gain on consolidation of $818,000.

The fair value opening equity and fair value of non-controlling interest was calculated utilizing the hypothetical liquidation methodology. The fair value of the assets and liabilities was calculated by an independent third party valuation firm and reviewed by management. The methodology used by the Trust for purposes of allocating the fair value of the newly consolidated property to tangible and intangible assets and liabilities is discussed in Note 2. The assets and liabilities were allocated as follows (in thousands):

		September 30,
	Carrying Value
Buildings and improvements	$	52,778
Intangible assets		10,427
Accounts receivable and prepaids		1,356
Lease commissions		1,477
Mortgage loans payable		(49,091	)
Accounts payable and accrued liabilities		(2,104	)
Below market lease intangibles		(1,005	)
Non-controlling interest		(5,177	)
Fair value opening equity		8,661
Contributed capital		7,843
Gain on consolidation of property	$	818

Intangible assets acquired and intangible liabilities assumed consisted of the following (in thousands):

		September 30,		September 30,
	Carrying Value		Weighted Average Amortization Period (years)
Intangible assets:
Above market tenant leases acquired	$	449		11.8
Tax abatement		3,936		12.0
In-place lease value		3,968		11.8
Tenant relationship value		2,024		21.8
Legal and Marketing Fees		50		11.8
Total	$	10,427		13.8
Intangible liabilities:
Below market ground lease assumed	$	1,005		42.0

The operating results of 450 W 14 ^th Street are included in the Trust’s results of operations from the initial consolidation date of November 1, 2011 as presented below (in thousands):

		September 30,
Rents and reimbursements	$	921
Total expenses (including depreciation, amortization and interest)		(1,052	)
Net loss		(131	)
Loss attributable to non-controlling interest		303
Winthrop Realty Trust net income	$	172

Operating Properties—Litigation Settlement

On September 30, 2011 the Trust entered into a settlement agreement which provided for the dismissal of the lawsuit against CBS Corporation. The settlement provided for a payment to the Trust of $6,500,000, the conveyance to the Trust of approximately 148 acres of land and the waiver of all ground lease payments by the Trust for 2011. During the fourth quarter, the Trust recognized income of $5,868,000 in connection with the settlement terms.

In connection with the settlement, the Trust also entered into a new net lease with Westinghouse Electric Company LLC (“Westinghouse”) for approximately 57,000 square feet of space at the Churchill property. The lease has a term of 12 years and requires annual rent of $750,000 per year, increasing annually by 3%. Westinghouse is responsible for all costs associated with the leased space and can terminate the lease at any time after the fifth anniversary by making a termination payment of $4,400,000 which decreases each year thereafter. The lease requires that the Trust make certain improvements and utility upgrades with an anticipated cost of approximately $1,000,000. The lease will commence upon completion of these improvements.

Under the terms of the settlement agreement, the Trust agreed to market for sale both the portion of the property leased to Westinghouse and the remaining portion of the property. In December 2011 the Trust engaged a national broker to begin marketing the non-Westinghouse parcel with an auction scheduled for March 2012. The Westinghouse parcel is expected to be marketed during the fourth quarter of 2012. The Trust has agreed to pay CBS 50% of the sales proceeds received from the sale, or if not sold, 50% of the value as determined by the bids for the property received in each case, in excess of $6,500,000.

The Trust conducted an impairment analysis of the Churchill property at December 31, 2011. As part of this analysis, the Trust determined that this property should continue to be classified in continuing operations at December 31, 2011 as not all the requirements for discontinued operations had been satisfied.

The Trust assessed the property for recoverability based upon its estimate of undiscounted cash flows expected to result from its use and ultimate disposition. The Trust deemed the carrying value of its investment not to be recoverable and estimated the fair value of the property based upon assumptions it believes a market participant would utilize. Accordingly, the Trust recorded an impairment charge in the fourth quarter of $4,600,000.

Operating Properties—Disposition Activities

Properties in Discontinued Operations—In August 2011, the Trust sold its Knoxville, Tennessee property for net proceeds of $2,151,000 and in December 2011 the Trust sold its St. Louis, Missouri property for net proceeds of $1,290,000. The Trust recognized a net gain of $392,000 on these sales which is included in the results of discontinued operations.

Loans

Loan Asset Acquisition Activities

Magazine Mezzanine Loan—On June 1, 2011 the Trust acquired from Concord Debt Holdings LLC (“Concord”) for a purchase price of $17,525,000 a $20,000,000 senior mezzanine loan collateralized by a pledge of the equity interest in six cross-collateralized apartment communities, totaling 2,106 units located in Orlando, Sarasota, Bradenton and Palm Beach Gardens, Florida. The loan is subordinate to $120,000,000 of senior debt, is currently paying interest at the one month LIBOR plus 123 basis points and is scheduled to mature on July 9, 2012. The Trust accounts for this investment as a loan receivable.

Loan Asset Originations

Hotel Wales—On October 6, 2011 the Trust originated a $20,000,000 mortgage loan collateralized by the Hotel Wales located in Manhattan, New York which loan bears interest at LIBOR plus 4%, with a 3% LIBOR floor (i.e. a minimum 7% rate on the loan), and matures in October 2013, with a one-year extension right. Subsequently, the Trust issued a $14,000,000 senior participation to Concord Real Estate CDO-1 Ltd. (“CDO-1”) at par, which bears interest at LIBOR plus 1.25% with a 3% LIBOR floor, with the Trust retaining a $6,000,000 junior participation which provides for interest payments equal to the interest payable on the loan less the amount payable on the senior participation for an initial rate of 13.4%. The Trust accounts for this investment as a $20,000,000 loan receivable with a $14,000,000 non-recourse secured financing with a pledge of collateral, establishing a liability for the portion participated to CDO-1.

Renaissance Walk—On December 12, 2011 the Trust originated a $3,000,000 mezzanine loan collateralized by the Renaissance Walk property comprised of 140 residential rental units, over 30,000 square feet of retail space plus structured parking and amenities on 1.6 acres, located in downtown Atlanta, Georgia. The loan is subordinate to $4,000,000 of senior debt, bears interest at LIBOR plus 12% with a 2% LIBOR floor, and is scheduled to mature on January 1, 2014. The Trust accounts for this investment as a loan receivable.

127 West 25th Street—On October 25, 2011 the Trust committed to make a $9,000,000 subordinate mortgage loan collateralized by the commercial property located at 127 West 25th Street, Manhattan, New York. The loan is subject to the satisfaction by the borrower of certain conditions on or prior to the loan funding date. If funded, the loan will mature on October 1, 2014, bear interest at a rate equal to the greater of 14% per annum or LIBOR plus 10%, and require minimum monthly payments equal to interest as well as possible principal payments. In connection with the entering into of the loan agreement, the Trust received an origination fee of $90,000. The Trust’s commitment may be extended by the borrower on a monthly basis through March 24, 2012 by paying a monthly commitment fee of $105,000. The loan, when and if made, will be subordinate to a first mortgage loan with an outstanding principal balance expected to be not more than $35,200,000. The property is net leased to the Bowery Residents’ Committee, Inc., a New York not-for-profit corporation, which obtains funding from the City of New York.

29 East Madison—See details for 29 East Madison loan asset under “Investments in Joint Ventures—Marc Realty” below.

Loan Asset Modifications

San Marbeya Loan Receivable Participation Interest- On January 14, 2011 the Trust restructured the San Marbeya first mortgage loan to create a $15,150,000 senior participation which bears interest at 4.85% and a $15,744,000 junior participation which bears interest at 6.4% and concurrently issued the senior loan participation to CDO-1 at par. The Trust accounts for the loan participation as a non-recourse secured financing with a pledge of collateral, establishing a liability for the portion participated to CDO-1.

Loan Assets Repaid

Metropolitan Tower—On March 31, 2011 the Trust received repayment of the Metropolitan Tower B-Note and Rake Bond at par in the amount of $23,750,000. The Trust acquired the investments on December 16, 2009 for $11,750,000.

Siete Square Loan—On June 9, 2011 the borrower on the Trust’s Sub-Participation B Interest exercised its discounted payoff option and repaid the loan for $2,500,000. The loan asset was originally acquired in June 2009 for $2,460,000.

CDH-CDO LLC On August 8, 2011 the Trust received final payment on the $3,498,000 compliance loan the Trust had previously made to CDH CDO LLC (“CDH CDO”), an entity in which the Trust holds a 33.3% interest. The outstanding loan plus accrued interest totaling approximately $3,669,000 was fully repaid.

Beverly Hills Hilton—On September 15, 2011 the Trust’s B-Note receivable was paid off at par. The Trust received repayment of $10,000,000 on the loan which was originally acquired on December 9, 2009 for $5,250,000.

Moffet Towers—On October 25, 2011 the Trust received payment of $23,034,000 plus accrued interest in full satisfaction of the Trust’s senior participation in a B-Note secured by a first mortgage lien on the Moffet Tower office complex in the amount of $21,558,000 and additional advances of $1,476,000 made under the terms of the note. The B-Note was originally acquired on October 29, 2010.

Westwood Business Park—On December 19, 2011 the Trust received full repayment of $3,646,000 net interest on a first mortgage loan secured by four class B office buildings in Phoenix, Arizona. The first mortgage loan was originally purchased on October 29, 2010.

Loan Securities

CDH-CDO LLC—On February 15, 2011, the Trust sold to Concord Debt Funding Trust (“CDFT”) a wholly owned subsidiary of CDH CDO and the sole equity owner of CDO-1, tranche E bonds with a face amount of $9,000,000 issued by CDO-1. In exchange for the bonds, the Trust received a note in the amount of its original purchase price plus accrued interest. The note plus accrued interest totaling approximately $763,000 was repaid in full on April 15, 2011.

Investments in Joint Ventures

Gotham Hotel—Joint Venture Loan Acquisition—On February 23, 2011 the Trust acquired for $15,628,000 a performing $16,303,000 first mortgage secured by a lien on a recently constructed, 26-story, 66 room limited service boutique hotel located in New York, New York through a 50/50 joint venture. The loan earned interest at a rate of 9.33%, and matured on May 4, 2011. On May 24, 2011 the Trust received repayment of $8,638,000 on its $8,037,000 pro-rata share of the equity investment.

Vintage Housing Holdings LLC Investment—On March 8, 2011 the first stage of the Vintage Housing Holdings LLC, (“Vintage”), transaction closed pursuant to which the Trust acquired developer fees and advances receivable for a purchase price of $7,000,000. On June 24, 2011 the Trust closed on the second phase of the Vintage transaction to acquire for $18,200,000, plus a contribution of its previously purchased receivables, an effective 75% interest in the Vintage venture entitling the Trust to a 12% preferred return from current cash flow. Vintage owns general partnership interests and certain developer fees and advances receivable from partnerships owning 25 multifamily and senior housing properties comprising approximately 4,200 units located primarily in the Pacific Northwest and California. The Trust accounts for its investment in Vintage using the equity method of accounting.

During the quarter ended September 30, 2011, the Trust invested an additional $7,000,000 in its Vintage venture. Of this contribution, $4,300,000 was invested for the venture’s acquisition of non-controlling general partner interests in seven of the existing investments. The remaining $2,700,000 contributed was used by the venture for investment in receivables and three new properties.

WRT-ROIC Lakeside Eagle—Joint Venture Loan Acquisition—On March 22, 2011 the Trust purchased through a 50/50 joint venture, two non-performing first mortgage loans at par for an aggregate price of $35,558,000. The loans were collateralized by two retail centers located in Riverside County, California. Both notes matured on April 1, 2010 and were in maturity default. The notes bore interest at their default rate of 8.92% (4.92% stated note rate plus 4% default rate). Upon acquisition, the joint venture began foreclosure proceedings. In May 2011 the Trust received repayments on the two non-performing first mortgage loans totaling $18,650,000 on its $18,093,000 pro-rata share of the equity investment.

Marc Realty—On June 1, 2011 the Trust sold to its partner, Marc Realty, for $18,544,000 its equity interest in three properties in its Marc Realty Portfolio (8 South Michigan, 11 East Adams and 29 East Madison). The purchase price was paid $6,000,000 in cash and $12,544,000 in aggregate secured promissory notes which each bear interest at 8% per annum, require payments of interest only and mature on May 31, 2016. The Trust has received payments in full satisfaction of its $4,910,000 8 South Michigan loan and $2,265,000 11 East Adams loan and recognized $207,000 in gain related to the full repayment of the two loans. In addition, Marc Realty made $1,369,000 in payments on its 29 East Madison loan. At December 31, 2011, the 29 East Madison loan outstanding balance was $4,000,000 and the Trust had deferred income in the amount of $166,000 related to this sale.

Sofitel / LW Sofi LLC Investment—On June 2, 2011 the Trust entered into a 50/50 joint venture named LW SOFI LLC (“LW SOFI”) with Lexington Realty Trust (“Lexington”). The Trust and Lexington each contributed approximately $5,760,000 to LW SOFI. On June 3, 2011 LW SOFI acquired from Concord for approximately $11,520,000, 100% of the economic rights and obligations in a $71,530,000 mezzanine loan collateralized by an interest in the Sofitel hotel in New York City. The loan required payments of interest only at a rate of LIBOR plus 185 basis points and was scheduled to mature on February 1, 2012. The loan was encumbered by a $56,090,000 repurchase obligation that bore interest at a variable interest rate of 1-month LIBOR plus 100 basis points and was scheduled to mature on December 31, 2012.

On October 31, 2011 LW SOFI received $71,530,000 plus accrued interest in full satisfaction of the LW SOFI mezzanine loan, the proceeds of which were utilized to satisfy the repurchase obligation encumbering the loan receivable resulting in net proceeds of $15,876,000. The Trust received a $7,937,000 distribution from LW-SOFI on November 2, 2011.

Sealy Northwest Atlanta Loan—On June 23, 2011 the Trust made a $20,641,000 bridge loan to its Sealy Northwest Atlanta joint venture. The Trust’s bridge loan enabled the joint venture to satisfy its $28,750,000 first mortgage loan at a discounted payoff amount of $20,500,000. On September 29, 2011, the joint venture obtained replacement financing in the amount of $14,000,000 bearing interest at LIBOR + 5.35% and maturing on September 29, 2015. In connection with the financing, the joint venture purchased an interest rate cap which caps LIBOR at 1% through October 1, 2013. Net proceeds from the new loan plus additional capital contributions of $4,650,000 from the Trust and of $3,100,000 from Sealy were utilized to pay off the bridge loan due the Trust.

Southern California Office Portfolio Note—The Trust contributed approximately $71,000,000 to a venture, WRT-Socal Lender, which owned an approximate 73% interest in SoCal Office Portfolio Loan LLC (“Socal Loan”). On November 4, 2011, Socal Loan acquired for a purchase price of $96,700,000 a $117,900,000 C-Note in the $798,000,000 first mortgage loan encumbering a 4,500,000 square foot, 31 property portfolio of office properties situated throughout southern California. The C-Note, which is the controlling holder of the mortgage loan, bears interest at a rate of LIBOR plus 310 basis points, requires payments of interest only and matures on August 9, 2012. The Trust accounted for its investment in Socal Loan as an equity investment. See “Note 22-Subsequent Events”.

Sullivan Center—On December 23, 2011 the Trust formed a 50/50 joint venture with a subsidiary of Elad Canada Inc. (“Elad”). The joint venture entered into an agreement to acquire an approximately $145,000,000 defaulted first mortgage loan which includes defaulted interest, for a purchase price of approximately $128,500,000. See “Note 22-Subsequent Events”.

Financing

Newbury Apartments Loan Modification—On February 24, 2011 the Trust reached an agreement with the first mortgage lender on its Newbury Apartments property to repay all past due interest and fees of approximately $853,000, to fund escrows of approximately $83,000, to prepay March’s debt service inclusive of escrows of approximately $150,000 and to pay a modification fee of approximately $119,000 (0.5% of the loan balance). In exchange the lender waived all defaulted interest, modified the payments to interest only and extended the maturity date to February 1, 2014. Recognition of the waived interest was deferred and was treated as a yield adjustment over the new life of the loan. This loan was subsequently refinanced in October 2011. (See “Loan Restructure” below.) Upon satisfaction of the loan, the remaining balance of the waived interest was recognized and the trust recorded a gain of approximately $844,000.

Plantation, Florida Financing—On March 4, 2011 the Trust financed its Plantation, Florida property with an $11,000,000 first mortgage loan bearing interest at 6.483% and maturing on April 1, 2018. The net proceeds of approximately $10,676,000 were used to partially satisfy a mortgage loan payable on other properties.

Loan Satisfaction—On July 13, 2011 the Trust satisfied the $23,773,000 first mortgage loan on its wholly owned Lisle, Illinois properties for a discounted payoff of $14,500,000 plus reserves held by the lender of approximately $736,000. The Trust recognized a gain on the extinguishment of debt in the amount of $8,514,000. As part of the restructuring the Trust re-evaluated its business plan and holding periods for these properties which resulted in the recognition of impairment charges totaling $3,000,000.

Financing—On October 18, 2011 the Trust obtained a $21,000,000 mortgage loan secured by Newbury Apartments, 550/650 Corporetum and 701 Arboretum properties. The loan bears interest at LIBOR plus 2.5%, matures October 2014, subject to two, one-year extension terms, and requires payments of interest only through the initial term and payments of principal and interest based on a 25 year amortization schedule during the extended terms. In connection with the financing, the Trust purchased an interest rate cap which caps LIBOR at 1.0% through October 18, 2014. The proceeds from the loan, together with approximately $3,160,000 of reserves, were used to satisfy the existing approximately $23,875,000 loan encumbering Newbury Apartments discussed above.