Equity Investments

12 Months Ended

Dec. 31, 2011

Equity Investments [Abstract]

Equity Investments

8. Equity Investments

The Trust’s equity investments consist of the following at December 31, 2011 and December 31, 2010 (in thousands):

	September 30,		September 30,			September 30,		September 30,
Venture Partner	Equity Investment	Nominal % Ownership at December 31, 2011			December 31, 2011		December 31, 2010
Marc Realty	8 South Michigan LLC		N/A		$	—	$	7,087
Marc Realty	11 East Adams Street LLC		N/A			—		3,223
Marc Realty	29 East Madison Street LLC		N/A			—		7,720
Marc Realty (1)	Michigan 30 LLC		50.0	%		10,049		12,080
Marc Realty (1)	Brooks Building LLC		50.0	%		7,679		7,452
Marc Realty (1)	High Point Plaza LLC		50.0	%		2,441		6,275
Marc Realty (1)	Salt Creek LLC		50.0	%		—		2,344
Marc Realty (1)	1701 Woodfield LLC		50.0	%		2,047		4,221
Marc Realty (1)	River Road LLC		50.0	%		1,000		4,123
Marc Realty (1)	3701 Algonquin Road LLC		50.0	%		250		2,931
Marc Realty (1)	Enterprise Center LLC		50.0	%		2,679		3,018
Marc Realty (1)	900 Ridgebrook LLC		50.0	%		1,000		1,676
Sealy (1)	Northwest Atlanta Partners LP		60.0	%		8,537		2,479
Sealy (1)	Newmarket GP LLC		68.0	%		2,811		6,647
Sealy (1)	Airpark Nashville GP		50.0	%		—		2,778
Inland/Lexington	Concord Debt Holdings LLC		33.3	%		—		—
Inland/Lexington	CDH CDO LLC		33.3	%		—		—
ROIC (1)	WRT-ROIC Riverside LLC		50.0	%		7,883		7,883
ROIC	WRT-ROIC Lakeside Eagle LLC		50.0	%		7		—
Atrium Holding	RE CDO Management LLC		50.0	%		1,296		—
Lexington	LW-SOFI LLC		50.0	%		—		—
VHH LLC (1)	Vintage Housing LLC		75.0	%		29,887		—
Broadway Partners	FII Co-Invest LLC		27.9	%		1,800		—
New Valley (1)	Socal Office Portfolio Loan LLC		73.0	%		72,626
Elad Canada Ltd	Sullivan Center		50.0	%		10,150		—
					$	162,142	$	81,937

(1) The Trust has determined that these equity investments are investments in VIEs. The Trust has determined that it is not the primary beneficiary of these VIEs since the Trust does not have the power to direct the activities that most significantly impact the VIEs economic performance.

The following table reflects the activity of the Trust’s equity investments for the year ended December 31, 2011 (in thousands):

		September 30,		September 30,		September 30,			September 30,			September 30,			September 30,
Investment	Balance at December 31, 2010		Contributions		Equity Income (loss)			Distributions			Sales			Balance at December 31, 2011
Marc Realty	$	62,150	$	2,440	$	(16,746	)	$	(2,540	)	$	(18,159	)	$	27,145
Sealy		11,904		4,650		(4,956	)		(250	)		—			11,348
Concord Debt Holdings		—		—		3,474			(3,474	)		—			—
CDH CDO		—		—		480			(480	)		—			—
WRT-ROIC Riverside		7,883		—		936			(936	)		—			7,883
WRT-ROIC Lakeside Eagle		—		18,093		664			(18,750	)		—			7
WRT-46th Street Gotham		—		8,037		621			(8,658	)		—			—
SoCal Office Portfolio Loan		—		72,354		272			—			—			72,626
RE CDO Management		—		1,250		46			—			—			1,296
LW-SOFI		—		5,760		2,177			(7,937	)		—			—
Vintage Housing		—		31,335		113			(1,561	)		—			29,887
FII Co-invest		—		1,800		—			—			—			1,800
Sullivan Center		—		10,150		—			—			—			10,150
Total	$	81,937	$	155,869	$	(12,919	)	$	(44,586	)	$	(18,159	)	$	162,142

The following table reflects the activity of the Trust’s equity investments for the year ended December 31, 2010 (in thousands):

		September 30,		September 30,		September 30,			September 30,			September 30,			September 30,
Investment	Balance at December 31, 2009		Contributions		Equity Income (loss)			Distributions			Return of Capital			Balance at December 31, 2010
Marc Realty	$	57,560	$	6,961	$	1,776		$	(4,147	)	$	—		$	62,150
Sealy		15,647		—		(3,010	)		(733	)		—			11,904
Concord Debt Holdings		—		—		—			—			—			—
CDH CDO		—		—		—			—			—			—
WRT-ROIC Riverside		—		7,800		473			(390	)		—			7,883
PSW NYC		—		10,871		(1,246	)		—			(9,625	)		—
Total	$	73,207	$	25,632	$	(2,007	)	$	(5,270	)	$	(9,625	)	$	81,937

Marc Realty

On June 1, 2011 the Trust sold its equity interest in three properties to Marc Realty (8 South Michigan, 11 East Adams and 29 East Madison) for $18,544,000. The purchase price was paid $6,000,000 in cash and $12,544,000 in aggregate secured promissory notes. 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. 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 had an outstanding balance of $4,000,000.

During the fourth quarter of 2011, the Trust determined, based upon projected 2012 operating results and required capital improvements in the properties, a further evaluation of the potential impairment of its investment would be appropriate. The Trust recently entered into an agreement with Marc Realty concerning divestiture of certain of the assets. As a result, the Trust has determined that an impairment charge totaling $15,764,000 were to be recorded in the fourth quarter of 2011.

Of the properties in which the Trust held an equity interest at December 31, 2011, two downtown Chicago properties contain approximately 389,000 rentable square feet of the aggregate Marc Realty portfolio and accounted for $17,728,000 of the Trust’s December 31, 2011 carrying value. These two properties had occupancy of 79.1% at December 31, 2011, compared to 77.1% occupancy at December 31, 2010.

The balance of the portfolio, located in the Chicago suburbs, represents $9,417,000 of the Trust’s December 31, 2011 carrying value, contains approximately 1,018,000 square feet and was 78.2% occupied at December 31, 2011 compared to 80.9% occupied at December 31, 2010.

At December 31, 2011 the Marc Realty properties are encumbered with $59,159,000 of mortgage debt, with $9,789,000 of mortgage debt maturing in 2012, $11,292,000 maturing in 2013 and the remainder in 2014 or later.

The Trust recorded net loss of $16,746,000, inclusive of impairment charges, for the year ended December 31, 2011 and income of $1,776,000 for the year ended December 31, 2010. Additionally, the Trust received cash distributions of $2,540,000 and $4,147,000 from the investments during the years ended December 31, 2011 and 2010, respectively.

Northwest Atlanta Partners LP

The Trust owns, through a venture with Sealy, a 60% non-controlling ownership interest in 12 flex properties in Atlanta, Georgia containing an aggregate of 472,000 square feet of space. The Trust invested approximately $5,470,000 and the general partner, an affiliate of Sealy, invested approximately $3,647,000 for their 40% interest in the venture. The venture obtained a first mortgage loan of $28,750,000 bearing interest at 5.7%. In November 2010, the venture elected to stop making debt service payments and the loan was placed into special servicing.

In June 2011 the Trust made a $20,641,000 bridge loan to the venture. The bridge loan enabled the venture to satisfy its first mortgage loan at a discounted payoff amount of $20,500,000. As a result of the discounted payoff, the venture recognized gain on extinguishment of debt of approximately $9,170,000, inclusive of accrued interest and penalities totaling $2,410,000, of which the Trust’s share was $5,502,000.

In September 2011 the 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 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 $3,100,000 from Sealy were used to pay off the Trust’s bridge loan.

Newmarket GP LLC

The Trust acquired, through a venture with Sealy, a 68% non-controlling ownership interest in a six building office-flex campus containing approximately 470,000 square feet in Atlanta, Georgia. The purchase price for the property was $47,000,000 including assumed debt. The venture assumed an existing $37,000,000, 6.12% first mortgage loan encumbering the property, maturing in November 2016.

In November 2010, the venture elected to stop making debt service payments and the loan has been placed into special servicing. The venture is attempting to negotiate a restructuring of the debt with the special servicer. In addition, the venture continues to aggressively market available space at the property for lease. There are no assurances that a restructuring or discounted repayment of the debt will be accomplished.

Airpark Nashville GP

The Trust acquired through a venture with Sealy, a 50% non-controlling ownership interest in 13 light distribution and service center properties in Nashville, Tennessee. The purchase price of $87,200,000 was financed through approximately $65,383,000 of proceeds, net of escrows and closing costs from a $74,000,000 5.77% first mortgage loan maturing in May 2012. Both Sealy and the Trust contributed $9,308,000 for their 50% ownership in the venture. The Trust is seeking an extension of the first mortgage loan as well as other concessions from the lender.

Sealy Impairments

During 2011 the Trust determined that, as a result of current market conditions, including current occupancy levels, current rental rates and an increase in terminal capitalization rates, the fair value of its equity investments in Sealy were below the carrying values. Accordingly, the Trust assessed whether this decline in value was other-than-temporary. In making this determination, the Trust considered the length of time which the decline has occurred, the length of time before an expected recovery and the lack of any comparables in the market. The Trust determined the fair value of its investments utilizing an unleveraged cash flow methodology and an estimated terminal capitalization rate. The cash flows were then discounted using an estimated market rate. Based on the foregoing, all of which requires significant judgment, the Trust concluded that the declines in value were other-than-temporary, and during 2011 the Trust recorded other-than-temporary impairment charges of $2,900,000, $900,000 and $1,494,000 on its investments in Sealy Northwest Atlanta, Sealy Newmarket, and Sealy Nashville, respectively.

The Trust has determined that the fair value of certain of its equity investments each marginally exceed their carrying values. While the ventures continue to aggressively market available space for lease and work with existing tenants for lease renewal, declines in occupancy could cause impairment of these ventures that could be material to the Trusts’s future results of operations.

Lex-Win Concord LLC (“Lex-Win”) and Concord Reorganization

On August 26, 2010 the Trust finalized a settlement agreement which triggered simultaneous transactions that changed the organizational structure, economics, and governance of the Trust’s equity investment in Lex-Win and Lex-Win’s wholly owned subsidiary Concord. The settlement agreement was implemented to resolve a legal action against Concord filed in May 2009 by a wholly-owned subsidiary of Inland American Real Estate Trust, Inc. (“Inland”), a member in Concord.

As a result of the reorganization, Lex-Win was dissolved and transferred 100% of its interest in Concord to its members, the Trust and Lexington Realty Trust (“Lexington”). The underlying business assets of the former Lex-Win were separated into two distinct legal investment entities with identical ownership structures which are the reorganized Concord and a newly formed entity, CDH CDO. The Trust now holds 33.3% common member interests in each joint venture together with Lexington, and Inland.

Terms of the reorganization included a subsidiary of Concord selling 100% of the stock of CDFT to the newly formed CDH CDO for $9,500,000. The consideration was funded by Inland’s initial capital contribution to CDH CDO and was used by the subsidiary to partially repay its lenders. There was no financial statement impact to the Trust as a result of the reorganization since the investment had been written down to zero as of June 30, 2009.

During the year ended December 31, 2011 the Trust received cash distributions from Concord Debt Holdings LLC of $3,216,000. The Trust recognized equity income for the full amount of the distributions. The Concord Debt Holdings LLC balance sheet consisted of total assets of $27,394,000 and $126,463,000 at December 31, 2011 and 2010, respectively, and total liabilities of $150,000 and $99,321,000 at December 31, 2011 and 2010, respectively.

The Trust has suspended losses of $52,656,000 to offset against future equity income from Concord at December 31, 2011.

Concord CDO-1 Litigation

In January 2010, CDFT submitted for cancellation certain bonds issued by CDO-1 and held by CDFT. The trustee for CDO-1 refused to cancel such bonds and CDO-1 brought an action in the Delaware Court of Chancery seeking declaratory relief that such bonds should be cancelled and no longer remain outstanding. Pending the court’s decision, the trustee escrowed all payments on account of the bonds and distributions payable to CDFT from CDO-1’s assets. In addition, the trustee also escrowed any principal payments that could otherwise have been used for reinvestment by CDO-1 for additional or replacement assets. In May 2010 the Delaware Court of Chancery issued a ruling that the bonds submitted for cancellation should be deemed no longer outstanding effective January 2010. The trustee appealed the ruling and on March 4, 2011, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s ruling that the bonds submitted for cancellation should be deemed no longer outstanding effective January 2010. As a result, the trustee released the funds held in escrow thereby enabling CDO-1 to make all current and past due payments on its remaining bonds as well as to pay distributions. The Trust received distributions of $480,000 from CDH CDO for the year ended December 31, 2011.

Vintage Housing Holdings

In relation to its investment in Vintage Housing Holdings, the Trust has elected a one-month lag period. The lag period is allowed under the provisions of ASC 810-10 and is necessary in order for the Trust to consistently meet its regulatory filing deadlines. The Vintage Housing joint venture consolidated balance sheet consists of assets totaling $339,153,000, liabilities including mortgage notes payable of $287,996,000, and non-controlling interest of $13,780,000 as of November 30, 2011.

In March 2011 the Trust acquired developer fees and advances receivable owed by real estate partnerships for a purchase price of $7,000,000 in the first stage of the Vintage Housing Holdings transaction. In June 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 us 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 4,167 units located primarily in the Pacific Northwest and California.

The Trust has made additional investments in the Vintage platform during the third and fourth quarter of 2011, making contributions to the venture totaling $7,510,000. The venture’s new investments included a $1,500,000 contribution to a planned 231 unit multi-family project in Tacoma, Washington, a $4,300,000 acquisition of non-controlling partner interests in seven of the existing Vintage investments and $1,710,000 toward a purchase agreement to acquire 75% interests in the general partners of two multifamily properties comprising approximately 490 units located in California and Nevada.

New Joint Venture Investments

The Trust has made significant new investments during the quarter ended December 31, 2011 in SoCal Office Portfolio Loan and Sullivan Center that are discussed in detail in Note 4.

Separate Financial Statements for Unconsolidated Subsidiaries

The Trust has determined that for the periods presented in the Trust’s financial statements, certain of its unconsolidated subsidiaries have met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X for which the Trust is required, pursuant to Rule 3-09 of Regulation S-X, to attach separate financial statements as exhibits to its Annual Report on Form 10-K as follows:

		September 30,		September 30,
Entity	Year(s)  determined significant		Exhibit
Lex-Win Concord LLC		2009		99.1
Concord Debt Holdings LLC		2011		99.2
Sealy Northwest Atlanta Partners LP		2011		99.3
Sealy Newmarket General Partnership		2011		99.4