Mortgage Notes Payable

12 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Mortgage Notes Payable

NOTE 11 - MORTGAGE NOTES PAYABLE

On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership is the sole member of Mezzanine, and Mezzanine is the sole member of Operating.

The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.

The Mortgage Loan is secured by the Partnership’s principal asset, the Hilton San Francisco-Financial District (the “Property”). The Mortgage Loan bears an interest rate of 5.275% per annum and matures in January 2024. The term of the loan is 10 years with interest only due in the first three years and principle and interest on the remaining seven years of the loan based on a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance and capital improvement reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage Guaranty”) executed by Portsmouth in favor of the Mortgage Lender.

The Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The Mezzanine Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024. Interest only payments were due monthly. On July 31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly. As additional security for the new mezzanine loan, there is a limited guaranty executed by the Partnership and Portsmouth in favor of Cred Reit Holdco LLC (the “Mezzanine Guaranty” and, together with the Mortgage Guaranty, the “Guaranties”).

The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership is required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity. As of June 30, 2020 and 2019, InterGroup is in compliance with both requirements. However, due to the Hotel’s current low occupancy and its negative impact on the Hotel’s cash flow, Justice Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lock-box and cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to replace its hotel management company. The DSCR for Operating has been below 1.00 for the last two quarters during fiscal year 2020 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR.

Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements.

In August 2018, $1,005,000 was drawn from the Company’s RLOC with CIBC to pay off a mortgage note payable on its single-family house located in Los Angeles, California. In September 2018, the Company obtained a new mortgage in the amount of $1,000,000 on the same property. The interest rate on the new loan is fixed at 4.75% per annum for the first five years and variable for the remaining of the term. The note matures in October 2048. $995,000 received as a result of the refinance was used to pay down the RLOC.

In April 2020, the Company refinanced its $8,453,000 and $2,469,000 mortgage notes payable on its 151-unit apartment complex in Parsippany, New Jersey and obtained a new mortgage note payable for $18,370,000. The Company received net proceeds of $6,814,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.17% for ten years and the mortgage matures in May 2030. The Company recorded loss on debt extinguishment of approximately $687,000 as a result of the refinance which represent prepayment premium on prior mortgage notes payables.

In June 2020, the Company refinanced its $1,274,000 mortgage note payable on its 9-unit apartment complex in Marina del Rey, California and obtained a new mortgage note payable for $2,600,000. The Company received net proceeds of $1,144,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.09% for ten years and the mortgage matures in July 2030.

Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2020 and 2019, the mortgage notes payables are summarized as follows:

	As of June 30, 2020
	Number	Note		Note
Property	of Units	Origination Date		Maturity Date		Mortgage Balance			Interest Rate
SF Hotel	544 rooms	December	2013	January	2024	$	92,292,000			5.28	%
SF Hotel	544 rooms	July	2019	January	2024		20,000,000			7.25	%
		Mortgage notes payable - Hotel					112,292,000
		Debt issuance costs					(896,000	)
		Total mortgage notes payable - Hotel				$	111,396,000
Florence	157	March	2015	April	2025	$	3,150,000			3.87	%
Las Colinas	358	November	2012	December	2022		16,529,000			3.73	%
Morris County	151	April	2020	May	2030		18,341,000			3.17	%
St. Louis	264	May	2013	May	2023		5,236,000			4.05	%
Los Angeles	4	September	2012	September	2042		333,000			3.75	%
Los Angeles	2	September	2012	September	2042		337,000			3.75	%
Los Angeles	1	August	2012	September	2042		363,000			3.75	%
Los Angeles	31	November	2010	December	2020		4,800,000			4.85	%
Los Angeles	30	August	2007	September	2022		5,614,000			5.97	%
Los Angeles	14	April	2011	March	2021		1,597,000			5.89	%
Los Angeles	12	June	2016	June	2026		2,125,000			3.59	%
Los Angeles	9	June	2020	July	2030		2,600,000			3.09	%
Los Angeles	9	April	2011	March	2021		1,088,000			5.89	%
Los Angeles	8	July	2013	July	2043		428,000			3.75	%
Los Angeles	7	August	2012	September	2042		823,000			3.75	%
Los Angeles	4	August	2012	September	2042		563,000			3.75	%
Los Angeles	1	September	2012	September	2042		388,000			3.75	%
Los Angeles	1	September	2018	October	2048		974,000			4.75	%
Los Angeles	Office	April	2016	January	2021		770,000			2.67	%
		Mortgage notes payable - real estate					66,059,000
		Debt issuance costs					(447,000	)
		Total mortgage notes payable - real estate				$	65,612,000

	As of June 30, 2019
	Number	Note		Note
Property	of Units	Origination Date		Maturity Date		Mortgage Balance			Interest Rate
SF Hotel	544 rooms	December	2013	January	2024	$	93,746,000			5.28	%
SF Hotel	544 rooms	December	2013	January	2024		20,000,000			9.75	%
		Mortgage notes payable - Hotel					113,746,000
		Debt issuance costs					(659,000	)
		Total mortgage notes payable - Hotel				$	113,087,000
Florence	157	March	2015	April	2025	$	3,222,000			3.87	%
Las Colinas	358	November	2012	December	2022		16,974,000			3.73	%
Morris County	151	July	2012	August	2022		8,737,000			3.51	%
Morris County	151	June	2014	August	2022		2,512,000			4.51	%
St. Louis	264	May	2013	May	2023		5,365,000			4.05	%
Los Angeles	4	September	2012	September	2042		343,000			3.75	%
Los Angeles	2	September	2012	September	2042		347,000			3.75	%
Los Angeles	1	August	2012	September	2042		373,000			3.75	%
Los Angeles	31	November	2010	December	2020		4,927,000			4.85	%
Los Angeles	30	August	2007	September	2022		5,765,000			5.97	%
Los Angeles	14	April	2011	March	2021		1,632,000			5.89	%
Los Angeles	12	June	2016	June	2026		2,172,000			3.59	%
Los Angeles	9	April	2011	May	2021		1,303,000			5.60	%
Los Angeles	9	April	2011	March	2021		1,112,000			5.89	%
Los Angeles	8	July	2013	July	2043		440,000			3.75	%
Los Angeles	7	August	2012	September	2042		846,000			3.75	%
Los Angeles	4	August	2012	September	2042		579,000			3.75	%
Los Angeles	1	September	2012	September	2042		399,000			3.75	%
Los Angeles	1	September	2018	October	2048		990,000			4.75	%
Los Angeles	Office	April	2016	January	2021		806,000			4.91	%
		Mortgage notes payable - real estate					58,844,000
		Debt issuance costs					(273,000	)
		Total mortgage notes payable - real estate				$	58,571,000

Future minimum payments for all mortgage notes payable are as follows:

For the year ending June 30,
2021	$	11,211,000
2022		3,101,000
2023		28,244,000
2024		108,113,000
2025		3,494,000
Thereafter		24,188,000
	$	178,351,000