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Mortgage Notes Payable
12 Months Ended
Jun. 30, 2021
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 principal 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, 2021 and 2020, 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 lockbox 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 2021 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox and cash sweep was already in place and will remain in place up to loan maturity regardless of the DSCR. Justice has not missed any of its debt service payments and does not anticipate missing any debt obligations even during these uncertain times for at least the next twelve months and beyond.

 

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 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.

 

In October 2020, the Company refinanced its $4,800,000 mortgage note payable on its 31-unit apartment complex in Santa Monica, California and obtained a new mortgage note payable for $8,400,000. The Company received net proceeds of $3,529,000 as a result of the refinance. Interest rate on the mortgage is fixed at 2.52% for ten years and the mortgage matures in November 2030.

 

In November 2020, the Company refinanced its $1,088,000 mortgage note payable on its 9-unit apartment complex in West Los Angeles, California and obtained a new mortgage note payable for $1,995,000. The Company received net proceeds of $798,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.05% for ten years and the mortgage matures in December 2030.

 

In January 2021, the Company refinanced its $1,597,000 mortgage note payable on its 14-unit apartment complex in West Los Angeles, California and obtained a new mortgage note payable for $2,780,000. The Company received net proceeds of $1,057,000 as a result of the refinance. Interest rate on the mortgage is fixed at 3.05% for ten years and the mortgage matures in February 2031.

 

In June 2021, the Company refinanced its $563,000 mortgage note payable on its 4-unit apartment complex in West Los Angeles, California and obtained a new mortgage note payable for $1,155,000. The Company received net proceeds of $619,000 as a result of the refinance. Interest rate on the mortgage has a five-year fixed interest rate of 3.5% per annum and adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date of the new mortgage is August 1, 2051.

 

In June 2021, the Company refinanced two of its single-family houses in West Los Angeles, California with two existing mortgages totaling $563,000 and obtained two new mortgage notes payable for a combined $1,475,000. The Company received combined net proceeds of $759,000 as a result of the refinancing of these two mortgages. Interest rate on the mortgages is at five-year fixed interest rate of 3.5% per annum and adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date of the new mortgage is August 1, 2051.

 

Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2021 and 2020, the mortgage notes payables are summarized as follows:

 

    As of June 30, 2021                    
    Number   Note   Note            
Property   of Units   Origination Date   Maturity Date   Mortgage Balance     Interest Rate  
                                 
SF Hotel   544 rooms   December   2013   January   2024   $ 90,745,000       5.28 %
SF Hotel   544 rooms   July   2019   January   2024     20,000,000       7.25 %
        Mortgage notes payable - Hotel         110,745,000          
        Debt issuance costs         (611,000 )        
        Total mortgage notes payable - Hotel       $ 110,134,000          
                                     
Florence   157   March   2015   April   2025   $ 3,076,000       3.87 %
Las Colinas   358   November   2012   December   2022     16,065,000       3.73 %
Morris County   151   April   2020   May   2030     17,975,000       3.17 %
St. Louis   264   May   2013   May   2023     5,100,000       4.05 %
Los Angeles   4   September   2012   September   2042     323,000       3.75 %
Los Angeles   2   September   2012   September   2042     327,000       3.75 %
Los Angeles   1   June   2021   August   2051     920,000       3.50 %
Los Angeles   31   October   2020   November   2030     8,400,000       2.52 %
Los Angeles   30   August   2007   September   2022     5,453,000       5.97 %
Los Angeles   14   January   2021   February   2031     2,761,000       3.05 %
Los Angeles   12   June   2016   June   2026     2,077,000       3.59 %
Los Angeles   9   June   2020   July   2030     2,552,000       3.09 %
Los Angeles   9   November   2020   December   2030     1,975,000       3.05 %
Los Angeles   8   July   2013   July   2043     416,000       3.75 %
Los Angeles   7   August   2012   September   2042     798,000       3.75 %
Los Angeles   4   June   2021   August   2051     1,155,000       3.50 %
Los Angeles   1   June   2021   August   2051     555,000       3.50 %
Los Angeles   1   September   2018   October   2048     957,000       4.75 %
        Mortgage notes payable - real estate         70,885,000          
        Debt issuance costs         (626,000 )        
        Total mortgage notes payable - real estate       $ 70,259,000          

 

    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          

 

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

 

For the year ending June 30,      
2022   $ 3,209,000  
2023     28,480,000  
2024     108,418,000  
2025     3,808,000  
2026     1,006,000  
Thereafter     36,710,000  
    $ 181,631,000