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Investments in Unconsolidated Joint Ventures
9 Months Ended
Sep. 30, 2020
Investments in Unconsolidated Joint Ventures  
Investments in Unconsolidated Joint Ventures

Note 12 – Investments in Unconsolidated Joint Ventures

Through a wholly-owned subsidiary, we own a 50% interest in a joint venture (the “Berkley Joint Venture”) formed to acquire and operate The Berkley, a newly built 95-unit multi-family property.  In December 2016, the joint venture closed on the acquisition of The Berkley through a wholly-owned special purpose entity for a purchase price of $68.885 million, of which $42.5 million was financed through a 10-year loan (the “Berkley Loan”) secured by The Berkley, and the balance was paid in cash, half of which was funded by us.  The non-recourse Berkley Loan bore interest at the 30-day LIBOR rate plus 216 basis points, was interest only for five years, was pre-payable after two years with a 1% prepayment premium, had covenants and defaults customary for a Freddie Mac financing and had an effective interest rate of 3.92% at December 31, 2019. On February 28, 2020, in connection with a refinancing, the Berkley Joint Venture repaid the Berkley Loan in full and replaced it with a new 7-year, $33.0 million loan (the “New Berkley Loan”) which bears interest at a fixed rate of 2.717% and is interest only during the initial five years.  It is pre-payable at any time and can be upsized by up to $6.0 million under certain circumstances. We and our joint venture partner are joint and several recourse carve-out guarantors under the New Berkley Loan.

Through a wholly-owned subsidiary, we own a 10% interest in a joint venture with TF Cornerstone (the “250 North 10th JV”) formed to acquire and operate 250 North 10th, a newly built 234-unit apartment building in Williamsburg, Brooklyn, New York. On January 15, 2020, the 250 North 10th JV closed on the acquisition of the property through a wholly-owned special purpose entity for a purchase price of $137.75 million, of which $82.75 million was financed through a 15-year mortgage loan (the “250 North 10th Loan”) secured by 250 North 10th and the balance was paid in cash. Our share of the equity totaling approximately $5.9 million was funded through a loan (the “Partner Loan”) from our joint venture partner. The Partner Loan bears interest at 7.0% and is prepayable any time within its four year term. Our partner has the option of having the Partner Loan repaid in our common stock if the price of our common stock exceeds $6.50 per share at the time of conversion. The non-recourse 250 North 10th Loan bears interest at 3.39% for the duration of the loan term and has covenants, defaults, and a non-recourse carve out guaranty executed by us. We earned an acquisition fee at closing and are entitled to ongoing asset management fees and a promote upon the achievement of certain performance hurdles.

As of September 30, 2020, we have one unconsolidated VIE, namely 250 North 10th. We do not consolidate this entity because we are not the primary beneficiary and the nature of our involvement in the activities of this entity does not give us power over decisions that significantly affect this entity’s economic performance. We account for our investment in this entity under the equity method (see Note 2 – Summary of Significant Accounting Policies – Basis of Presentation – Principles of Consolidation). As of September 30, 2020, the net carrying amount of our investment in this entity was $5.7 million and our maximum exposure to loss in this entity is limited to the carrying amount of our investment.

As we do not control these joint ventures, we account for them under the equity method of accounting. The combined balance sheets for our unconsolidated joint ventures at September 30, 2020 and December 31, 2019 are as follows (in thousands):

September 30, 

December 31, 

2020

    

2019

(unaudited)

(audited)

ASSETS

  

 

  

Real estate, net

$

168,801

$

50,508

Cash and cash equivalents

 

1,688

 

344

Restricted cash

 

763

 

435

Tenant and other receivables, net

 

293

 

42

Prepaid expenses and other assets, net

 

173

 

66

Intangible assets, net

 

25,481

 

11,757

Total assets

$

197,199

$

63,152

LIABILITIES

 

  

 

  

Mortgages payable, net

$

114,481

$

41,207

Accounts payable and accrued expenses

 

1,678

 

598

Total liabilities

 

116,159

 

41,805

MEMBERS’ EQUITY

 

  

 

  

Members’ equity

 

93,411

 

27,169

Accumulated deficit

 

(10,310)

 

(5,822)

Accumulated other comprehensive loss

(2,061)

Total members’ equity

 

81,040

 

21,347

Total liabilities and members’ equity

$

197,199

$

63,152

Our investments in unconsolidated joint ventures

$

19,893

$

10,673

The statements of operations for our unconsolidated joint ventures for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

For the Three

For the Three

For the Nine

For the Nine

Months Ended

Months Ended

Months Ended

Months Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

    

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues

 

  

 

  

 

  

 

  

 

Rental revenues

$

3,303

$

834

$

9,708

$

2,499

Total revenues

 

3,303

 

834

 

9,708

 

2,499

Operating Expenses

 

  

 

  

 

  

 

  

Property operating expenses

 

925

 

270

 

2,430

 

715

Real estate taxes

 

25

 

12

 

60

 

34

General and administrative

 

3

 

2

 

8

 

7

Amortization

 

1,475

 

134

 

4,201

 

402

Depreciation

 

985

 

331

 

2,848

 

992

Total operating expenses

 

3,413

 

749

 

9,547

 

2,150

Operating (loss) income

 

(110)

 

85

 

161

 

349

Interest expense, net

 

(946)

 

(478)

 

(2,840)

 

(1,471)

Interest expense -amortization of deferred finance costs

 

(69)

 

(43)

 

(1,809)

 

(129)

Net loss

$

(1,125)

$

(436)

$

(4,488)

$

(1,251)

Our equity in net loss from unconsolidated joint ventures

$

(176)

$

(218)

$

(1,302)

$

(626)