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 10^th JV”) formed to acquire and operate 250 North 10^th, a newly built 234-unit apartment building in Williamsburg, Brooklyn, New York. On January 15, 2020, the 250 North 10^th 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 10^th Loan”) secured by 250 North 10^th 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 10^th 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 10^th. 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)