INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

12 Months Ended

Dec. 31, 2020

INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

NOTE 13 – INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

We own a 50% interest in a joint venture (the “Berkley JV”) formed to acquire and operate The Berkley, a newly built 95-unit multi-family property.  In December 2016, the Berkley JV closed on the acquisition of The Berkley 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 JV 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 increased 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.

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 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 Note”) 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% which is payable to the extent of available cash flow 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 Note bears interest at 3.39% for the duration of the loan term and has 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 December 31, 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 December 31, 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 December 31, 2020 and 2019 are as follows (in thousands):

	December 31,		December 31,
	2020		2019
ASSETS
Real estate, net	$	167,749	$	50,508
Cash and cash equivalents		1,344		344
Restricted cash		766		435
Tenant and other receivables, net		254		42
Prepaid expenses and other assets, net		204		66
Intangible assets, net		24,006		11,757
Total assets	$	194,323	$	63,152
LIABILITIES
Mortgages payable, net	$	114,218	$	41,207
Accounts payable and accrued expenses		1,705		598
Total liabilities		115,923		41,805
MEMBERS’ EQUITY
Members’ equity		92,070		27,169
Accumulated deficit		(11,943)		(5,822)
Accumulated other comprehensive loss		(1,727)		—
Total members’ equity		78,400		21,347
Total liabilities and members’ equity	$	194,323	$	63,152
Our investments in unconsolidated joint ventures	$	19,379	$	10,673

The statements of operations for the unconsolidated joint venture for the years ended December 31, 2020, 2019, and 2018 are as follows (dollars in thousands):

	For the Year Ended		For the Year Ended		For the Year Ended
	December 31,		December 31,		December 31,
	2020		2019		2018
Revenues
Rental revenues	$	12,747	$	3,314	$	3,447
Total revenues		12,747		3,314		3,447
Operating Expenses
Property operating expenses		3,595		956		1,033
Real estate taxes		94		45		45
General and administrative		10		10		7
Amortization		5,676		536		536
Depreciation		3,833		1,328		1,318
Total operating expenses		13,208		2,875		2,939
Operating (loss) income		(461)		439		508
Interest expense, net		(3,780)		(1,905)		(1,791)
Interest expense -amortization of deferred finance costs		(1,881)		(172)		(172)
Net loss	$	(6,122)	$	(1,638)	$	(1,455)
Our equity in net loss from unconsolidated joint ventures	$	(1,571)	$	(819)	$	(728)