Investments in Unconsolidated Joint Ventures

6 Months Ended

Jun. 30, 2021

Investments in Unconsolidated Joint Ventures

Investments in Unconsolidated Joint Ventures

Note 12 – 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 recently 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 and had covenants and defaults customary for a Freddie Mac financing. 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 the 250 North 10^th JV formed to acquire and operate 250 North 10^th, a recently 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 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 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 June 30, 2021, 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 June 30, 2021, the net carrying amount of our investment in this entity was $5.1 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.  During the six months ended June 30, 2021, we recognized our share of the fair value liability associated with an interest rate swap entered into on February 28, 2020 of approximately $369,000.  The combined balance sheets for our unconsolidated joint ventures at June 30, 2021 and December 31, 2020 are as follows (in thousands):

	June 30,		December 31,
	2021		2020
		(unaudited)		(audited)
ASSETS
Real estate, net	$	165,806	$	167,749
Cash and cash equivalents		1,542		1,344
Restricted cash		851		766
Tenant and other receivables, net		187		254
Prepaid expenses and other assets, net		266		204
Intangible assets, net		22,692		24,006
Total assets	$	191,344	$	194,323
LIABILITIES
Mortgages payable, net	$	113,374	$	114,218
Accounts payable and accrued expenses		1,733		1,705
Total liabilities		115,107		115,923
MEMBERS’ EQUITY
Members’ equity		90,131		92,070
Accumulated deficit		(13,894)		(11,943)
Accumulated other comprehensive loss		—		(1,727)
Total members’ equity		76,237		78,400
Total liabilities and members’ equity	$	191,344	$	194,323
Our investments in unconsolidated joint ventures	$	18,318	$	19,379

The statements of operations for our unconsolidated joint ventures for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands):

	For the Three Months Ended		For the Three Months Ended		For the Six Months Ended		For the Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
Rental revenues	$	3,185	$	3,407	$	6,164	$	6,405
Total revenues		3,185		3,407		6,164		6,405
Operating Expenses
Property operating expenses		931		799		1,996		1,505
Real estate taxes		25		24		50		35
General and administrative		3		3		5		5
Amortization		583		1,475		1,314		2,726
Depreciation		988		987		1,972		1,863
Total operating expenses		2,530		3,288		5,337		6,134
Operating income		655		119		827		271
Interest expense, net		(957)		(940)		(1,896)		(1,894)
Interest expense -amortization of deferred finance costs		(73)		(74)		(145)		(1,740)
Interest expense -change in fair market value of interest rate swap		(341)		—		(737)		—
Net loss	$	(716)	$	(895)	$	(1,951)	$	(3,363)
Our equity in net loss from unconsolidated joint ventures	$	(264)	$	(135)	$	(636)	$	(1,126)