Real Estate, Net

9 Months Ended

Sep. 30, 2021

Real Estate, Net

Real Estate, Net

Note 3 – Real Estate, Net

As of September 30, 2021 and December 31, 2020, real estate, net, includes the following (in thousands):

	September 30,		December 31,
	2021		2020
	(unaudited)		(audited)
Real estate under development	$	242,274	$	213,178
Building and building improvements		41,358		41,358
Tenant improvements		189		189
Furniture and fixtures		759		731
Land and land improvements		27,939		27,939
		312,519		283,395
Less: accumulated depreciation		5,407		4,191
	$	307,112	$	279,204

Real estate under development as of September 30, 2021 and December 31, 2020 includes 77 Greenwich and the Paramus, New Jersey property.  Building and building improvements, tenant improvements, furniture and fixtures, and land and land improvements includes the 237 11^th property as of September 30, 2021 and December 31, 2020.

Depreciation expense amounted to approximately $406,000 and $403,000 for the three months ended September 30, 2021 and 2020, respectively, and $1.2 million and $1.2 million for the nine months ended September 30, 2021 and 2020, respectively

77 Greenwich and the New York City School Construction Authority

We entered into an agreement with the New York City School Construction Authority (the “SCA”), whereby we agreed to construct a school to be sold to the SCA as part of our condominium development at 77 Greenwich. Pursuant to the agreement, the SCA agreed to pay us $41.5 million for the purchase of their condominium unit and reimburse us for the costs associated with constructing the school, including a construction supervision fee of approximately $5.0 million. Payments for construction are being made by the SCA to the general contractor in installments as construction on their condominium unit progresses. Payments to us for the land and construction supervision fee commenced in January 2018 and continued through October 2019 for the land and will continue through the end of 2021 for the construction supervision fee, with an aggregate of $46.1 million having been paid to us as of September 30, 2021 from the SCA, with approximately $469,000 remaining to be paid. We have also received an aggregate of $50.1 million in reimbursable construction costs from the SCA through September 30, 2021. The payments and reimbursements from the SCA received prior to April 2020 were recorded as deferred real estate deposits on the consolidated balance sheets until sales criteria were satisfied in April

2020.  In April 2020, the SCA closed on the purchase of the school condominium unit with us, at which point title transferred to the SCA, and the SCA is now proceeding to complete the buildout of the interior space, which is planned to become an approximately 476 seat public elementary school.  The school is currently anticipated to open in September 2022.  Upon conveyance, we recognized a gain on the sale of approximately $20.0 million and an additional gain of $4.2 million related to the recognition of our deferred construction supervision fee.  We have also guaranteed certain obligations with respect to the construction of the school.

Unrelated to the SCA, closings on residential condominium units started in September 2021 and residents have started to move in.

237 11^th

In May 2018, we closed on the acquisition of 237 11^th, a recently built 105-unit, 12-story multi-family apartment building located at 237 11^th Street, Brooklyn, New York for a purchase price of $81.2 million, excluding transaction costs of approximately $0.7 million. Due to certain construction defects at 237 11^th that resulted in water penetration into the building and damage to certain apartment units and other property, which defects we believe were concealed and which would have required significant invasive work of a type not usually required or permitted, especially on a newly-built asset, to be detected, we submitted proofs of loss to our insurance carrier for property damage and business interruption (lost revenue) in March 2019.  The insurance carrier subsequently disclaimed coverage for the losses and we filed a complaint against the carrier and its administrator, alleging that they breached the insurance policy by denying coverage and requesting a declaration that they are obligated to cover the claimed damage. We also filed legal claims against the seller, its parent company, and the general contractor to recover damages arising from the defective construction. In addition, the general contractor impleaded into that litigation several subcontractors who performed work on the property.  Management expects to recover some portion of the cost incurred to repair the property through the litigations and/or settlement negotiations with the seller, its parent company, the general contractor, the subcontractors, and the insurance carrier, although the amount of damages that may be recoverable in litigation and/or potential settlement negotiations are uncertain at this time, as is the receipt of any such payments, which has been impacted by the COVID-19 pandemic, including the resulting backlog in the court system and slowdown in judicial proceedings. A mediation process commenced at the end of February 2021 with the seller, its parent company, the general contractor, and the third-party defendants impleaded by the general contractor to potentially settle the case involving those parties.  We incurred significant cash outflows for costs associated with these repairs and remediation, which commenced in September 2019.  As of October 31, 2021, the property was approximately 92.4% leased.

As of September 30, 2021 and December 31, 2020, intangible assets, net consisted of the real estate tax abatement at its original valuation of $11.1 million offset by its related accumulated amortization of approximately $2.5 million and $1.9 million at September 30, 2021 and December 31, 2020, respectively. Amortization expense amounted to $185,000 for each of the three months ended September 30, 2021 and 2020, respectively, and $555,000 for each of the nine months ended September 30, 2021 and 2020, respectively