Investments in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2022

Investments in Unconsolidated Joint Ventures

Investments in Unconsolidated Joint Ventures

Note 12 – Investments in Unconsolidated Joint Ventures

Prior to its sale in April 2022, we owned 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. On February 28, 2020, in connection with a refinancing, the Berkley JV repaid the acquisition loan in full and replaced it with a new 7-year, $33.0 million loan (the “New Berkley Loan”) which bore interest at a fixed rate of 2.717% and was interest only during the initial five years.  It was pre-payable at any time and could have been increased by up to $6.0 million under certain circumstances. We and our joint venture partner were joint and several recourse carve-out guarantors under the New Berkley Loan.  In October 2021, we entered into a loan agreement with our joint venture partner (see Note 5 – Loans Payable and Secured Line of Credit – The Berkley Partner Loan). This property was sold in April 2022.  See Note 14 – Subsequent Events for information regarding the sale.  

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.  In January 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.  See Note 5 - Loans Payable and Secured Line of Credit – 250 North 10^th Note. As of March 31, 2022, the net carrying amount of our investment in this entity was $4.7 million and our maximum exposure to loss in this entity is limited to the carrying amount of our investment.

As we do not control the 250 North 10^th JV (and did not control the Berkley JV), we account for these joint ventures under the equity method of accounting.  We entered into an interest rate swap on February 28, 2020 whereby we recognized our share of the fair value of the asset of approximately $840,000 during the three months ended March 31, 2022 and we recognized our share of the fair value liability of approximately $198,000 during the three months ended March 31, 2021.

The combined balance sheets for our unconsolidated joint ventures at March 31, 2022 and December 31, 2021 are as follows (dollars in thousands):

	March 31,		December 31,
	2022		2021
ASSETS
Real estate, net	$	163,303	$	164,143
Cash and cash equivalents		1,393		1,244
Restricted cash		929		891
Tenant and other receivables, net		229		225
Prepaid expenses and other assets, net		1,055		315
Intangible assets, net		20,944		21,527
Total assets	$	187,853	$	188,345
LIABILITIES
Mortgages payable, net	$	111,326	$	112,934
Accounts payable and accrued expenses		1,821		1,849
Total liabilities		113,147		114,783
MEMBERS’ EQUITY
Members’ equity		87,539		87,654
Accumulated deficit		(12,833)		(14,092)
Total members’ equity		74,706		73,562
Total liabilities and members’ equity	$	187,853	$	188,345
Our investments in unconsolidated joint ventures	$	18,517	$	17,938

The statements of operations for our unconsolidated joint ventures for the three months ended March 31, 2022 and 2021 are as follows (dollars in thousands):

	For the Three Months Ended		For the Three Months Ended
	March 31,		March 31,
	2022		2021
Revenues
Rental revenues	$	3,263	$	2,979
Total revenues		3,263		2,979
Operating Expenses
Property operating expenses		1,112		1,065
Real estate taxes		25		25
General and administrative		2		2
Amortization		583		731
Depreciation		961		984
Total operating expenses		2,683		2,807
Operating income		580		172
Interest expense		(930)		(939)
Interest expense - amortization of deferred finance costs		(72)		(72)
Interest income (expense) - change in fair market value of interest rate swap		1,681		(396)
Net income (loss)	$	1,259	$	(1,235)
Our equity in net income (loss) from unconsolidated joint ventures	$	746	$	(372)