Real Estate, Net

3 Months Ended

Mar. 31, 2022

Real Estate, Net

Real Estate, Net

Note 4 – Real Estate, Net

As of March 31, 2022 and December 31, 2021, real estate, net, includes the following (dollars in thousands):

	March 31,		December 31,
	2022		2021
	As Restated (a)		As Restated (a)
Building and building improvements	$	51,141	$	51,141
Tenant improvements		221		200
Furniture and fixtures		818		775
Land and land improvements		28,847		28,847
		81,027		80,963
Less: accumulated depreciation		14,322		13,629
	$	66,705	$	67,334

Building and building improvements, tenant improvements, furniture and fixtures, and land and land improvements included the 237 11^th property and the Paramus, New Jersey property as of March 31, 2022 and December 31, 2021.  Depreciation expense amounted to approximately $693,000 for both the three months ended March 31, 2022 and 2021, respectively.

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 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 alleging that it breached the insurance policy by denying coverage. 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 timing of 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.  We have been engaged in mediation with the seller, its parent company, the general contractor, and the third-party defendants impleaded by the general contractor to explore the possibility of settling the case involving those parties, but to date, we have not reached an agreement.  We incurred significant cash outflows for costs associated with these repairs and remediation, which commenced in September 2019 and was completed as of December 31, 2021.  As of March 31, 2022, the property was 100% leased.

As of March 31, 2022 and December 31, 2021, 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 $2.9 million and $2.7 million at March 31, 2022 and December 31, 2021, respectively. Amortization expense amounted to $185,000 for each of the three months ended March 31, 2022 and 2021, 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 completion of the SCA buildout for the construction supervision fee, with an aggregate of $46.1 million having been paid to us as of March 31, 2022 from the

SCA, with approximately $430,000 remaining to be paid. We have also received an aggregate of $51.0 million in reimbursable construction costs from the SCA through March 31, 2022.  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.  We have also guaranteed certain obligations with respect to the construction of the school.