REAL ESTATE, NET and INTANGIBLE ASSETS, NET

12 Months Ended

Dec. 31, 2022

REAL ESTATE, NET and INTANGIBLE ASSETS, NET

REAL ESTATE, NET and INTANGIBLE ASSETS, NET

NOTE 4 – REAL ESTATE, NET and INTANGIBLE ASSETS, NET

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

	December 31,		December 31,
	2022		2021
Building and building improvements	$	51,141	$	51,141
Tenant improvements		221		200
Furniture and fixtures		847		775
Land and land improvements		28,847		28,847
		81,056		80,963
Less: accumulated depreciation		16,405		13,629
	$	64,651	$	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 December 31, 2022 and December 31, 2021.  Depreciation expense amounted to approximately $4.0 million, $4.0 million and $3.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

In May 2018, we closed on the acquisition of 237 11^th, a 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 water damage in apartment units and other property at 237 11^th resulting from construction defects, we submitted a notice of claim to our insurance carrier for property damage and business interruption (lost revenue) in September 2018.  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, from time to time, 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, and we continue to pursue all legal remedies.  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 December 31, 2022, the property was 100% leased.

As of December 31, 2022 and 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 $3.4 million and $2.7 million at December 31, 2022 and 2021, respectively. Amortization expense amounted to $740,000 for each of the three years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, the estimated annual amortization of intangible assets for each of the five succeeding years and thereafter is as follows (dollars in thousands):

	Real Estate
	Tax
	Abatement
Year	Amortization
2023	$	740
2024		740
2025		740
2026		740
2027		740
Thereafter		3,992

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 constructed a school 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 $46.3 million having been paid to us as of December 31, 2022 from the SCA, with approximately $243,000 remaining to be paid. We have also received an aggregate of $54.7 million in reimbursable construction costs from the SCA through December 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 has recently completed the buildout of the interior space, which is a public elementary school with approximately 476 seats.  The school received its final TCO and opened to students in September 2022.  We have also guaranteed certain obligations with respect to the construction of the school.