Real Estate, Net

6 Months Ended

Jun. 30, 2023

Real Estate, Net

Real Estate, Net

Note 4 – Real Estate, Net

As of June 30, 2023 and December 31, 2022, real estate, net, includes the following (dollars in thousands):

	June 30,		December 31,
	2023		2022
Building and building improvements	$	51,141	$	51,141
Tenant improvements		221		221
Furniture and fixtures		890		847
Land and land improvements		28,847		28,847
		81,099		81,056
Less: accumulated depreciation		17,787		16,405
	$	63,312	$	64,651

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 June 30, 2023 and December 31, 2022.  Depreciation expense amounted to approximately $692,000 and $696,000 for the three months ended June 30, 2023 and 2022, respectively, and approximately $1.4 million for each of the six months ended June 30, 2023 and 2022, 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 of the building, including defects that resulted in water damage as well as other defects. 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 June 30, 2023, the property was 98.1% leased.

As of June 30, 2023 and December 31, 2022, 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 $3.8 million and $3.4 million at June 30, 2023 and December 31, 2022, respectively. Amortization expense amounted to $185,000 for each of the three months ended June 30, 2023 and 2022, respectively, and $370,000 for each of the six months ended June 30, 2023 and 2022, 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 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 June 30, 2023 from the SCA, with approximately $208,000 remaining to be paid. We have also received an aggregate of $55.4 million in reimbursable construction costs from the SCA through June 30, 2023.  In April 2020, the SCA closed on the purchase of the school condominium unit from us, at which point title transferred to the SCA, and the SCA has 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.