Investment in Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

Investment in Unconsolidated Joint Ventures

On November 16, 2018, we formed Victory Abode Apartments, LLC ("VAA"), a joint venture with the Macquarie Group (“Macquarie”). VAA was formed as a result of a sale of the 50% ownership interest in 51 multifamily properties owned by us in exchange for a 50% voting interest / 49% profit participation interest ("Class A interest") in VAA and a note payable (“Mezzanine Loan”). Concurrent with the Contribution, VAA issued Class B interests with a 2% profits participation interest and no voting rights to Daniel J. Moos, our former President and Chief Executive Officer (“Class B Member”). The Class B Member serves as the Manager of VAA.

Interest on the Mezzanine loan is limited to cash generated from the properties and matures concurrently with the termination of VAA. Accordingly, we account for our interest in the Mezzanine Loan as additional equity interest and includes any interest payments accrued as income from unconsolidated joint ventures.In connection with the formation of VAA, ten out of the initial properties were subject to an earn-out provision ("Earn Out") that provides for a remeasurement of value after a two-year period following the completion of construction. Upon the formation of VAA, we recorded a liability ("Earn Out Obligation") for the $10,000 advance on the Earn Out that we received from Macquarie.

On March 30, 2021, we sold a 50% ownership interest in Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie for $2,551 resulting in gain on sale of $1,417. Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.

On July 13, 2021, we received the arbitration result of a dispute regarding the measurement of the Earn Out Obligation. Our position and claims were declined, and the position of Macquarie was fully accepted. As a result, we are required to pay approximately $39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $29,600 during the year ended December 31, 2021 (See Note 7 – Real Estate Activity). In accordance with the joint venture operating agreement, the Earn Out Obligation will be paid from our share of future distributions from VAA, which generally occur each six months. In July 2021, our $5,441 distribution from VAA was paid directly to Macquarie as a reduction of the Earn Out Obligation.

On November 17, 2021, we entered into a Major Decision with Macquarie to engage a broker and initiate a sale of all the properties held by the VAAoperties. In connection with the sale, VAA will distribute seven of its existing properties to us (referred to herein as the "Holdback Properties") and we in turn, will contribute one of our properties ("Contributed Property") into the portfolio offered for sale to third-parties. The remaining forty-five properties as referred to herein as the VAA Portfolio. The sales price for the Holdback Properties and Contributed Property will be the estimated value of these properties as stated in the agreement, multiplied by the ratio of the actual sales price of the VAA Portfolio over the estimated value of the portfolio as stated in the agreement.

Each of the properties in the VAA Portfolio is appraised on an annual basis as part of our filing requirement with the TASE. As of December 31, 2021, the fair value of the VAA Portfolio, based on these appraisals was $1.4 billion. The appraised value reflects an aggregate of individual property appraised value and does not reflect a premium that is sometimes offered in a portfolio sale. These values reflects a compression of cap rates for multifamily properties during the last year. However, there can be no assurances that these values will be realized. The Major Decision agreement will terminate on August 1, 2022, if the VAA Portfolio has not been sold.

The following is a summary of our investment in unconsolidated joint ventures:


	December 31,
	2021		2020
Condensed Balance Sheets of VAA
Assets
Real estate	$	1,208,716	$	1,217,725
Other assets	72,151		61,472
Total assets	$	1,280,867	$	1,279,197
Liabilities and Partners Capital
Mortgage notes payable	$	854,015	$	830,721
Mezzanine notes payable	242,942		239,878
Other liabilities	40,316		35,632
Our share of partners' capital	71,800		84,983
Outside partner's capital	71,794		87,983
Total liabilities and partners' capital	$	1,280,867	$	1,279,197
Investment in unconsolidated joint ventures
Our share of partners' capital	$	71,800	$	84,983
Our share of Mezzanine note payable and accrued interest	125,306		123,752
Basis adjustment (1)	(144,227)		(156,949)
Total investment in unconsolidated joint ventures	$	52,879	$	51,786

(1) We amortize the difference between the cost of our investment in unconsolidated joint ventures and the book value of our underlying equity into income on a straight-line basis consistent with the lives of the underlying assets.

The following is a summary of our (loss) income from investments in unconsolidated joint venture:


	For the Years Ended December 31,
	2021		2020		2019
Condensed Statements of Operations of VAA
Revenue
Rental revenue	$	131,455	$	117,336	$	109,746
Other revenue	7,706		6,240		5,631
Total revenue	139,161		123,576		115,377
Expenses
Operating expenses	72,001		62,919		60,516
Depreciation and amortization	31,073		30,456		43,942
Interest	55,129		56,903		61,315
Total expenses	158,203		150,278		165,773
Net loss	$	(19,042)	$	(26,702)	$	(50,396)
Our share of net income (loss) in unconsolidated joint venture	$	14,531	$	(519)	$	(2,758)