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Investment in Unconsolidated Joint Ventures
 9 Months Ended
Sep. 30, 2022
Equity Method Investments and Joint Ventures [Abstract]  
Investment in Unconsolidated Joint Ventures Investment in Unconsolidated Joint Ventures
On November 16, 2018, our SPC subsidiary 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.
In connection with the formation of VAA, ten of the initial properties were subject to an earn-out provision ("Earn Out") that provided for a remeasurement of value after a two-year period following the completion of construction. Upon the formation of VAA, we recorded an initial 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 were required to pay approximately $39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $29,600 during the nine months ended September 30, 2022 (See Note 7 – Real Estate Activity). In accordance with the joint venture operating agreement, the Earn Out Obligation was paid from our share of subsequent distributions from VAA.
On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) held by VAA and one property held by our SPC subsidiary.
On September 15, 2022, VAA, SPC, Macquarie and Pillar entered a Distribution and Holdback Property Agreement (“Distribution Agreement”), which provides the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“Holdback Portfolio”).
On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $1,810,700, resulting in gain on sale of $738,665 to the joint venture. In connection with sale, we received an initial distribution of $182,848 from VAA, which included the payment of the remaining balance of the Earn Out Obligation.
On November 1, 2022, in connection with the sale of the VAA Sale Portfolio, we received an additional distribution from VAA (See Note 18 - Subsequent Events), which included the full operational control of the Holdback Portfolio and a cash payment of $203,936. We are in the process of assuming the mortgage notes payable on Holdback Portfolio.
We plan to use our share of the proceeds from the sale of the VAA Sale Portfolio for additional investment in income-producing real estate, to pay down our debt and for general corporate purposes. Our ownership interest in VAA is held by SPC, and is therefore subject to the bond covenants of the three series of bonds that have been issued by SPC. These provisions include restrictions on the distribution of cash from SPC (See Note 12 - Bonds Payable).
The following is a summary of our investment in VAA:
September 30, 2022December 31, 2021
Condensed balance sheet of VAA
Assets
Assets held for sale$— $1,135,769 
Real estate128,530 130,954 
Other assets (1)629,736 14,144 
$758,266 $1,280,867 
Liabilities and partners' capital
Liabilities on assets held for sale$7,326 $807,382 
Mortgage notes payable69,558 70,540 
Mezzanine notes payable— 242,942 
Other liabilities17,521 16,409 
Our share of partners' capital332,039 71,800 
Outside partner's capital331,822 71,794 
$758,266 $1,280,867 
Investment in VAA
Our share of partners' capital$332,039 $71,800 
Our share of Mezzanine note payable and accrued interest— 125,306 
Basis adjustment (2)(25,739)(144,227)
  Total investment in VAA$306,300 $52,879 
(1) Includes cash and cash equivalents of $581,955 at September 30, 2022.
(2)    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 income from VAA:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
   Rental revenue$3,342 $3,703 $11,305 $10,838 
   Other revenue249 159 627 505 
      Total revenue3,591 3,862 11,932 11,343 
Expenses
   Operating expenses3,032 3,484 16,174 8,128 
   Depreciation and amortization836 842 2,525 2,522 
   Interest5,135 5,865 16,969 17,538 
      Total expenses9,003 10,191 35,668 28,188 
Loss from continuing operations(5,412)(6,329)(23,736)(16,845)
Income from discontinued operations704,700 2,021 712,648 5,363 
Net income (loss)$699,288 $(4,308)$688,912 $(11,482)
Equity in the income in unconsolidated joint ventures$464,085 $3,627 $470,428 $11,535