Investment in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2017

Investment in Unconsolidated Joint Ventures

Investment in Unconsolidated Joint Ventures

3.Investment in Unconsolidated Joint Ventures 

Our investment in unconsolidated joint ventures consist of a preferred equity investment and two mezzanine loans which are accounted for as an unconsolidated joint venture in accordance with GAAP.

Preferred Equity Investment: We provided a total preferred capital contribution commitment of $25,650,000 to an entity (or the JV) that owns four properties in Arizona that provides independent, assisted living and memory care services. As the preferred member of the JV, we are entitled to receive a 15% preferred return, a portion of which is paid in cash and a portion of which is deferred. The unpaid preferred return will be accrued to the extent of the common member’s capital account balance in the underlying JV. Since the common member’s capital account balance is $0, we did not record the deferred portion of the preferred return during the quarter ended March 31, 2017.

During the three months ended March 31, 2017, we funded $914,000 of the preferred capital contribution. Accordingly, we have a remaining preferred capital contribution commitment of $2,823,000.  At March 31, 2017 and December 31, 2016, our preferred equity investment was $23,234,000 and $22,321,000, respectively. During the three months ended March 31, 2017 and 2016, we recognized $317,000 and $272,000, respectively, in income and received $302,000 and $268,000, respectively, of cash interest from our preferred equity investment in the JV. 

Mezzanine Loans: During 2016, we entered into a $3,400,000 seven-year term mezzanine loan commitment for the development of a 127-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan agreement provides us a 15% preferred return, a portion of which is paid in cash and the remaining unpaid portion is deferred and subsequently paid to us at times set forth in the loan agreement. As of March 31, 2017 and December 31, 2016, no payments were funded under this mezzanine loan.

We also have a $2,900,000 mezzanine loan to develop a 99-unit senior housing community in Florida which will provide a combination of assisted living, memory care and independent living services. The loan bears interest at 10% and will escalate to 15%.  Interest payments were deferred and no interest was recorded between the time of the commencement of the loan and February 1, 2017, the first payment date per the terms of the loan agreement. In accordance with GAAP, we used the effective interest method to recognize interest income and recorded the difference between the effective interest income and cash interest income to the loan principal balance. During the three months ended March 31, 2017, we recognized $128,000 in income and received $54,000 of cash interest. At March 31, 2017 and December 31, 2016, the outstanding balance under this loan was $2,947,000 and $2,900,000, respectively.