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Investments in Real Estate Entities
 12 Months Ended
Dec. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Real Estate Entities Investments in Real Estate Entities

Investments in Unconsolidated Real Estate Entities

The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting, as discussed in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” under Principles of Consolidation. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects. Certain of these investments are subject to various buy‑sell provisions or other rights which are customary in real estate joint venture agreements. The Company and its partners in these entities may initiate these provisions to either sell the Company's interest or acquire the joint venture interest from the Company's partner.

The following presents the Company's activities in unconsolidated real estate entities for the years ended December 31, 2019, 2018 and 2017:

Archstone Multifamily Partners AC LP (the “U.S. Fund”)—The Company is the general partner of the U.S. Fund and has a 28.6% combined general partner and limited partner equity interest. The Company acquired its interest in the U.S. Fund as part of the Archstone Acquisition (as defined in Note 5, “Investments in Real Estate Entities,” of the Consolidated Financial Statements in Item 8 in the Company's Form 10-K filed February 22, 2019). During 2019, the U.S. Fund sold Avalon Marina Bay and the adjacent marina, The Harbor at Marina Bay, located in Marina del Rey, CA, containing 205 apartment homes and 229 boat slips for $86,000,000. The Company's proportionate share of the gain in accordance with GAAP was $5,788,000. In conjunction with the disposition of the community, the U.S. Fund repaid $49,800,000 of related secured indebtedness in advance of its scheduled maturity date. The U.S. Fund sold one community in each 2018 and 2017, and the Company's proportionate share of the gains in accordance with GAAP was $8,636,000 and $13,788,000, respectively.

Multifamily Partners AC JV LP (the “AC JV”)—The Company has a 20.0% equity interest in the AC JV, and acquired its interest as part of the Archstone Acquisition. During 2018, the AC JV sold one community, and the Company's proportionate share of the gain in accordance with GAAP was $2,019,000.

Legacy JV—As part of the Archstone Acquisition the Company entered into a limited liability company agreement with Equity Residential, through which it assumed obligations of Archstone in the form of preferred interests, some of which are governed by tax protection arrangements (the “Legacy JV”). The Company has a 40.0% interest in the Legacy JV. During the years ended December 31, 2019, 2018 and 2017, the Legacy JV redeemed certain of the preferred interests and paid accrued dividends, of which the Company's portion was $1,400,000, $1,120,000 and $2,000,000, respectively. At December 31, 2019, the remaining preferred interests had an aggregate liquidation value of $35,542,000, the Company's 40.0% share of which was included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

Sudbury Development, LLC—During 2015, the Company entered into a joint venture agreement to purchase land and pursue entitlements and pre-development activity for a mixed-use development project in Sudbury, MA, including multifamily apartment homes, retail, senior housing and age-restricted housing. The Company has a 60.0% ownership interest in the venture, which is considered a VIE. During the year ended December 31, 2017, the Company and its venture partner each acquired their respective portion of the real estate held by the venture, with the Company's portion consisting of a parcel of land on which the Company developed an apartment community, acquired for an investment of $19,200,000. The Company and its venture partner retained continuing involvement with the venture to fund the completion of the planned infrastructure and site work, which was substantially complete during 2018.

North Point II JV, LP—During 2016, the Company entered into a joint venture to develop, own, and operate AVA North Point, an apartment community located in Cambridge, MA, which completed construction during 2018 and contains 265 apartment homes. The Company owned a 55.0% interest in the venture, and the venture partner owned the remaining 45.0% interest. During the year ended December 31, 2019, the Company acquired the 45.0% equity interest of AVA North Point that was owned by the venture partner, for a purchase price of $71,280,000. Upon acquisition, the Company consolidated AVA North Point as a wholly-owned operating community.

NYTA MF Investors LLC (“NYC Joint Venture”)—During 2018, the Company contributed five wholly-owned operating communities located in New York, NY to a newly formed joint venture with the intent to own and operate the communities. The Company retained a 20.0% interest in the venture, with the venture partner owning the remaining 80.0% interest, and the partners sharing in returns in accordance with their ownership interests. In conjunction with the formation of the venture in 2018, the Company sold the five communities, containing an aggregate of 1,301 apartment homes and 58,000 square feet of retail space, to the venture for a sales price of $758,900,000. The Company received net cash proceeds of $276,799,000 and the venture assumed
$395,939,000 of secured indebtedness from the Company. The Company recognized a gain on sale of $179,861,000, including the recognition of the Company's 20.0% retained interest at fair value.

Avalon Alderwood MF Member, LLC—During 2019, the Company entered into a joint venture to develop, own, and operate Avalon Alderwood Mall, an apartment community located in Lynnwood, WA, which is currently under construction and expected to contain 328 apartment homes when complete. The Company has a 50.0% interest in the venture, which is considered a VIE, though the Company was not considered to be the primary beneficiary because it shares control with its third party partner. The Company and its venture partner share decision making authority for all significant aspects of the venture's activities including, but not limited to, changes in the ownership or capital structure, and the capital budget to construct Avalon Alderwood Mall.

AvalonBay Value Added Fund II, L.P. (“Fund II”)—During 2018 the Company held an investment in and received the final distributions for the AvalonBay Value Added Fund II, L.P. (“Fund II”), a private, discretionary real estate investment vehicle formed in 2008. During 2017, Fund II sold its final three communities, and the Company's proportionate share of the gain in accordance with GAAP was $26,322,000, and the Company completed the dissolution of Fund II in 2018. A wholly owned subsidiary of the Company was the general partner of Fund II. The Company had an equity interest of 31.3% in Fund II, and upon achievement of a threshold return the Company had a right to incentive distributions for its promoted interest based on current returns earned by Fund II which represented 40.0% of further Fund II distributions, which was in addition to its proportionate share of the remaining 60.0% of distributions. During the years ended December 31, 2018 and 2017, the Company recognized income of $925,000 and $26,472,000 for its promoted interest, respectively, which was reported as a component of equity in income of unconsolidated real estate entities on the accompanying Consolidated Statements of Comprehensive Income.

The following is a combined summary of the financial position of the entities accounted for using the equity method and presented on the accompanying Consolidated Balance Sheets as of the dates presented (dollars in thousands):

 
12/31/19
 
12/31/18
Assets:
 

 
 

Real estate, net
$
1,204,470

 
$
1,420,453

Other assets
196,488

 
47,333

Total assets
$
1,400,958

 
$
1,467,786

Liabilities and partners' capital:
 

 
 

Mortgage notes payable, net (1)
$
782,257

 
$
837,311

Other liabilities
157,379

 
15,627

Partners' capital
461,322

 
614,848

Total liabilities and partners' capital
$
1,400,958

 
$
1,467,786


_________________________________
(1)
The Company has not guaranteed the debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

The following is a combined summary of the operating results of the entities accounted for using the equity method and presented on the accompanying Consolidated Statements of Comprehensive Income, for the years presented (dollars in thousands):

 
For the year ended
 
12/31/2019 (1)
 
12/31/2018 (2)
 
12/31/17
Rental and other income
$
144,431

 
$
92,533

 
$
102,261

Operating and other expenses
(55,732
)
 
(35,840
)
 
(40,341
)
Gain on sale of communities
21,748

 
54,202

 
136,333

Interest expense, net
(33,896
)
 
(22,500
)
 
(27,122
)
Depreciation expense
(58,387
)
 
(26,706
)
 
(25,914
)
Net income
$
18,164

 
$
61,689

 
$
145,217

 
 
 
 
 
 
Company's share of net income (3)
10,779

 
17,519

 
73,120

Amortization of excess investment and other
(2,127
)
 
(2,249
)
 
(2,376
)
Equity in income from unconsolidated real estate investments
$
8,652

 
$
15,270

 
$
70,744

_________________________________
(1)
Amounts include results from AVA North Point through the date the Company acquired its venture partner's 45.0% equity interest.
(2)
Amounts include results from the NYC Joint Venture from the date the venture was formed.
(3)
Includes the Company's share of gain on sale of communities and income recognized for its promoted interest.

Investments in Consolidated Real Estate Entities

During the year ended December 31, 2019, the Company acquired five consolidated communities:

•
Avalon Southlands, located in Aurora, CO, which contains 338 apartment homes and was acquired for a purchase price of $91,250,000.

•
Avalon Cerritos, located in Cerritos, CA, which contains 132 apartment homes and was acquired for a purchase price of $60,500,000. The acquisition of Avalon Cerritos was facilitated through a tax-deferred exchange as the replacement property for Archstone Lexington, which was sold during the year ended December 31, 2019, as further discussed in Note 6, "Real Estate Disposition Activities." Archstone Lexington was acquired by the Company as part of the Archstone Acquisition, and was subject to both limitations related to disposal of the community, as well as for there to be a required level of secured financing as a result of the tax structured contribution of the assets to the prior Archstone partnerships. The Company maintained compliance with the tax protection requirements when selling Archstone Lexington by facilitating the sale through the tax-deferred exchange, acquiring and encumbering Avalon Cerritos. See Note 3, "Mortgage Notes Payable, Unsecured Notes and Credit Facility," for further discussion of indebtedness associated with Archstone Lexington and Avalon Cerritos.

•
Portico at Silver Spring Metro, located in Silver Spring, MD, which contains 151 apartment homes and was acquired for a purchase price of $43,450,000.

•
Avalon Bonterra, located in Hialeah, FL, which contains 314 apartment homes and was acquired for a purchase price of $90,000,000.

•
Avalon Toscana, located in Margate, FL, which contains 240 apartment homes and was acquired for a purchase price of $60,250,000.

During the year ended December 31, 2018, the Company acquired four communities, containing an aggregate 1,096 apartment homes, which were acquired for an aggregate purchase price of $334,450,000. During the year ended December 31, 2017, the Company acquired three communities, containing an aggregate 1,062 apartment homes, which were acquired for an aggregate purchase price of $365,750,000.

The Company accounted for these as asset acquisitions and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings, and an internal model to determine the fair values of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.