3. Related Party Transactions and Investments in Non-Consolidated Entities

Investment in Sponsored REITs

The Company held a common stock interest in 6, 7 and 9 Sponsored REITs at December 31, 2017, 2016 and 2015, respectively. The Company holds a non-controlling preferred stock investment in two of these Sponsored REITs, East Wacker and Grand Boulevard, from which it continues to derive economic benefits and risks.

During the year ended December 31, 2017, a property owned by one Sponsored REIT was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued. The Company held a mortgage loan with this entity, which was secured by the property owned by FSP 1441 Main Street Corp. (“1441 Main”). The loan with 1441 Main in the principal amount of $9,000,000 was repaid by the proceeds of the sale.

During the year ended December 31, 2016, properties owned by two Sponsored REITs were sold and, thereafter, liquidating distributions for their preferred shareholders were declared and issued. The Company held a mortgage loan with one of these entities, which was secured by the property owned by FSP 385 Interlocken Development Corp. (“385 Interlocken”). The loan with 385 Interlocken in the principal amount of $37,500,000 was repaid by the proceeds of the sale.

During the year ended December 31, 2015, a property owned by one Sponsored REIT was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued.

Equity in losses of investment in non-consolidated REITs:

The following table includes equity in losses of investments in non-consolidated REITs:


	Year Ended December 31,
(in thousands)	2017		2016		2015

Equity in losses of East Wacker	$	428	$	563	$	1,352
Equity in losses of Grand Boulevard		657		268		99
Impairment charge		2,519		—		—
	$	3,604	$	831	$	1,451

Equity in losses of East Wacker is derived from the Company’s preferred stock investment in the entity. In December 2007, the Company purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares, of East Wacker for $82,813,000 (which represented $96,575,000 at the offering price net of commissions of $7,726,000, loan fees of $5,553,000 and acquisition fees of $483,000 that were excluded).

Equity in losses of Grand Boulevard is derived from the Company’s preferred stock investment in the entity. In May 2009, the Company purchased 175.5 preferred shares or 27.0% of the outstanding preferred shares, of Grand Boulevard for $15,049,000 (which represented $17,550,000 at the offering price net of commissions of $1,404,000, loan fees of $1,009,000 and acquisition fees of $88,000 that were excluded).

At December 31, 2017, the Company recognized an impairment charge of $2,519,000, which represented the other-than-temporary decline in the fair value below the carrying value of one of the Company’s investments in non-consolidated REITs. The Company estimated the fair value of its equity investment by estimating the fair value of the property, less estimated costs to sell using offers to purchase the property made by third parties (Level 3 inputs, as there is no active market).

The following table includes distributions received from non-consolidated REITs:


	Year Ended December 31,
(in thousands)	2017		2016		2015

Distributions from East Wacker	$	1,289	$	916	$	—
Distributions from Grand Boulevard		107		107		107
	$	1,396	$	1,023	$	107

Non-consolidated REITs

The operating data below for 2017 includes the operations of the 7 Sponsored REITs the company held an interest in during the year and the 6 Sponsored REITs the Company held an interest in as of December 31, 2017. The operating data below for 2016 includes the operations of the 9 Sponsored REITs the Company held an interest in during the year and the 7 Sponsored REITs the Company held an interest in as of December 31, 2016. The operating data below for 2015 includes the operations of the 10 Sponsored REITs the Company held an interest in during the year and the 9 Sponsored REITs the Company held an interest in as of December 31, 2015.

Summarized financial information for the Sponsored REITs is as follows:


	December 31,		December 31,
(in thousands)	2017		2016

Balance Sheet Data (unaudited):
Real estate, net	$	312,861	$	345,532
Other assets		74,076		86,594
Total liabilities		(151,092)		(164,820)
Shareholders’ equity	$	235,845	$	267,306


	For the Year Ended
	December 31,
(in thousands)	2017		2016		2015

Operating Data (unaudited):
Rental revenues	$	53,249	$	54,257	$	57,777
Other revenues		7		39		34
Operating and maintenance expenses		(27,495)		(29,186)		(31,693)
Depreciation and amortization		(18,395)		(18,274)		(21,149)
Interest expense		(8,281)		(8,481)		(9,920)
Gain (loss) on sale, less applicable income tax		(702)		26,397		—
Net income (loss)	$	(1,617)	$	24,752	$	(4,951)

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancelable with 30 day notice. Asset management fee income from non-consolidated entities amounted to approximately $598,000, $631,000 and $701,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

From time to time the Company may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. The Company reviews Sponsored REIT loans for impairment each reporting period. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts recorded on the balance sheet. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. None of the Sponsored REIT loans have been impaired.

The Company anticipates that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately one to three years. Except for two mortgage loans which bear interest at a fixed rate, advances under each Sponsored REIT Loan bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon amount of basis points and require a 50 basis point draw fee.

The following is a summary of the Sponsored REIT Loans outstanding as of December 31, 2017:


			Maximum		Amount							Interest
(dollars in thousands)		Maturity	Amount		Drawn at		Interest			Draw		Rate at
Sponsored REIT	Location	Date	of Loan		31-Dec-17		Rate (1)			Fee (2)		31-Dec-17

Secured revolving lines of credit
FSP Satellite Place Corp.	Duluth, GA	31-Dec-19	$	5,500	$	2,120	L+	4.4	%	0.5	%	5.78	%
FSP Energy Tower I Corp. (3)	Houston, TX	30-Jun-19		20,000		15,600	L+	5.0	%	0.5	%	6.38	%

Mortgage loan secured by property
FSP Monument Circle LLC (4)	Indianapolis, IN	7-Dec-18		21,000		21,000		4.90	%	n/a		4.90	%
FSP Energy Tower I Corp. (3) (5)	Houston, TX	30-Jun-19		33,000		33,000		6.41	%	n/a		6.41	%

			$	79,500	$	71,720

(1)

The interest rate is 30-day LIBOR rate plus the additional rate indicated, otherwise a fixed rate.

(2)

The draw fee is a percentage of each new advance, and is paid at the time of each new draw.

(3)

These loans were extended on June 16, 2017.

(4)

This mortgage loan includes an origination fee of $164,000 and an exit fee of $38,000 when repaid by the borrower.

(5)

This mortgage loan includes an annual extension fee of $108,900 paid by the borrower.

The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $4,687,000, $4,834,000 and $5,230,000 for the years ended December 31, 2017, 2016 and 2015, respectively.