Investments in Unconsolidated Joint Ventures

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Joint Ventures

We have investments in several real estate joint ventures with various partners. As of September 30, 2019, the book value of these investments was $2.9 billion, net of investments with negative book values totaling $82.1 million for which we have an implicit commitment to fund future capital needs.

As of September 30, 2019 and December 31, 2018, 800 Third Avenue, 21 East 66th Street, 605 West 42nd Street, 333 East 22nd Street, One Vanderbilt, and certain properties within the Stonehenge Portfolio are VIEs in which we are not the primary beneficiary. Our net equity investment in these VIEs was $876.9 million and $808.3 million as of September 30, 2019 and December 31, 2018, respectively. Our maximum loss is limited to the amount of our equity investment in these VIEs. See the "Principles of Consolidation" section of Note 2, "Significant Accounting Policies". All other investments below are voting interest entities. As we do not control the joint ventures listed below, we account for them under the equity method of accounting.

The table below provides general information on each of our joint ventures as of September 30, 2019:



Property	Partner	Ownership Interest⁽¹⁾	Economic Interest⁽¹⁾	Unaudited Approximate Square Feet
100 Park Avenue	Prudential Real Estate Investors	49.90%	49.90%	834,000
717 Fifth Avenue	Jeff Sutton/Private Investor	10.92%	10.92%	119,500
800 Third Avenue	Private Investors	60.52%	60.52%	526,000
919 Third Avenue⁽²⁾	New York State Teacher's Retirement System	51.00%	51.00%	1,454,000
11 West 34th Street	Private Investor/Jeff Sutton	30.00%	30.00%	17,150
280 Park Avenue	Vornado Realty Trust	50.00%	50.00%	1,219,158
1552-1560 Broadway⁽³⁾	Jeff Sutton	50.00%	50.00%	57,718
10 East 53rd Street	Canadian Pension Plan Investment Board	55.00%	55.00%	354,300
21 East 66th Street⁽⁴⁾	Private Investors	32.28%	32.28%	13,069
650 Fifth Avenue⁽⁵⁾	Jeff Sutton	50.00%	50.00%	69,214
121 Greene Street	Jeff Sutton	50.00%	50.00%	7,131
55 West 46th Street	Prudential Real Estate Investors	25.00%	25.00%	347,000
Stonehenge Portfolio⁽⁶⁾	Various	Various	Various	1,439,016
605 West 42nd Street	The Moinian Group	20.00%	20.00%	927,358
11 Madison Avenue	PGIM Real Estate	60.00%	60.00%	2,314,000
333 East 22nd Street	Private Investors	33.33%	33.33%	26,926
400 East 57th Street⁽⁷⁾	BlackRock, Inc and Stonehenge Partners	51.00%	41.00%	290,482
One Vanderbilt	National Pension Service of Korea/Hines Interest LP	71.01%	71.01%	—
Worldwide Plaza	RXR Realty / New York REIT / Private Investor	24.35%	24.35%	2,048,725
1515 Broadway	Allianz Real Estate of America	56.87%	56.87%	1,750,000
2 Herald Square	Israeli Institutional Investor	51.00%	51.00%	369,000
115 Spring Street	Private Investor	51.00%	51.00%	5,218


(1)	Ownership interest and economic interest represent the Company's interests in the joint venture as of September 30, 2019. Changes in ownership or economic interests within the current year are disclosed in the notes below.

(2)

In January 2018, the partnership agreement for our investment was modified resulting in the Company no longer having a controlling interest in this investment. As a result, the investment was deconsolidated as of January 1, 2018. We recorded our non-controlling interest at fair value resulting in a $49.3 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles, of the joint venture.


(3)	The acquisition price represents only the purchase of the 1552 Broadway interest, which comprised approximately 13,045 square feet. The joint venture also owns a long-term leasehold interest in the retail space and certain other spaces at 1560 Broadway, which is adjacent to 1552 Broadway.


(4)	We hold a 32.28% interest in three retail and two residential units at the property and a 16.14% interest in three residential units at the property.

(5)

The joint venture owns a long-term leasehold interest in the retail space at 650 Fifth Avenue. In connection with the ground lease obligation, SLG provided a performance guaranty and our joint venture partner executed a contribution agreement to reflect its pro rata obligation. In the event the property is converted into a condominium unit and the landlord elects the purchase option, the joint venture shall be obligated to acquire the unit at the then fair value.


(6)	We, together with our joint venture partner, closed on the sale of one property from the Stonehenge Portfolio in February 2019 and another property in May 2019. These sales are further described under Sale of Joint Venture Interest of Properties below.

(7)

In October 2016, we sold a 49% interest in this property. Our interest in the property was sold within a consolidated joint venture owned 90% by the Company and 10% by Stonehenge. The transaction resulted in the deconsolidation of the venture's remaining 51% interest in the property. Our joint venture with Stonehenge remains consolidated resulting in the combined 51% interest being shown within investments in unconsolidated joint ventures on our balance sheet.

Acquisition, Development and Construction Arrangements

Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50%, we have accounted for these debt and preferred equity investments under the equity method. As of September 30, 2019 and December 31, 2018, the carrying value for acquisition, development and construction arrangements were as follows (dollars in thousands):



Loan Type	September 30, 2019		December 31, 2018		Maturity Date
Mezzanine Loan	—		44,357		February 2022
	$	—	$	44,357

Disposition of Joint Venture Interests or Properties

The following table summarizes the investments in unconsolidated joint ventures sold during the nine months ended September 30, 2019:



Property	Ownership Interest	Disposition Date	Gross Asset Valuation (in thousands)⁽¹⁾		Gain (Loss) on Sale (in thousands)⁽²⁾
131-137 Spring Street	20.00%	January 2019	$	216,000	$	17,660
521 Fifth Avenue	50.50%	May 2019	381,000		57,874
Stonehenge Portfolio (partial)	Various	Various	468,800		(2,408		)


(1)	Represents implied gross valuation for the joint venture or sales price of the property.


(2)	Represents the Company's share of the gain (loss). Gain (loss) amounts do not include adjustments for expenses recorded in subsequent periods.

Joint Venture Mortgages and Other Loans Payable

We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at September 30, 2019 and December 31, 2018, respectively, are as follows (dollars in thousands):



Property	Economic Interest ⁽¹⁾		Maturity Date	Interest Rate ⁽²⁾			September 30, 2019		December 31, 2018
Fixed Rate Debt:
717 Fifth Avenue (mortgage)	10.92	%	July 2022		4.45	%	$	300,000	$	300,000
717 Fifth Avenue (mezzanine)	10.92	%	July 2022		5.50	%	355,328		355,328
650 Fifth Avenue (mortgage)	50.00	%	October 2022		4.46	%	210,000		210,000
650 Fifth Avenue (mezzanine)	50.00	%	October 2022		5.45	%	65,000		65,000
21 East 66th Street	32.28	%	April 2023		3.60	%	12,000		12,000
919 Third Avenue	51.00	%	June 2023		5.12	%	500,000		500,000
1515 Broadway	56.87	%	March 2025		3.93	%	842,966		855,876
11 Madison Avenue	60.00	%	September 2025		3.84	%	1,400,000		1,400,000
800 Third Avenue	60.52	%	February 2026		3.37	%	177,000		177,000
400 East 57th Street	41.00	%	November 2026		3.00	%	98,265		99,828
Worldwide Plaza	24.35	%	November 2027		3.98	%	1,200,000		1,200,000
Stonehenge Portfolio ⁽³⁾	Various		Various		3.50	%	196,112		321,076
521 Fifth Avenue⁽⁴⁾							—		170,000
Total fixed rate debt							$	5,356,671	$	5,666,108



Property	Economic Interest ⁽¹⁾		Maturity Date	Interest Rate ⁽²⁾			September 30, 2019			December 31, 2018
Floating Rate Debt:
121 Greene Street	50.00	%	November 2019	L+	1.50	%	$	15,000		$	15,000
10 East 53rd Street	55.00	%	February 2020	L+	2.25	%	170,000			170,000
280 Park Avenue	50.00	%	September 2020	L+	1.73	%	1,200,000			1,200,000
1552 Broadway	50.00	%	October 2020	L+	2.65	%	195,000			195,000
11 West 34th Street	30.00	%	January 2021	L+	1.45	%	23,000			23,000
100 Park Avenue	49.90	%	February 2021	L+	1.75	%	357,897			360,000
One Vanderbilt ⁽⁵⁾	71.01	%	September 2021	L+	2.75	%	619,258			375,000
2 Herald Square	51.00	%	November 2021	L+	1.55	%	150,000			133,565
55 West 46th Street ⁽⁶⁾	25.00	%	August 2022	L+	1.25	%	192,524			185,569
115 Spring Street	51.00	%	September 2023	L+	3.40	%	65,550			—
605 West 42nd Street	20.00	%	August 2027	L+	1.44	%	550,000			550,000
21 East 66th Street	32.28	%	June 2033	1 Year Treasury+	2.75	%	1,515			1,571
131-137 Spring Street⁽⁷⁾							—			141,000
103 East 86th Street⁽⁸⁾							—			38,000
Total floating rate debt							$	3,539,744		$	3,387,705
Total joint venture mortgages and other loans payable							$	8,896,415		$	9,053,813
Deferred financing costs, net							(97,400		)	(103,191		)
Total joint venture mortgages and other loans payable, net							$	8,799,015		$	8,950,622


(1)	Economic interest represents the Company's interests in the joint venture as of September 30, 2019. Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures table above.


(2)	Interest rates as of September 30, 2019, taking into account interest rate hedges in effect during the period. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified.


(3)	Amount is comprised of $132.6 million and $63.5 million in fixed-rate mortgages that mature in April 2028 and July 2029, respectively.


(4)	In May 2019, we, along with our joint venture partner, closed on the sale of the property.


(5)	This loan is a $1.75 billion construction facility with reductions in interest cost based on meeting certain conditions and has an initial five-year term with two one-year extension options. Advances under the loan are subject to incurred costs, funded equity, loan to value thresholds, and entering into construction contracts.


(6)	In August 2019, this loan was refinanced with a new $192.5 million mortgage loan which carries a floating interest rate of 125 basis points over 30-day LIBOR. This loan has a committed amount of $198.0 million, of which $5.5 million was unfunded as of September 30, 2019.


(7)	In January 2019, we closed on the sale of our interest in the property.


(8)	In February 2019, we, along with our joint venture partner, closed on the sale of the property.

We are entitled to receive fees for providing management, leasing, construction supervision and asset management services to certain of our joint ventures. We earned $2.4 million and $8.8 million from these services, net of our ownership share of the joint ventures, for the three and nine months ended September 30, 2019, respectively. We earned $2.4 million and $9.3 million from these services, net of our ownership share of the joint ventures, for the three and nine months ended September 30, 2018, respectively. In addition, we have the ability to earn incentive fees based on the ultimate financial performance of certain of the joint venture properties.

The combined balance sheets for the unconsolidated joint ventures, at September 30, 2019 and December 31, 2018 are as follows (in thousands):



	September 30, 2019		December 31, 2018
Assets ⁽¹⁾
Commercial real estate property, net	$	14,280,158	$	14,347,673
Cash and restricted cash	299,699		381,301
Tenant and other receivables, related party receivables, and deferred rents receivable	360,394		273,141
Debt and preferred equity investments, net	—		44,357
Other assets	2,084,421		2,187,166
Total assets	$	17,024,672	$	17,233,638
Liabilities and equity ⁽¹⁾
Mortgages and other loans payable, net	$	8,799,015	$	8,950,622
Deferred revenue/gain	1,535,067		1,660,838
Lease liabilities	898,996		637,168
Other liabilities	300,576		309,145
Equity	5,491,018		5,675,865
Total liabilities and equity	$	17,024,672	$	17,233,638
Company's investments in unconsolidated joint ventures	$	2,923,595	$	3,019,020


(1)	The combined assets, liabilities and equity for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.

The combined statements of operations for the unconsolidated joint ventures, from acquisition date through the three and nine months ended September 30, 2019 and 2018, are as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Total revenues	$	286,010		$	304,869		$	883,977		$	940,005
Operating expenses	50,759			56,304			153,397			166,433
Operating lease rent	6,713			4,397			18,848			13,247
Real estate taxes	53,321			56,747			159,544			169,612
Interest expense, net of interest income	92,601			88,328			282,917			269,717
Amortization of deferred financing costs	4,436			4,446			14,434			16,912
Depreciation and amortization	100,736			101,538			308,748			318,113
Total expenses	308,566			311,760			937,888			954,034
Loss on early extinguishment of debt	(1,031		)	—			(1,031		)	—
Net loss before gain on sale ⁽¹⁾	$	(23,587	)	$	(6,891	)	$	(54,942	)	$	(14,029	)
Company's equity in net (loss) income from unconsolidated joint ventures ⁽¹⁾	$	(9,864	)	$	971		$	(22,644	)	$	9,709

(1)

The combined statements of operations and the Company's equity in net (loss) income for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.