Investments in Unconsolidated Joint Ventures

12 Months Ended

Dec. 31, 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 December 31, 2019, the book value of these investments was 2.9 billion, net of investments with negative book values totaling $80.9 million for which we have an implicit commitment to fund future capital needs.

As of December 31, 2019, 800 Third Avenue, 21 East 66th Street, 605 West 42nd Street, 333 East 22nd Street, and certain properties within the Stonehenge Portfolio are VIEs in which we are not the primary beneficiary. As of 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 $145.9 million as of December 31, 2019 and $808.3 million as of December 31, 2018. 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 December 31, 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 December 31, 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 one 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 December 31, 2019 and 2018, the carrying value for acquisition, development and construction arrangements were as follows (dollars in thousands):



Loan Type	December 31, 2019		December 31, 2018		Maturity Date
Mezzanine Loan	$	—	44,357
	$	—	$	44,357

Disposition of Joint Venture Interests or Properties

The following table summarizes the investments in unconsolidated joint ventures sold during the years ended December 31, 2019, 2018, and 2017:



Property	Ownership Interest Sold	Disposition Date	Gross Asset Valuation (in thousands)⁽¹⁾		Gain (Loss) on Sale (in thousands)⁽²⁾
21 East 66th Street⁽³⁾	1 residential unit	December 2019	$	2,900	$	279
521 Fifth Avenue	50.50%	May 2019	381,000		57,874
131-137 Spring Street	20.00%	January 2019	216,000		17,660
Stonehenge Portfolio (partial)	Various	Various - 2019	468,800		(2,408		)
3 Columbus Circle	48.90%	November 2018	851,000		160,368
Mezzanine Loan⁽⁴⁾	33.33%	August 2018	15,000		N/A
724 Fifth Avenue	49.90%	July 2018	365,000		64,587
Jericho Plaza	11.67%	June 2018	117,400		147
1745 Broadway	56.87%	May 2018	633,000		52,038
175-225 Third Street Brooklyn, New York	95.00%	April 2018	115,000		19,483
1515 Broadway⁽⁵⁾	13.00%	February 2018	1,950,000		—
Stonehenge Portfolio (partial)	Various	Various - 2018	331,100		(6,063		)
102 Greene Street	10.00%	September 2017	43,500		283
76 11th Avenue⁽⁶⁾	33.33%	May 2017	138,240		N/A
Stonehenge Portfolio (partial)	Various	March 2017	300,000		871


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


(2)	Represents the Company's share of the gain or (loss). The gain on sale is net of $4.0 million, $11.7 million, and $0 of employee compensation accrued in connection with the realization of these investment gains in the years ended December 31, 2019, 2018, and 2017, respectively. Additionally, gain (loss) amounts do not include adjustments for expenses recorded in subsequent periods.


(3)	We, together with our joint venture partner, closed on the sale of one residential unit at the property.


(4)	Our investment in a joint venture that owned a mezzanine loan secured by a commercial property in midtown Manhattan was repaid after the joint venture received repayment of the underlying loan.


(5)	Our investment in 1515 Broadway was marked to fair value on January 1, 2018 upon adoption of ASC 610-20.


(6)	Our investment in a joint venture that owned two mezzanine notes secured by interests in the entity that owns 76 11th Avenue was repaid after the joint venture received repayment of the underlying loans.

In May 2017, we recognized a gain of $13.0 million related to the sale in May 2014 of our ownership interest in 747 Madison Avenue. The sale did not meet the criteria for sale accounting in May of 2014 and, therefore, remained on our consolidated financial statements. The sale criteria was met in May of 2017 resulting in recognition of the deferred gain on the sale.

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 mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at December 31, 2019 and 2018, respectively, are as follows (dollars in thousands):



Property	Economic Interest ⁽¹⁾		Maturity Date	Interest Rate ⁽²⁾		December 31, 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%	838,546			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%	97,735			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						$	5,351,721		$	5,666,108
Floating Rate Debt:
10 East 53rd Street ⁽⁵⁾	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
121 Greene Street	50.00	%	November 2020	L+	1.50%	15,000			15,000
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%	356,972			360,000
One Vanderbilt ⁽⁶⁾	71.01	%	September 2021	L+	2.50%	732,928			375,000
2 Herald Square	51.00	%	November 2021	L+	1.45%	190,000			133,565
55 West 46th Street ⁽⁷⁾	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%	712			1,571
131-137 Spring Street ⁽⁸⁾						—			141,000
103 East 86th Street ⁽⁹⁾						—			38,000
Total floating rate debt						$	3,691,686		$	3,387,705
Total joint venture mortgages and other loans payable						$	9,043,407		$	9,053,813
Deferred financing costs, net						(91,538		)	(103,191		)
Total joint venture mortgages and other loans payable, net						$	8,951,869		$	8,950,622


(1)	Economic interest represents the Company's interests in the joint venture as of December 31, 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 December 31, 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, together with our joint venture partner, closed on the sale of the property.


(5)	This loan was refinanced in February 2020.


(6)	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.


(7)	In August 2019, this loan was refinanced with a new $192.5 million mortgage loan. This loan has a committed amount of $198.0 million, of which $5.5 million was unfunded as of December 31, 2019.


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


(9)	In February 2019, we, together 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 $13.0 million, $14.2 million and $22.6 million from these services, net of our ownership share of the joint ventures, for the years ended December 31, 2019, 2018, and 2017, 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 December 31, 2019 and 2018, are as follows (unaudited, in thousands):



	December 31, 2019		December 31, 2018
Assets ⁽¹⁾
Commercial real estate property, net	$	14,349,628	$	14,347,673
Cash and restricted cash	336,189		381,301
Tenant and other receivables and deferred rents receivable	371,065		273,141
Debt and preferred equity investments, net	—		44,357
Other assets	2,039,429		2,187,166
Total assets	$	17,096,311	$	17,233,638
Liabilities and equity ⁽¹⁾
Mortgages and other loans payable, net	$	8,951,869	$	8,950,622
Deferred revenue/gain	1,501,616		1,660,838
Lease liabilities	897,380		637,168
Other liabilities	308,304		309,145
Equity	5,437,142		5,675,865
Total liabilities and equity	$	17,096,311	$	17,233,638
Company's investments in unconsolidated joint ventures	$	2,912,842	$	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. In addition, at December 31, 2019, $133.1 million of net unamortized basis differences between the amount at which our investments are carried and our share of equity in net assets of the underlying property will be amortized through equity in net income (loss) from unconsolidated joint ventures over the remaining life of the underlying items having given rise to the differences.

The combined statements of operations for the unconsolidated joint ventures, from acquisition date through the years ended December 31, 2019, 2018, and 2017 are as follows (unaudited, in thousands):



	Year Ended December 31,
	2019			2018			2017
Total revenues	$	1,163,534		$	1,244,804		$	904,230
Operating expenses	202,881			219,440			157,610
Real estate taxes	212,355			226,961			142,774
Operating lease rent	24,816			18,697			16,794
Interest expense, net of interest income	372,408			363,055			250,063
Amortization of deferred financing costs	19,336			21,634			23,026
Transaction related costs	—			—			146
Depreciation and amortization	407,697			421,458			279,419
Total expenses	$	1,239,493		$	1,271,245		$	869,832
Loss on early extinguishment of debt	(1,031		)	—			(7,899		)
Net (loss) income before gain on sale ⁽¹⁾	$	(76,990	)	$	(26,441	)	$	26,499
Company's equity in net (loss) income from unconsolidated joint ventures ⁽¹⁾	$	(34,518	)	$	7,311		$	21,892

(1)

The combined statements of operations and the Company's equity in net income (loss) 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.