8. Variable Interest Entities

Consolidated VIEs

The Company consolidates the Operating Partnership, 22 Exchange, LLC, Gardens Medical Pavilion, LLC through BH-AW-Florida MOB Venture, LLC, and SL Parkside Apartments, LLC, which are variable interest entities, or VIEs, for which we are the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

Unconsolidated VIEs

Included in the Company’s joint venture investments as of December 31, 2017 was the ADC Arrangement associated with Prospect Park, which we account for as an unconsolidated joint venture and is a VIE. Refer to Note 7 of the Notes to Consolidated Financial Statements for additional information. This arrangement was established to provide mezzanine financing to an unrelated third party that owned Prospect Park, an apartment complex located in Denver, Colorado, which was sold on December 15, 2017. Based on our reevaluation under ASU 2015-02, we determined that we were not the primary beneficiary of this VIE based on the rights of the general partner. The arrangement did not allow for substantive kick-out rights over the general partner and we did not have the power to direct the activities of Prospect Park that most significantly affected the entity’s economic performance. Accordingly, we determined it was appropriate, consistent with past accounting, that the Prospect Park ADC Arrangement was accounted for under the equity method.