NOTES PAYABLE AND SPECIAL ASSESSMENT OBLIGATIONS

As of December 31, 2018 and 2017, our notes payable and special assessment obligations consisted of the following (in thousands):



	December 31,
	2018			2017
$32.3 million note payable to MidFirst Bank secured by a first lien on an operating hotel property, interest-only payments due monthly at the 30-day Libor (2.50% and 1.56% at December 31, 2018 and 2017, respectively) plus 3.34% to 3.75% depending on compensating balances and meeting certain financial thresholds and terms (5.84% and 5.31% effective rate at December 31, 2018 and December 31, 2017, respectively), matures October 1, 2020 with two one-year extension options, with construction completion and repayment guarantees provided by the Company	$	20,669		$	19,557
$5.9 million note payable secured by real estate in New Mexico, annual interest only payments based on annual interest rates of prime plus 2.0% through December 31, 2017, and prime plus 3.0% thereafter (8.25% and 5.75% at December 31, 2018 and December 31, 2017, respectively), matures December 31, 2019	5,940			5,940
Unsecured note payable under class action settlement, face amount of $10.2 million, net of discount of $0.3 million and $1.2 million at December 31, 2018 and December 31, 2017, respectively, 4% annual coupon interest rate (14.6% effective yield), interest payable quarterly, matures April 28, 2019	9,899			8,938
$2.3 million special assessment bonds dated between 2002 and 2007, secured by the residential land located in Dakota County, Minnesota, annual interest rate ranging from 6%-7.5%, maturing various dates through 2022 (classified as held for sale as of March 31, 2018)	90			116
Total notes payable	36,598			34,551
Less: deferred financing costs of notes payable	(284		)	(446		)
Total notes payable	$	36,314		$	34,105

Interest expense for the year ended December 31, 2018 was $3.1 million. Interest expense for the year ended December 31, 2017 was $3.1 million, of which $1.1 million, was included in income from discontinued operations in the accompanying consolidated statements of operations.

Senior Indebtedness

MacArthur Place

In October 2017, we closed on a $32.3 million acquisition and construction loan from MidFirst Bank in connection with our purchase of MacArthur Place (the “MacArthur Loan”), of which $19.4 million was utilized for the purchase of MacArthur Place, approximately $10.0 million was set aside to fund planned hotel improvements, and the balance to fund interest reserves and operating capital. The principal balance of the loan was $20.7 million and $19.6 million at December 31, 2018 and 2017, respectively. The loan bears floating interest equal to the 30-day LIBOR rate (2.50% at December 31, 2018) plus 3.75%, which may be reduced by up to 0.50% if certain conditions are met. The loan has an initial term of three years subject to the right of the Company to extend the maturity date for two one-year periods, provided that the loan is in good standing and upon satisfaction of certain other conditions, including payment of an extension fee equal to 0.35% of outstanding principal per extension. The Company is required to make interest-only payments during the initial three year term. During the years ended December 31, 2018 and 2017, the Company made draws totaling $1.1 million and $0.2 million, respectively, against the loan representing draws against the interest reserve on the loan. The Company incurred deferred financing fees of $0.5 million which are being amortized over the term of the loan using the effective interest method.

The MacArthur Loan is secured by a deed of trust on all MacArthur Place real property and improvements, and a security interest in all furniture, fixtures and equipment, licenses and permits, and MacArthur Place related revenues. The Company agreed to provide a construction completion guaranty with respect to the planned improvement project which shall be released upon payment of all project costs and receipt of a certificate of occupancy. In addition, the Company provided a loan repayment guaranty equal to 50% of the loan principal along with a guaranty of interest and operating deficits, as well as other customary carve-out matters such as bankruptcy and environmental matters. Under the guarantees, the Company is required to maintain a minimum tangible net worth of $50.0 million and minimum liquidity of $5.0 million throughout the term of the loan. Preferred equity is included as a component of equity with respect to the minimum tangible net worth covenant. The Company was in compliance with these covenants and guarantees at December 31, 2018. In addition, the Company is required to establish various operating and reserve accounts at MidFirst Bank which are subject to a cash management agreement. In the event of default, MidFirst Bank has the ability to take control of such accounts for the allocation and distribution of proceeds in accordance with the cash management agreement.

As described at Note 20, subsequent to the December 31, 2018, the MacArthur Loan was modified to, among other things, increase the total loan facility to $37.0 million, and increase the Company’s equity commitment, to $27.7 million due to projected increased renovation costs.

Land Purchase Financing

During 2015, the Company obtained seller-financing of $5.9 million in connection with the purchase of certain New Mexico real estate for $6.8 million. The note bears interest at the prime rate as published by The Wall Street Journal (the “WSJ Prime Rate”) (recalculated annually) plus 2% through December 31, 2018, and the WSJ Prime Rate plus 3% thereafter. Interest only payments are due on December 31 of each year with the principal balance and any accrued unpaid interest due at maturity on December 31, 2019.

Exchange Notes

In April 2014, we completed an offering of a five-year, 4%, unsecured notes to certain of our shareholders in exchange for common stock held by such shareholders at an exchange price of $8.02 per share (“Exchange Offering”). Upon completion of the Exchange Offering, we issued Exchange Offering notes (“EO Notes”) with a face value of $10.2 million, which were recorded by the Company at fair value of $6.4 million based on the fair value and the imputed effective yield of such notes of 14.6% (as compared to the note rate of 4%) resulting in an initial debt discount on the EO Notes of $3.8 million, with a balance of $0.3 million at December 31, 2018. This amount is reflected as a debt discount in the accompanying financial statements, and is being amortized as an adjustment to interest expense using the effective interest method over the term of the EO Notes. The amortized discount added to the principal balance of the EO Notes during the years ended December 31, 2018 and 2017 totaled $1.0 million and $0.8 million, respectively. Interest is payable quarterly in arrears each January, April, July, and October. The EO Notes mature on April 29, 2019.

Special Assessment Obligation

As of December 31, 2018 and 2017, obligations arising from our allocated share of certain community facilities district special revenue bonds and special assessments had remaining balances of $0.1 million and $0.1 million, respectively.

Our notes payable and special assessment obligations have the following scheduled maturities as of December 31, 2018 (in thousands):



Year	Amount
2019	$	16,140
2020	20,696
2021	26
2022	8
Less: deferred financing costs of notes payable	(556		)
Total	$	36,314