Note 8 — Mortgage Notes Payable

Mortgage notes payable are carried at their contractual amounts due under liquidation accounting. The Company had outstanding mortgage notes payable of $57.1 million at March 31, 2018 and $215.5 million at December 31, 2017. The mortgage notes payable are collateralized directly by the real estate held by the Company identified in the table below.

The Company’s mortgage notes payable as of March 31, 2018 and December 31, 2017 consist of the following (in thousands):


			Outstanding Loan Amount				Effective Interest Rate at March 31, 2018
Portfolio	Encumbered Properties		March 31, 2018		December 31, 2017		Effective Interest Rate at March 31, 2018			Interest Rate			Maturity
Mortgage Loan (1)		5	$	41,262	$	176,246		5.4	%		Libor + 3.5	%		Sep 2018
1100 Kings Highway (3)		1		15,850		20,200		4.3	%		Libor + 2.4	%		May 2018
Design Center (4)		—		—		19,048		N/A			N/A			N/A

Mortgage notes payable, gross principal amount			$	57,112		215,494		5.1	% (2)

(1)	At March 31, 2018 encumbered properties are 382-384 Bleecker Street, 350 Bleecker Street, 416-425 Washington Street, 33 W 56th Street and 120 W 57th Street (the “POL Loan Properties”). The Mortgage Loan has been repaid in full subsequent to March 31, 2018 as discussed further below.

(2)	Calculated on a weighted average basis for all mortgages outstanding as of March 31, 2018.

(3)	Loan was paid off in connection with the sale of the property.

(4)	The loan was satisfied in full subsequent to March 31, 2018 in connection with the sale of the property.

On August 1, 2017, the Company’s mortgage loan collateralized by the 1100 Kings Highway property was modified to extend the maturity date to April 1, 2018 and to allow for partial release of the collateral. The loan also requires a cash sweep starting January 1, 2018 unless the property is under contract for sale for an amount equal to or greater than 133% of the outstanding mortgage loan payable. As the property is under contract for sale for an amount that exceeds the threshold, the lender has not initiated the cash sweep. In April 2018, the loan maturity date was extended to May 29, 2018.

On December 20, 2016, the Company, through indirect wholly owned subsidiaries of the OP, entered into a mortgage loan (the “Mortgage Loan”) in the aggregate amount of $500.0 million and a mezzanine loan in the aggregate amount of $260.0 million (the “Mezzanine Loan” and, together with the Mortgage Loan, the “POL Loans”). The POL Loans were initially secured directly, in the case of the Mortgage Loan, and indirectly in the case of the Mezzanine Loan, by properties located in New York, New York at 245-249 West 17th Street, 333 West 34th Street, 216-218 West 18th Street, 50 Varick Street, 229 West 36th Street, 122 Greenwich Street, 350 West 42nd Street, 382-384 Bleecker Street, 350 Bleecker Street, 416-425 Washington Street, 33 West 56th Street and 120 West 57th Street (the “POL Loan Properties”). Properties sold during 2017 and 2018 have been released and are no longer collateral for the POL Loans.

The Mortgage Loan initially required monthly interest payments at an initial weighted average interest rate of LIBOR plus 2.38% and the Mezzanine Loan required monthly interest payments at an initial weighted average interest rate of LIBOR plus 5.65%. The LIBOR portions of the interest rates due under the POL Loans were capped at 3.0% pursuant to interest rate cap agreements.

On December 20, 2017, the Mortgage Loan was extended through September 30, 2018. Under the extended term, the Mortgage Loan requires monthly interest payments at a weighted average interest rate of LIBOR plus 3.50%. The Mezzanine Loan was fully satisfied in 2017.

The POL Loans were recourse to the Company and could have been accelerated only in the event of a default. The POL Loans could have been prepaid, in whole or in part, without payment of any prepayment premium or spread maintenance premium or any other fee or penalty.

In connection with a sale or disposition of an individual POL Loan Property to a third party, such POL Loan Property could have been released from the collateral securing the Mortgage Loan, subject to certain conditions, by prepayment of a release price (the “Release Amount”) as defined in the Mortgage Loan agreements. In certain instances, 110% of the Release Amount was required to be paid in order to release the property. During the three months ended March 31, 2018, the POL Loans were paid down approximately $134.9 million as a result of the sale of 333 West 34^th Street, 350 West 42^nd Street and 122 Greenwich Street. In April 2018, the POL Loans were fully satisfied using proceeds from the sales of 382-384 Bleecker Street, 350 Bleecker Street, 416-425 Washington Street and reserves.

Concurrently with the POL Loans, the Company entered into guaranty agreements with respect to the POL Loans that required the Company to maintain, (i) on a consolidated basis, a minimum net worth of $300.0 million, which minimum net worth will be reduced pro rata with any prepayment of the POL Loans once the outstanding principal amount of the POL Loans is less than $300.0 million, but in no event will the minimum net worth be reduced below $150.0 million, and (ii) liquid assets having a market value of at least $25.0 million, which minimum market value of liquid assets may be reduced to $15.0 million in the event the outstanding amount under the POL Loans is equal to or less than $100.0 million. As of March 31, 2018, the minimum net worth requirement was $150.0 million, and the minimum liquidity requirement was $15.0 million. The Company met both requirements as of March 31, 2018. As a result of the repayment of the POL Loans, these requirements are no longer applicable.

Some of the Company’s mortgage note agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of March 31, 2018, the Company was in compliance with the financial covenants under its mortgage note agreements.