Investment in Unconsolidated Entities

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

On June 9, 2014, the Company acquired a 10.3% interest in the NewINK JV, a joint venture between affiliates of NorthStar Realty Finance Corp. ("NorthStar") and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNY, which owns a 89.7% interest in the NewINK JV. The value of NewINK JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. As of June 30, 2020 and 2019, the Company’s share of partners’ capital in the NewINK JV was approximately $5.2 million and $46.4 million, respectively, and the total difference between the carrying amount of investment and the Company’s share of partners’ capital was approximately $23.0 million and $56.5 million, respectively, (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The Company offset approximately $32.2 million of its share of the NewINK JV's impairment loss in the current period by its remaining basis difference in the NewINK JV. The Company serves as managing member of the NewINK JV. During the three and six months ended June 30, 2020 and 2019, the Company received cash distributions from the NewINK JV as follows (in thousands):


	For the three months ended						For the six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Cash generated from other activities and excess cash	$	—	$	411	$	—	$	411


Total	$	—	$	411	$	—	$	411

On November 17, 2014, the Company acquired a 10.0% interest in the Inland JV, a joint venture between affiliates of NorthStar and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony on January 10, 2017 to form a new company, CLNY, which owns a 90% interest in the Inland JV. The value of Inland JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. The Company serves as managing member of the Inland JV. During the three and six months ended June 30, 2020 and 2019, the Company received no cash distributions from the Inland JV.

On May 9, 2017, the NewINK JV refinanced the $840.0 million loan collateralized by the 47 hotels then owned with a new $850.0 million loan with an interest at a rate of LIBOR plus a spread of 2.79%, an initial maturity date of June 7, 2019 and three one-year extension options. The NewINK JV exercised the first extension and the maturity was extended to June 7, 2020. On November 7, 2019, the NewINK JV refinanced the $850.0 million loan with a new $855.0 million non-recourse loan from Morgan Stanley Bank, N.A., JPMorgan Chase Bank, National Association, and Bank of America, N.A. (collectively the "Lender"), collateralized by the then owned 46 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 2.82%, has an initial maturity of November 7, 2021 and five one-year extension options.

On April 7, 2020 and May 7, 2020, the NewINK JV failed to make debt service payments related to its $855.0 million loan. The servicer and lender subsequently agreed to fund the April 7, 2020 and May 7, 2020 interest payments for the senior portion of the loan from restricted cash balances that were originally escrowed to fund future capital expenditures. The NewINK JV made the debt payment due to senior lenders on June, 7, 2020 but has not made the debt payment due to senior lenders on July 7, 2020. The NewINK JV did not make the interest payment due to mezzanine lenders on April 7, 2020 and has not made any of the subsequent monthly interest payments due to mezzanine lenders. The failure to make the required debt service payments is an event of default under the NewINK loan agreement and could result in a foreclosure by the lender. The NewINK JV is attempting to negotiate a forbearance agreement with the lender but cannot provide any assurance that such an agreement will be reached. The NewINK JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the NewINK loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.

On June 9, 2017, the Inland JV refinanced the $817.0 million loan collateralized by the 48 hotels with a new $780.0 million non-recourse loan with Column Financial, Inc. On June 9, 2017, the Company contributed an additional $5.0 million of capital related to its share in the Inland JV to reduce the debt collateralized by the 48 hotels. The new loan bears interest at a rate of LIBOR plus a spread of 3.3%, had an initial maturity date of July 9, 2019 and three one-year extension options. The Inland JV exercised the first extension and the maturity was extended to July 9, 2020.

On April 9, 2020 the Inland JV failed to make a debt service payment related to its $780.0 million loan and has not made any of its subsequent monthly debt service payments. The failure to make the required debt service payments is an event of default under the Inland loan agreement. The Inland JV has not been successful in negotiating a forbearance agreement with its lenders. The Inland JV debt is non-recourse to Chatham with the exception of customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. A default under the Inland JV loan agreement does not trigger a cross-default under any of Chatham’s debt agreements.

The Company’s ownership interests in the JVs are subject to change in the event that either the Company or CLNY calls for additional capital contributions to the respective JVs necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. In connection with (i) the non-recourse mortgage loan secured by the NewINK JV properties and the related non-recourse mezzanine loan secured by the membership interests in the owners of the NewINK JV properties and (ii) the non-recourse mortgage loan secured by the Inland JV properties, the Operating Partnership provided the applicable lenders with customary environmental indemnities, as well as guarantees of certain customary non-recourse carve-out provisions such as fraud, material and intentional misrepresentations and misapplication of funds. In some circumstances, such as the bankruptcy of the applicable borrowers, the guarantees are for the full amount of the outstanding debt, but in most circumstances, the guarantees are capped at 15% of the debt outstanding at the time in question (in the case of the NewINK JV loans) or 20% of the debt outstanding at the time in question (in the case of the Inland JV loans). In connection with each of the NewINK JV and Inland JV loans, the Operating Partnership has entered into a contribution agreement with its JV partner whereby the JV partner is, in most cases, responsible to cover such JV partner’s pro rata share of any amounts due by the Operating Partnership under the applicable guarantees and environmental indemnities. The Company manages the JVs and will receive a promote interest in each applicable JV if it meets certain return thresholds for such JV. CLNY may also approve certain actions by the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.

During the three months ended March 31, 2020, the Company determined that an other than temporary decline in the value of its equity investment in the Inland JV had occurred. The Inland JV’s operating performance has been significantly impacted by the COVID-19 pandemic. The Inland JV has high leverage, limited liquidity and limited ability to fund the current level of operating losses caused by the COVID-19 pandemic for a sustained period of time. Based on these factors, we have assessed that the fair market value of our equity investment in the Inland JV is $0 and the Company did not consider the investment recoverable and therefore recorded an impairment of $15.3 million on the investment. Since the Company’s basis in the Inland JV is now $0 and we expect that ongoing losses are not sustainable, we stopped recording any equity income or losses from the Inland JV as of March 31, 2020.

The Company's recorded investments in the NewINK JV and the Inland JV were $(17.8) million and $0.0 million, respectively, at June 30, 2020. The following table sets forth the combined components of net loss, including the Company’s share, related to all JVs for the three and six months ended June 30, 2020 and 2019 (in thousands):


	For the three months ended						For the six months ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenue	$	37,897	$	134,457	$	128,767	$	246,576
Total hotel operating expenses	39,987		84,974		111,952		164,073
Hotel operating (loss) income	$	(2,090)	$	49,483	$	16,815	$	82,503
Impairment loss	$	561,494	$	—	$	575,375	$	—
Net (loss) income from continuing operations	$	(604,721)	$	565	$	(645,006)	$	(14,454)
Gain (loss) on sale of hotels	68		—		(14)		—
Net (loss) income	$	(604,653)	$	565	$	(645,020)	$	(14,454)

(Loss) income allocable to the Company	$	(1,905)	$	58	$	(5,977)	$	(1,464)
Basis difference adjustment	327		399		726		798
Total (loss) income from unconsolidated real estate entities attributable to the Company	$	(1,578)	$	457	$	(5,251)	$	(666)