Commitments and Contingencies

Legal Proceedings

The Company is from time to time involved in various disputes, lawsuits, warranty claims, environmental and other matters arising in the ordinary course of its business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.

The Company currently is a party to various legal proceedings, none of which management expects will have a material adverse effect on the Company’s financial position, results of operations, or liquidity. Management accrues a liability for litigation if an unfavorable outcome is determined to be probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is determined by management to be probable and a range of loss can be reasonably estimated, management accrues the best estimate within the range; however, if no amount within the range is a better estimate than any other, the minimum amount within the range is accrued. Legal fees related to litigation are expensed as incurred. Management does not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on the Company’s financial position or results of operations; however, litigation is subject to inherent uncertainties.

Under the Company’s leases, tenants are typically obligated to indemnify the Company from and against all liabilities, costs, and expenses imposed upon or asserted against it as owner of the properties due to certain matters relating to the operation of the properties by the tenant.

Commitments

The Company has a bonding line of credit for its general contracting construction business and is contingently liable under performance and payment bonds, bonds for cancellation of mechanics liens and defect bonds. Such bonds collectively totaled $44.9 million and $40.5 million as of December 31, 2017 and 2016, respectively.

The Operating Partnership has entered into standby letters of credit using the available capacity under the credit facility. The letters of credit relate to the guarantee of future performance on certain of the Company’s construction contracts. Letters of credit generally are available for draw down in the event the Company does not perform. As of December 31, 2017 and 2016, the Operating Partnership had total outstanding letters of credit of $2.1 million and $4.1 million, respectively. The amounts outstanding at December 31, 2017 and 2016 include a $2.1 million letter of credit related to the guarantee on the Point Street Apartments senior construction loan.

The Company has five ground leases on four properties with initial terms that range from 20 to 65 years and options to extend up to an additional 40 years in certain cases. The Company also leases automobiles and equipment.

Future minimum rental payments during each of the next five years and thereafter are as follows (in thousands):



2018	$	2,260
2019	2,145
2020	2,104
2021	2,057
2022	1,897
Thereafter	89,556
Total	$	100,019

Ground rent expense for the years ended December 31, 2017, 2016, and 2015 was $2.5 million, $2.0 million and $1.7 million, respectively.

Concentrations of Credit Risk

The majority of the Company’s properties are located in Hampton Roads, Virginia. For the years ended December 31, 2017, 2016, and 2015, rental revenues from Hampton Roads properties represented 53%, 58% and 68%, respectively, of the Company’s rental revenues. Many of the Company’s Hampton Roads properties are located in the Town Center of Virginia Beach. For the years ended December 31, 2017, 2016, and 2015, rental revenues from Town Center properties represented 38%, 41% and 46%, respectively, of the Company’s rental revenues. Rental revenues from Richmond Tower, which the Company sold in January 2016, individually represented 1% and 11% of the Company’s rental revenues for the years ended December 31, 2016 and 2015, respectively.

A group of five construction customers comprised 88%, 52%, and 15% of the Company’s general contracting and real estate services revenues for the years ended December 31, 2017, 2016, and 2015, respectively. The same customers represented 83%, 43%, and 20% of the Company’s general contracting and real estate services segment gross profit for the years ended December 31, 2017, 2016, and 2015, respectively.