Commitments and Contingencies

Legal

From time to time, we are party to various lawsuits, claims and legal proceedings that arise in the ordinary course of business. Excluding ordinary routine litigation incidental to our business, we are not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.

Environmental

We generally will perform environmental site assessments at properties we are considering acquiring. After the acquisition of such properties, we continue to monitor the properties for the presence of hazardous or toxic substances. From time to time, we acquire properties with known adverse environmental conditions. If at the time of acquisition, losses associated with environmental remediation obligations are probable and can be reasonably estimable, we record a liability.

On February 25, 2014, we acquired the property located at West 228th Street. Before purchasing the property, during the due diligence phase, we engaged with a third party environmental consultant to perform various environmental site assessments to determine the presence of any environmental contaminants that might warrant remediation efforts. Based on their investigation, they determined that hazardous substances existed at the property and that additional assessment and remediation work would likely be required to satisfy regulatory requirements. The total remediation costs were estimated to be $1.3 million, which includes remediation, processing and oversight costs.

To address the estimated costs associated with the environmental issues at the West 228th Street property, we entered into an Environmental Holdback Escrow Agreement (the “Holdback Agreement”) with the former owner, whereby $1.4 million was placed into an escrow account to be used to pay remediation costs. To fund the $1.4 million, the escrow holder withheld $1.3 million of the purchase price, which would have otherwise been paid to the seller at closing, and the Company funded an additional $0.1 million. According to the Holdback Agreement, the seller has no liability or responsibility to pay for remediation costs in excess of $1.3 million.

As of December 31, 2016 and 2015, we had a $1.1 million and $1.2 million contingent liability recorded in the line item “Accounts payable and accrued expenses” in our consolidated balance sheets, reflecting the estimated remaining cost to remediate environmental liabilities at West 228th Street that existed prior to the acquisition date. As of December 31, 2016 and 2015, we also had a $1.1 million and $1.2 million corresponding indemnification asset recorded in the line item “Other assets” in our consolidated balance sheets, reflecting the estimated costs we expect the former owner to cover pursuant to the Holdback Agreement.

We expect that the resolution of the environmental matters relating to the above will not have a material impact on our consolidated financial condition, results of operations or cash flows. However, we cannot be sure that we have identified all environmental liabilities at our properties, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that such environmental liabilities arise. Furthermore, we cannot assure you that future changes to environmental laws or regulations and their application will not give rise to loss contingencies for future environmental remediation.

Rent Expense

As of December 31, 2016, we lease a parcel of land that is currently being sub-leased to a tenant for a parking lot. This ground lease is scheduled to expire on June 1, 2062. We recognized rental expense for our ground lease in the amount of $0.1 million, $0.1 million and $0.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. As part of conducting our day-to-day business, we also lease office space under operating leases. We recognized rental expense for our corporate and satellite office leases in the amount of $0.5 million, $0.5 million and $0.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The future minimum commitment under our corporate and satellite office leases and ground lease as of December 31, 2016, is as follows (in thousands):



For the year ending December 31:	Office Lease		Ground Lease
2017	$	635	$	144
2018	622		144
2019	337		144
2020	—		144
2021	—		144
Thereafter	—		5,820
Total	$	1,594	$	6,540

On September 14, 2016 (the “Effective Date”), we entered into a ground lease for approximately 1.58 million square feet of land located in Corona, California. We intend to develop buildings on the site. Under the terms of the ground lease, we have up to 420 days from the Effective Date, subject to certain conditions, to satisfy and waive certain contingencies (the “Contingencies”). We can terminate the ground lease for any reason during this 420-day contingency period. Then the ground lease will commence 30 days after all of the Contingencies are waived, with no further termination right. Additionally, the commencement date can be delayed by up to 24 months, subject to certain conditions. The term of the ground lease is 99 years following the commencement date. Base ground rent payments will begin nine months from the commencement date. During the first ten years of the ground lease, base ground rent will be approximately $956,000 per year, and once at the beginning of every ten-year period thereafter, base ground rent will increase by 15.0%, subject to certain caps.

Tenant and Construction Related

As of December 31, 2016, we had commitments of approximately $10.1 million for tenant improvement and construction work under the terms of leases with certain of our tenants and contractual agreements with our construction vendors.

Concentrations of Credit Risk

We have deposited cash with financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250 thousand per institution. Although we have deposits at institutions in excess of federally insured limits as of December 31, 2016, we do not believe we are exposed to significant credit risk due to the financial position of the institutions in which those deposits are held.

As of December 31, 2016, all of our properties are located in the Southern California infill markets. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the markets in which the tenants operate.

During the year ended December 31, 2016, no single tenant accounted for more than 5% of our total rental revenues.