5.	Real Estate Fund Investments

The Company

On January 1, 2016, we adopted ASU 2015-02 Amendments to the Consolidation Analysis using the modified retrospective method. The adoption of ASU 2015-02 resulted in the deconsolidation of all of our real estate fund investments that were accounted for at fair value, except for the Residential Fund, which is accounted for at historical cost and will continue to be consolidated into our consolidated financial statements. See Note 2, Basis of Presentation and Significant Accounting Policies – Recently Issued Accounting Literature.

Unconsolidated Real Estate Funds

As of December 31, 2016, our unconsolidated real estate funds comprised of Property Funds and Alternative Investment Funds.

Property Funds

We manage four Property Funds comprised of (i) Paramount Group Real Estate Fund II, L.P. (“Fund II”), (ii) Paramount Group Real Estate Fund III, L.P. (“Fund III”), (iii) Paramount Group Real Estate Fund VII, L.P. (“Fund VII”) and (iv) Paramount Group Real Estate Fund VII-H, L.P. (“Fund VII-H”). The following is a summary of the Property Funds, our ownership interests in these funds and the funds’ ownership interest in the underlying properties.

			As of December 31, 2016
	Paramount		60 Wall			One Market				50 Beale			0 Bond
	Ownership		Street⁽¹⁾			Plaza				Street			Street⁽²⁾
Fund II		10.0%		46.3	%		-				-			-
Fund III		3.1%		16.0	%		2.0	%			-			-
Fund VII/VII-H		7.2%		-			-				42.8	%		100.0	%
Total Property Funds				62.3	%		2.0	%			42.8	%		100.0	%
Other Investors				37.7	%		98.0	%	⁽³⁾		57.2	%		-
Total				100.0	%		100.0	%			100.0	%		100.0	%

⁽¹⁾

On January 24, 2017, Fund II, Fund III and the other investors sold their interests in 60 Wall Street to a newly formed joint venture in which we have a 5.2% ownership interest. See Note 27, Subsequent Events.

⁽²⁾

Formerly 670 Broadway.

⁽³⁾

Includes a 49.0% direct ownership interest held by us.

Alternative Investment Fund

We manage Paramount Group Real Estate Fund VIII L.P. (“Fund VIII”), our Alternative Investment Fund, which has mezzanine loan, mortgage loan and preferred equity investments with a fair value of $362,282,000, of which our 1.3% share is $4,673,000, as of December 31, 2016. The investments have interest rates ranging from 6.65% to 9.61% and maturities ranging from January 2019 to November 2026.

The following tables summarize our investments in Property Funds and an Alternative Investment Fund as of December 31, 2016, and income or loss recognized from these investments for the year ended December 31, 2016.

	The Company
(Amounts in thousands)	As of December 31, 2016
Our Share of Investments:
Property funds	$	22,811
Alternative investment fund		5,362
Investments in unconsolidated real estate funds	$	28,173

	The Company
	For the Year Ended December 31, 2016
							Alternative
(Amounts in thousands)	Total			Property Funds			Investment Fund
Our Share of Net (Loss) Income:
Net investment (loss) income	$	(324	)	$	(460	)	$	136
Net unrealized (loss) income		(1,706	)		(1,710	)		4
Carried interest		1,532			1,532			-
(Loss) income from unconsolidated real estate funds ⁽¹⁾	$	(498	)	$	(638	)	$	140

⁽¹⁾

Excludes asset management and other fee income from real estate funds, which is included as a component of “fee and other income” in our consolidated statement of income for the year ended December 31, 2016.

The following tables provide summarized financial information for Fund II, Fund III and Fund VII as of the dates and for the periods set forth below.

(Amounts in thousands)	As of December 31, 2016
Balance Sheets:	Fund II		Fund III		Fund VII
Real estate investments	$	64,989	$	39,376	$	165,556
Cash and cash equivalents		1,297		2,221		741
Other assets		127		-		-
Total assets	$	66,413	$	41,597	$	166,297

Other liabilities	$	60	$	49	$	1,483
Total liabilities		60		49		1,483
Equity		66,353		41,548		164,814
Total liabilities and equity	$	66,413	$	41,597	$	166,297

(Amounts in thousands)	For the Year Ended December 31, 2016
Income Statements:	Fund II			Fund III		Fund VII
Investment income	$	2,780		$	1,739	$	1,233
Investment expenses		2,694			184		2,000
Net investment income (loss)		86			1,555		(767	)
Net unrealized (losses) gains		(1,906	)		2,199		13,123
(Loss) income from real estate fund investments	$	(1,820	)	$	3,754	$	12,356

Consolidated Real Estate Funds

Below is a summary of the fair value of our Property Funds and the Alternative Investment Fund that were consolidated on our balance sheet as of December 31, 2015 and income from fund investments for the year ended December 31, 2015 and for the period from November 24, 2014 to December 31, 2014.

(Amounts in thousands)	As of December 31, 2015
Real estate fund investments ⁽¹⁾	$	416,438
Cash and other assets and liabilities, net		7,050
Total real estate fund investments		423,488
Less: noncontrolling interests in consolidated real estate funds		(396,196	)
Paramount Group, Inc.'s equity in real estate fund investments	$	27,292

⁽¹⁾

Represents the fair value of investments owned by Fund II, Fund III, Fund VII, Fund VII-H and Fund VIII.

	For the			Period from
	Year Ended			November 24, 2014 to
(Amounts in thousands)	December 31, 2015			December 31, 2014
Net investment income	$	12,274		$	2,769
Net realized gains		13,884			50
Previously recorded unrealized gains on exited investments		(6,584	)		-
Net unrealized gains (losses)		18,401			(1,407	)
Income from real estate fund investments ⁽¹⁾		37,975			1,412
Less: interest expense		-			(325	)
Less: noncontrolling interests in consolidated real estate funds ⁽²⁾		(24,896	)		(485	)
Income from real estate fund investments attributable to Paramount Group, Inc.	$	13,079		$	602

⁽¹⁾

Represents income from our real estate funds that were consolidated during 2015, including Fund II, Fund III, Fund VII, Fund VII-H, Fund VIII, Paramount Group Real Estate Special Situations Fund L.P. and Paramount Group Real Estate Special Situations Fund-H L.P.

⁽²⁾

Includes $5,481 and $521 of asset management fee income that was reflected as a reduction of the amounts attributable to noncontrolling interests for the year ended December 31, 2015 and for the period from November 24, 2014 to December 31, 2014, respectively.

The Predecessor

Below is a summary of realized and unrealized gains from real estate fund investments on our combined consolidated statement of income.

	Period from
(Amounts in thousands)	January 1, 2014
Income Statement:	to November 23, 2014
Net realized gains on real estate fund investments	$	43,309
Previously recorded unrealized gains on exited investments		(10,405	)
Net unrealized gains on real estate fund investments		96,450
Realized and unrealized gains, net	$	129,354

Asset Management Fees

Our Predecessor earned asset management fees from the real estate funds it managed. Asset management fees and expenses related to the real estate funds included in the combined consolidated statement of income are eliminated in combination and consolidation. The limited partners’ share of such fees are reflected as a reduction of net income attributable to noncontrolling interests, which results in a corresponding increase in net income attributable to our Predecessor.

Below is a summary of the asset management fees earned by our Predecessor.

	Period from
(Amounts in thousands)	January 1, 2014
Income Statement:	to November 23, 2014
Gross asset management fees	$	23,701
Eliminated fees⁽¹⁾		(1,078	)
Net asset management fees	$	22,623

⁽¹⁾

Eliminated fees reflect a reduction in asset management fees from the general partner’s interest in each of the real estate funds.