Investments in Unconsolidated Entities

12 Months Ended

Dec. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

Note 4 – Investments in Unconsolidated Entities

The Company conducts a portion of its property rental activities through investments in unconsolidated entities. The Company’s partners in these unconsolidated entities are unrelated real estate entities or commercial enterprises. The Company and its partners in these unconsolidated entities make initial and/or ongoing capital contributions to these unconsolidated entities. The obligations to make capital contributions are governed by each unconsolidated entity’s respective operating agreement and related governing documents.

As of December 31, 2021, the Company had investments in ten unconsolidated entities as follows:


		Seritage %			# of		Total
Unconsolidated Joint Venture	Joint Venture Partner	Ownership			Properties		GLA
GS Portfolio Holdings II LLC (“GGP I JV”)	Brookfield Properties Retail		50.0	%		3		402,900
GS Portfolio Holdings (2017) LLC (“GGP II JV”)	Brookfield Properties Retail		50.0	%		3		474,100
MS Portfolio LLC (“Macerich JV”)	The Macerich Company		50.0	%		7		1,266,600
SPS Portfolio Holdings II LLC (“Simon JV”)	Simon Property Group, Inc.		50.0	%		5		872,200
Mark 302 JV LLC (“Mark 302 JV”)	An investment fund managed by Invesco Real Estate		50.0	%		1		103,000
SI UTC LLC (“UTC JV”)	A separate account advised by Invesco Real Estate		50.0	%		1		226,200
SF WH Joint Venture LLC (“West Hartford JV”)	An affiliate of First Washington Realty		50.0	%		1		163,700
GGCAL SRG HV LLC (“Cockeysville JV”)	An affiliate of Greenberg Gibbons		50.0	%		1		160,200
Tech Ridge JV Holding LLC (“Tech Ridge JV”)	An affiliate of RD Management		50.0	%		1		—
J&J Baldwin Park LLC (“Carson Investment”)	An affiliate of NewMark Merrill Companies and other entities		20.0	%		1		182,200
Landmark Land Holdings, LLC (“Landmark JV”)	Landmark Land Holdings, LLC		31.3	%		1		—
						25		3,851,100

The Company has contributed certain properties to unconsolidated entities in exchange for equity interests in those unconsolidated entities. The contribution of property to unconsolidated entities is accounted for as a sale of real estate and the Company recognizes the gain or loss on the sale (the “Gain (Loss)”) based upon the transaction price attributed to the property at the closing of the unconsolidated entities transaction (the “Contribution Value”). The Gain or (Loss) is included in gain on sale of real estate on the consolidated statements of operations.

In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective unconsolidated entity agreements, which may result in an adjustment to the gain or loss recognized. If the Contribution Value is subject to revaluation, the Company initially recognizes the gain or loss at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a quarterly basis through the final determination date.

Upon revaluation, the primary inputs in determining the Contribution Value will be updated for actual results and may result in a cash settlement or capital account adjustment between the unconsolidated entity partners, as well as an adjustment to the initial gain or loss.

Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the gain or loss for those unconsolidated entities subject to a revaluation. The following table summarizes the properties contributed to the Company’s unconsolidated entities (in millions):


		December 31, 2021
Unconsolidated Entity	Contribution Date	Contribution Value		Gain (Loss)
2018
Mark 302 JV (1)	March 20, 2018	$	60.0	$	8.8
2019
Cockeysville JV (2)	March 29, 2019	$	14.6	$	5.9
Tech Ridge JV (3)	September 27, 2019	$	3.0	$	0.1

(1)

The Mark 302 JV was subject to a revaluation which resulted in the Company adjusting the Contribution Value down to $60.0 million and reduced the Gain (Loss) by $30.0 million. As of December 31, 2021, the amended determination date, there has been no change to the adjusted Contribution Value and the final Contribution Value is $60.0 million.

(2)

The Cockeysville JV is subject to revaluation upon our partner contributing an adjacent parcel of land (the “Additional Land Parcel”) to the joint venture which was conditioned on certain milestones being met with respect to entitling the Additional Land Parcel for residential use. As of December 31, 2021, the parcel has been entitled and, with our consent, the partner entered sales contract with a third party for the land. As a result, the Company will receive its share of the proceeds from the sale in lieu of the parcel being contributed to the venture and recorded an additional gain of $2.1 million during the year ended December 31, 2021. The Company has determined that the final contribution value is $14.6 million.

(3)

The Tech Ridge JV is subject to a revaluation primarily based upon the number of residential units constructed by the Tech Ridge JV. The Contribution Value cannot be less than $2.75 million.

Alexandria Investment

On November 17, 2021, the Company contributed its property located in Alexandria, VA to the Landmark JV and retained a 31.25% interest in this property. As a result of this contribution, the Company recorded a gain of $22.6 million which is included in gain on sale of real estate on the consolidated statements of operations.

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for Mark 302 JV, West Hartford JV, UTC JV and Tech Ridge JV. The Company is entitled to receive fees for providing management, leasing, and construction supervision services to certain of its unconsolidated entities. Refer to Note 2 for the Company’s accounting policies. The Company also acted as the development manager for one of the properties in the GGP II JV which entitled the Company to receive certain development fees. The Company earned $1.0 million, $0.3 million and $1.6 million from these services for the years ended December 31, 2021, 2020 and 2019, respectively.

The following tables present combined financial data for all of the Company’s unconsolidated entities (in thousands):


	December 31, 2021			December 31, 2020
ASSETS
Investment in real estate
Land	$	410,323		$	318,540
Buildings and improvements		528,854			492,973
Accumulated depreciation		(96,856	)		(81,730	)
		842,321			729,783
Construction in progress		206,109			222,663
Net investment in real estate		1,048,430			952,446
Cash and cash equivalents		50,279			16,094
Investment in unconsolidated entities		53,215			24,686
Tenant and other receivables, net		7,914			4,104
Other assets, net		33,812			38,196
Total assets	$	1,193,650		$	1,035,526
LIABILITIES AND MEMBERS’ INTERESTS
Liabilities
Mortgage loans payable, net	$	56,075		$	34,672
Accounts payable, accrued expenses and other liabilities		56,398			48,405
Total liabilities		112,473			83,077
Members’ Interests
Additional paid in capital		1,097,842			964,868
Retained earnings		(16,665	)		(12,419	)
Total members’ interests		1,081,177			952,449
Total liabilities and members’ interests	$	1,193,650		$	1,035,526


	Year Ended December 31,
	2021			2020			2019
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES
Total revenue	$	26,052		$	22,420		$	31,470
Property operating expenses		(10,968	)		(9,962	)		(11,385	)
Depreciation and amortization		(28,143	)		(18,401	)		(60,745	)
Operating loss		(13,059	)		(5,943	)		(40,660	)
Other expenses		(4,364	)		(3,551	)		(2,049	)
Gains, losses and impairments		(1,087	)		166			6,721
Net (loss)	$	(18,510	)	$	(9,328	)	$	(35,988	)
Equity in loss of unconsolidated entities	$	(9,231	)	$	(4,712	)	$	(17,994	)