Investments in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2020

Equity Method Investments And Joint Ventures [Abstract]

Investments in Unconsolidated Joint Ventures

Note 4 – Investments in Unconsolidated Joint Ventures

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

As of March 31, 2020, the Company had investments in nine unconsolidated joint ventures 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    (formerly GGP Inc.)		50.0	%		4		520,500
GS Portfolio Holdings (2017) LLC    ("GGP II JV")	Brookfield Properties Retail    (formerly GGP Inc.)		50.0	%		5		910,400
MS Portfolio LLC    ("Macerich JV")	The Macerich Company		50.0	%		9		1,570,200
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		226,300
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		—
						28		4,526,500

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

In certain circumstances, the Contribution Value is subject to revaluation as defined in the respective joint venture agreements, which may result in an adjustment to the Gain (Loss) recognized.  If the Contribution Value is subject to revaluation, the Company initially recognizes the Gain (Loss) at the value that is the expected amount within the range of possible outcomes and will re-evaluate the expected amount on a periodic 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 joint venture partners, as well as an adjustment to the Initial Gain (Loss).

Each reporting period, the Company re-analyzes the primary inputs that determine the Contribution Value and the Gain (Loss) for those joint ventures subject to a revaluation.  The following table presents summarizes the properties contributed to the Company’s unconsolidated joint ventures:

		March 31, 2020
Unconsolidated Joint Venture	Contribution Date	Contribution Value		Gain (Loss)
2018
Mark 302 JV (1)	March 20, 2018	$	90.0	$	38.8
UTC JV	May 18, 2018		68.0		28.3
West Hartford JV (2)	May 18, 2018		20.3		(1.1	)
2019
Cockeysville JV (3)	March 29, 2019	$	12.5	$	3.8
Tech Ridge JV (4)	September 27, 2019		3.0		0.1

(1) The Mark 302 JV is subject to a revaluation upon the earlier of the first anniversary of project stabilization or December 31, 2020. The primary inputs in determining the Contribution Value for the Mark 302 JV are property operating income and total project costs and the Contribution Value will be recalculated to yield a pre-determined rate of return to the investment fund managed by Invesco Real Estate. The Contribution Value cannot be more than $105.0 million or less than $60.0 million, and the Gain (Loss) will not be more than $53.8 million or less than $8.8 million.

(2) The West Hartford JV was subject to (i) a revaluation upon the earlier of the first anniversary of project stabilization or December 31, 2019, and (ii) an adjustment based on the timing, method and magnitude of the reassessment of the property for real estate tax purposes between 2018 and 2022. As of December 31, 2019, the Company revalued the Contribution Value and recorded an additional loss of $2.3 million, and the Company does not expect there to be any additional revaluations.

(3) The Cockeysville JV is subject to revaluation if an affiliate of Greenberg Gibbons contributes another adjacent parcel of land (the “Additional Land Parcel”) to the Cockeysville JV if certain milestones are met with respect to entitling the Additional Land Parcel for residential use. If the Additional Land Parcel is contributed to the Cockeysville JV, the Company will record an increased investment in the Cockeysville JV in an amount equal to 50% of the fair value of the Additional Land Parcel at the time of contribution. The Contribution Value of the Cockeysville JV is based upon the Company’s assessment of the probability of the Additional Land Parcel being entitled for residential use.  The maximum Gain (Loss) is the fair value of the Additional Land Parcel at the time the Contribution Value is revalued, which cannot be less than $3.8 million.

(4) 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.

The following tables present combined condensed financial data for the Company’s unconsolidated joint ventures (in thousands):

	March 31, 2020			December 31, 2019
ASSETS
Investment in real estate
Land	$	336,739		$	336,739
Buildings and improvements		534,393			517,068
Accumulated depreciation		(70,927	)		(86,496	)
		800,205			767,311
Construction in progress		195,170			177,028
Net investment in real estate		995,375			944,339
Cash and cash equivalents		19,773			27,977
Tenant and other receivables, net		1,879			3,113
Other assets, net		38,699			26,051
Total assets	$	1,055,726		$	1,001,480
LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Mortgage loans payable, net	$	14,470		$	14,218
Accounts payable, accrued expenses and other liabilities		96,994			89,110
Total liabilities		111,464			103,328
Additional paid in capital		945,953			934,120
Retained earnings		(1,691	)		(35,968	)
Total members interest		944,262			898,152
Total liabilities and members interest	$	1,055,726		$	1,001,480

	Three Months Ended March 31,
	2020			2019
Total revenue	$	5,341		$	11,218
Property operating expenses		(2,737	)		(2,598	)
Depreciation and amortization		(3,687	)		(5,253	)
Operating income		(1,083	)		3,367
Other expenses		(489	)		(922	)
Net loss	$	(1,572	)	$	2,445
Equity in income (loss) of unconsolidated    joint ventures (1)	$	(786	)	$	1,222

(1) Equity in income (loss) of unconsolidated joint ventures on the condensed consolidated statements of operations includes basis difference adjustments.

Each unconsolidated joint venture is obligated to maintain financial statements in accordance with GAAP.  The Company shares in the profits and losses of these unconsolidated joint ventures generally in accordance with the Company’s respective equity interests.  In some instances, the Company may recognize profits and losses related to investment in an unconsolidated joint venture that differ from the Company’s equity interest in the unconsolidated joint venture.  This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated joint venture recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated joint venture and the unconsolidated joint venture’s basis in those assets or other items.  There were no joint venture impairment charges for the three months ended March 31, 2020 and March 31, 2019.