Investments in Unconsolidated Entities

3 Months Ended

Mar. 31, 2021

Equity Method Investments And Joint Ventures [Abstract]

Investments in Unconsolidated Entities

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 March 31, 2021, the Company had investments in ten unconsolidated entities as follows:

		Seritage %	# of	Total
Unconsolidated Entities	Entity Partner(s)	Ownership	Properties	GLA
GS Portfolio Holdings II LLC    ("GGP I JV")	Brookfield Properties Retail    (formerly GGP Inc.)	50.0%	4		520,400
GS Portfolio Holdings (2017) LLC    ("GGP II JV")	Brookfield Properties Retail    (formerly GGP Inc.)	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 Merrilll Companies and other entities	20.0%	1		182,200
			25		3,968,600

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 condensed 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 presents summarizes the properties contributed to the Company’s unconsolidated entities:

		March 31, 2021
Unconsolidated Entities	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	$	12.5	$	3.8
Tech Ridge JV (3)	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 based on signed leases 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. During the year ended December 31, 2020 the Company adjusted the Contribution Value down to $60.0 million and reduced the Gain (Loss) by $30.0 million which is included in gain on sale of real estate on the consolidated statements of operations. The Company also recorded a $15.0 million reduction to the Mark 302 JV investment value and a $15.0 million payable related to the amounts due to its partner which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.  In addition, 2020, the Company and its partner entered into an agreement to extend the revaluation date for the Mark 302 JV to September 30, 2021. Pursuant to the terms of this agreement, the Company will pay its partner a fee of $1.1 million and the Contribution Value cannot be more than $90.0 million or less than $60.0 million. The Company will continue to re-evaluate the expected amount on a periodic basis through the final determination date.

(2) 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 joint venture which was conditioned on certain milestones being met with respect to entitling the Additional Land Parcel for residential use. The Additional Land Parcel has been entitled for residential use. The Company has not reflected the contribution value of the Additional Land Parcel in the value of its investment in the Cockeysville JV based on uncertainty related to a potential alternative transaction with respect to the Additional Land Parcel. The Company will record an increased investment in the Cockeysville JV and additional gain in an amount equal to 50% of the fair value of the Additional Land Parcel at the earlier of when it becomes probable that the Additional Land Parcel will be contributed or upon an alternate outcome.

(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.

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

	March 31, 2021			December 31, 2020
ASSETS
Investment in real estate
Land	$	318,540		$	318,540
Buildings and improvements		492,335			492,973
Accumulated depreciation		(87,925	)		(81,730	)
		722,950			729,783
Construction in progress		228,349			222,663
Net investment in real estate		951,299			952,446
Cash and cash equivalents		18,785			16,094
Tenant and other receivables, net		5,584			4,104
Other assets, net		65,620			62,882
Total assets	$	1,041,288		$	1,035,526
LIABILITIES AND MEMBERS' INTERESTS
Liabilities
Mortgage loans payable, net	$	34,675		$	34,672
Accounts payable, accrued expenses and other liabilities		42,627			48,405
Total liabilities		77,302			83,077
Members' Interest
Additional paid in capital		965,949			964,868
Retained earnings (accumulated deficit)		(1,963	)		(12,419	)
Total members' interest		963,986			952,449
Total liabilities and members' interest	$	1,041,288		$	1,035,526

	Three Months Ended March 31,
	2021			2020
Total revenue	$	7,729		$	5,341
Property operating expenses		(2,579	)		(2,737	)
Depreciation and amortization		(6,481	)		(3,687	)
Operating loss		(1,331	)		(1,083	)
Other expenses		(1,043	)		(489	)
Net loss	$	(2,374	)	$	(1,572	)
Equity in loss of unconsolidated    entities (1)	$	(1,162	)	$	(786	)

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

The Company shares in the profits and losses of these unconsolidated entities 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 entity that differ from the Company’s equity interest in the unconsolidated entity.  This may arise from impairments that the Company recognizes related to its investment that differ from the impairments the unconsolidated entity recognizes with respect to its assets, differences between the Company’s basis in assets it has transferred to the unconsolidated entity and the unconsolidated entity’s basis in those assets or other items.  There were no impairment charges related to the Unconsolidated Properties for the three months ended March 31, 2021 and 2020.

Unconsolidated Entity Management and Related Fees

The Company acts as the operating partner and day-to-day manager for the Mark 302 JV, the West Hartford JV, the UTC JV, and Tech Ridge JV.  The Company is entitled to receive certain 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

which ended as of March 31, 2021.  The Company earned $0.1 million and $0.2 million from these services for the three months ended March 31, 2021 and 2020, respectively.