INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

3 Months Ended

Mar. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

On June 28, 2019, the Company, through an indirect wholly owned subsidiary, and FGPH 210 W. Chicago LLC (the “JV Partner”), entered into a limited liability company agreement to form a joint venture (the “Joint Venture”). Prior to entering into the Joint Venture, an affiliate of the JV Partner entered into a purchase and sale agreement to acquire an office property containing 16,239 rentable square feet located on approximately 8,072 square feet of land in Chicago, Illinois (“210 W. Chicago”), and such affiliate of the JV Partner assigned the purchase and sale agreement to the Joint Venture and the Joint Venture acquired 210 W. Chicago on June 28, 2019.

The Company and the JV Partner each own a 50% equity interest in the Joint Venture, with the Company serving as the manager of the Joint Venture. Major decisions, as defined in the limited liability company agreement, require an affirmative unanimous written consent. Income, losses and distributions are generally allocated based on the members’ respective equity interests. Accordingly, the Company has accounted for its investment in the Joint Venture under the equity method of accounting.

The contractual purchase price of 210 W. Chicago was $5.4 million plus closing costs. The Joint Venture funded the purchase of 210 W. Chicago with a $3.8 million mortgage loan from an unaffiliated lender and with contributions from the Joint Venture members. During the three months ended March 31, 2020, the Company recognized $0.5 million of equity loss, which included $0.5 million of impairment, related to its investment in the Joint Venture. As of March 31, 2020, the Company determined the carrying value of its investment to be less than fair value and measured the fair value of its investment to be $0.5 million, resulting in an impairment of $0.5 million for the three months ended March 31, 2020. The impairment was a result of the decline in fair value of the underlying 210 W. Chicago property due to changes in cash flow estimates including a change in leasing projections, which triggered future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in a decrease in projected rental rates as leases mature. Further, tenants at 210 W. Chicago have been adversely impacted by the stay at home order issued for the City of Chicago and many tenants have requested rent concessions as their businesses have been severely impacted.