REAL ESTATE HELD FOR INVESTMENT

3 Months Ended

Mar. 31, 2020

As of March 31, 2020, the Company’s portfolio of real estate held for investment was composed of three office buildings containing 582,791 rentable square feet, which were collectively 90.6% occupied. The following table provides summary information regarding the properties owned by the Company as of March 31, 2020 (in thousands):


Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost ⁽¹⁾		Accumulated Depreciation and Amortization ⁽¹⁾		Total Real Estate, Net ⁽¹⁾
Commonwealth Building	06/30/2016	Portland	OR	Office	$	78,863	$	(11,905)	$	66,958
The Offices at Greenhouse	11/14/2016	Houston	TX	Office	47,166		(8,062)		39,104
Institute Property	11/09/2017	Chicago	IL	Office	37,220		—		37,220
					$	163,249	$	(19,967)	$	143,282

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⁽¹⁾Amounts presented are net of impairment charges and write-offs of fully depreciated/amortized assets.

As of March 31, 2020, the following properties represented more than 10% of the Company’s total assets:


Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands)⁽¹⁾		Average Annualized Base Rent per sq. ft.		Occupancy
Commonwealth Building	Portland, OR	224,122	$	66,958	43.7	%	$	5,585	$	28.60	87.1	%
The Offices at Greenhouse	Houston, TX	203,284	39,104		25.5	%	4,206		20.69		100.0	%
Institute Property	Chicago, IL	155,385	37,220		24.3	%	3,626		28.01		83.3	%

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⁽¹⁾Annualized base rent represents annualized contractual base rental income as of March 31, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Operating Leases

The Company’s real estate properties held for investment are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2020, the leases had remaining terms, excluding options to extend, of up to 9.3 years with a weighted-average remaining term of 3.5 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $0.9 million and $1.1 million as of March 31, 2020 and December 31, 2019, respectively.

During the three months ended March 31, 2020 and 2019, the Company recognized deferred rent from tenants, net of lease incentive amortization, of $(0.2) million and $0.2 million, respectively. As of March 31, 2020 and December 31, 2019, the cumulative deferred rent balance was $2.8 million and $3.0 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.2 million and $0.2 million of unamortized lease incentives as of March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020, the future minimum rental income from the Company’s properties held for investment under its non-cancelable operating leases was as follows (in thousands):


April 1, 2020 through December 31, 2020	$	10,247
2021	12,692
2022	11,077
2023	8,426
2024	7,317
Thereafter	4,906
	$	54,665

As of March 31, 2020, the Company had a concentration of credit risk related to AECOM, one of the tenants in The Offices at Greenhouse in the engineering industry, which represented 22% of the Company’s annualized base rent. The tenant individually occupied 135,727 rentable square feet or approximately 23% of the total rentable square feet of the Company’s real estate portfolio held for investment, which expires on December 31, 2024, with two five-year extension options. As of March 31, 2020, the annualized base rent for this tenant was approximately $2.9 million or $21.37 per square foot. No other tenant represented more than 10% of the Company’s annualized base rent.

As of March 31, 2020, the Company’s real estate properties held for investment were leased to 61 tenants over a diverse range of industries. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:


Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Professional, scientific and technical	9	$	4,980	37.1	%
Computer system design and related services	2	1,358		10.1	%

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⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of March 31, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

As of March 31, 2020, no other tenant industries accounted for more than 10% of annualized base rent. During the three months ended March 31, 2020 and 2019, the Company recorded an adjustment to rental income of $0.4 million and $12,000, respectively, for lease payments that were deemed not probable of collection. During the three months ended March 31, 2019, the Company recorded bad debt recovery of $27,000, which was included in operating, maintenance, and management expense in the accompanying consolidated statements of operations. No bad debt expense or recovery was recorded during the three months ended March 31, 2020.

Impairment of Real Estate

During the three months ended March 31, 2020, the Company recorded non-cash impairment charges of $5.8 million to write down the carrying value of the Institute Property, an office property located in Chicago, Illinois, to its estimated fair value as a result of changes in cash flow estimates including a change in leasing projections, which triggered the 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 longer lease-up periods and a decrease in projected rental rates and was further impacted by the COVID-19 pandemic which the Company believes will result in additional challenges to release the vacant space. Further, tenants at the Institute Property 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.