INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

9 Months Ended

Sep. 30, 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 (the “JV 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 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.

As of September 30, 2020, the Company and the JV Partner each owned 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 JV Agreement, required affirmative unanimous written consent. Income, losses and distributions were generally allocated based on the members’ respective equity interests. In accordance with the JV Agreement, if a cause event occurs (as defined in the JV agreement) or the members do not enter into a parking lot joint venture agreement prior to the expiration of the parking lot joint venture negotiation period and at any time during the 120 day period following the expiration of the parking lot joint venture negotiation period, the JV Partner may elect to exercise a call option to purchase the membership interest of the Company or a put option to sell its membership interest to the Company at an amount equal to 125% of unreturned capital contributions of the member’s interest being acquired.

The parking lot venture negotiation period expired on June 30, 2020. On September 4, 2020, the JV Partner exercised its put option available under the JV agreement. On October 5, 2020, the Company purchased the JV Partner’s 50% membership interest for $1.1 million and consolidated the Joint Venture as of that date.

During the three months ended September 30, 2020, the Company recorded an estimated loss of $0.3 million related to its obligation to satisfy the put option to the JV Partner, which was included in equity in loss of unconsolidated joint venture. The loss was estimated based on the expected loss to be recorded on consolidation of the entity, which was determined based on FASB ASC 810, Consolidation, guidance for initial consolidation of a variable interest entity that is not considered a business. The loss was estimated based on the difference between (a) the sum of the value of the consideration paid plus the carrying amount of the previously held interests in the entity and (b) the estimated fair values of the net assets held within the entity as of the consolidation date.

During the three and nine months ended September 30, 2020, the Company recognized $0.4 million and $0.8 million of equity loss, respectively, and $13,000 of equity income during the three and nine months ended September 30, 2019. Equity loss recognized during the nine months ended September 30, 2020 included $0.5 million of impairment related to the Company’s investment in the Joint Venture and $0.3 million of loss recorded related to the consolidation of the VIE as discussed above. 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 measures put in place to control the spread of COVID-19 and many tenants have requested rent concessions as their businesses have been severely impacted. As of September 30, 2020, the book value of the Company’s investment in the Joint Venture was $0.5 million. As of September 30, 2020, the Company’s maximum loss exposure related to its investment in the Joint Venture was equal to the carrying value of its $0.5 million investment and the Company’s obligation of $1.1 million to satisfy the JV Partner’s put option pursuant to the JV Agreement.