Investment In DST

9 Months Ended

Sep. 30, 2020

Real Estate [Abstract]

Investment In DST

Note L – Investment In DST

On May 31, 2017, the Company, through a wholly owned subsidiary of its Operating Partnership, purchased a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware Statutory Trust (“MVP St. Louis”), for approximately $2.8 million. MVP St. Louis is the owner of a 2.56-acre, 376-vehicle commercial parking lot located at 500 South Broadway, St. Louis, Missouri 63103, known as the Cardinal Lot (the “Property”), which is adjacent to Busch Stadium, the home of the St. Louis Cardinals major league baseball team. The Property was purchased by MVP St. Louis from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs.

Concurrently with the acquisition of the Property, MVP St. Louis obtained a first mortgage loan from Cantor Commercial Real Estate Lending, L.P (“St. Louis Lender”), in the principal amount of $6,000,000, with a 10-year, interest-only term at a fixed interest rate of 5.25%, resulting in an annual debt service payment of $315,000 (the “St. Louis Loan”). MVP St. Louis used the Company’s investment to fund a portion of the purchase price for the Property. The remaining equity portion was funded through short-term investments by VRM II, an affiliate of the former Advisor, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act. VRM II and Michael V. Shustek, the Company’s Chairman and Chief Executive Officer, provided non-recourse carveout guaranties of the loan and environmental indemnities of St. Louis Lender.

Also, concurrently with the acquisition of the Property, MVP St. Louis, as landlord, entered into a 10-year master lease (the “St. Louis Master Lease”), with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of the former Advisor, as tenant, (the “St. Louis Master Tenant”). St. Louis Master Tenant, in turn, concurrently entered into a 10-year sublease with Premier Parking of Missouri, LLC. The St. Louis Master Lease provides for annual rent payable monthly to MVP St. Louis, consisting of base rent in an amount to pay debt service on the St. Louis Loan, stated rent of $414,000 and potential bonus rent equal to a share of the revenues payable under the sublease in excess of a threshold. The Company will be entitled to its proportionate share of the rent payments based on its ownership interest. Under the St. Louis Master Lease, MVP St. Louis is responsible for capital expenditures and the St. Louis Master Tenant is responsible for taxes, insurance and operating expenses. For the three months ended September 30, 2020 and 2019, distributions received were none and $52,000 respectively. For the nine months ended September 30, 2020 and 2019, distributions received were $34,000 and $170,000, respectively.

The Company conducted an analysis and concluded that the 51% investment in the DST should not be consolidated. As a DST, the entity is subject to the Variable Interest Entity (“VIE”) Model under ASC 810-10.

As stated in ASC 810: “A controlling financial interest in the VIE model requires both of the following:

a. The power to direct the activities that most significantly impact the VIE’s economic performance

b. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.”

As a VIE, the DST is governed in a manner similar to a limited partnership (i.e., there are trustees and there is no board) and the Company, as a beneficial owner, lacks the power through voting rights or otherwise to direct the activities of the DST that most significantly impact the entity’s economic performance. Specifically, the beneficial interest owners do not have the rights set forth in ASC 810-10-15-14(b)(1)(ii) – the beneficial owners can only remove the trustees if the trustees have engaged in fraud or gross negligence with respect to the trust and the beneficial owners have no substantive participating rights over the trustees.

The former Advisor was the advisor to the Company. The Company is controlled by its independent board of directors and its shareholders. In addition, the former Advisor is the 100% direct/indirect owner of the MVP Parking DST, LLC (“DST Sponsor”), the MVP St. Louis Cardinal Lot Signature Trustee, LLC (“Signature Trustee”) and MVP St. Louis Cardinal Lot Master Tenant, LLC (the “Master Tenant”), who have no direct or indirect ownership in the Company. The Signature Trustee and the Master Tenant can direct the most significant activities of the DST.

The former Advisor controls and consolidates the Signature Trustee, the Master Tenant, and the DST Sponsor. The Company concluded the Master Tenant/property management agreement exposes the Master Tenant to funding operating losses of the Property. As such, that agreement should be considered a variable interest in DST (ASC 810-10-55-37 and 810-10-55-37C). Accordingly, the former Advisor has a variable interest in the DST (through the master tenant/property manager) and has power over the significant activities of the DST (through the Signature Trustee and the master tenant/property manager). Accordingly, the Company believes that the Master Tenant is the primary beneficiary of the DST, which is ultimately owned and controlled by the former Advisor. In addition, the Company does not have the power to direct or change the activities of the Trust and shares income and losses pari passu with the other owners. As such, the Company accounts for its investment under the equity method and does not consolidate its investment in the DST.

Summarized Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments

		September 30, 2020		December 31, 2019
		(Unaudited)		(Unaudited)
ASSETS
Investments in real estate and fixed assets	$	11,512,000	$	11,512,000
Cash		1,000		28,000
Cash – restricted		31,000		24,000
Due from related parties		158,000		--
Prepaid expenses		12,000		10,000
Total assets	$	11,714,000	$	11,574,000

LIABILITIES AND EQUITY
Liabilities
Notes payable, net of unamortized loan issuance costs of approximately $47,000 and $46,000 as of September 30, 2020 and December 31, 2019, respectively	$	5,953,000	$	5,954,000
Accounts payable and accrued liabilities		303,000		93,000
Due to related party		--		57,000
Total liabilities		6,256,000		6,104,000
Equity
Member’s equity		6,129,000		6,129,000
Offering costs		(574,000)		(574,000)
Accumulated earnings		1,220,000		952,000
Distributions to members		(1,317,000)		(1,037,000)
Total equity		5,458,000		5,470,000
Total liabilities and equity	$	11,714,000	$	11,574,000

Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments

		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019		2020		2019
Revenue	$	182,000	$	183,000	$	547,000	$	556,000
Expenses		(99,000)		(91,000)		(279,000)		(269,000)
Net income	$	83,000	$	92,000	$	268,000	$	287,000