10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒

For the quarterly period ended September 30, 2018

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-38010

CLIPPER REALTY INC.

(Exact name of Registrant as specified in its charter)  

Maryland	47-4579660
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4611 12^th Avenue, Suite 1L

Brooklyn, New York 11219

(Address of principal executive offices) (Zip Code)

(718) 438-2804

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐  (Do not check if a smaller reporting company)	Smaller reporting company  ☒
	Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒

As of November 1, 2018, there were 17,812,755 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
ITEM 1.  FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2018 (UNAUDITED) AND DECEMBER 31, 2017	3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)	4
CONSOLIDATED STATEMENTS OF EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)	5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4.  CONTROLS AND PROCEDURES	31
PART II – OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS	32
ITEM 1A.  RISK FACTORS	32
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 4.  MINE SAFETY DISCLOSURE	32
ITEM 6.  EXHIBITS	32
SIGNATURES	33

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PART I – FINANCIAL INFORMATION

Cautionary Note Concerning Forward-Looking Statements

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q for Clipper Realty Inc. (the “Company”), including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Company’s financial position, business strategy and the plans, objectives, expectations, or assumptions of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “continue,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which are generally not historical in nature. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks, contingencies and uncertainties include, but are not limited to, the following:

● market and economic conditions affecting occupancy levels, rental rates, the overall market value of our properties, our access to capital and the cost of capital and our ability to refinance indebtedness;

● economic or regulatory developments in New York City;

● the single government tenant in our commercial buildings may suffer financial difficulty;

● our ability to control operating costs to the degree anticipated;

● the risk of damage to our properties, including from severe weather, natural disasters, climate change and terrorist attacks;

● risks related to financing, cost overruns and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable;

● concessions or significant capital expenditures that may be required to attract and retain tenants;

● the relative illiquidity of real estate investments;

● competition affecting our ability to engage in investment and development opportunities or attract or retain tenants;

● unknown or contingent liabilities in properties acquired in formative and future transactions;

● changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations;

● the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners;

● conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor;

● a transfer of a controlling interest in any of our properties may obligate us to pay transfer tax based on the fair market value of the real property transferred; and

● other risks and risk factors or uncertainties identified from time to time in our filings with the Securities and Exchange Commission (“SEC”).

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Reference is made to a more complete discussion of forward-looking statements and applicable risks contained under the captions “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 14, 2018, as amended, and other reports filed from time to time with the SEC. Clipper Realty Inc. undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 1. FINANCIAL STATEMENTS

Clipper Realty Inc.

Consolidated Balance Sheets

(In thousands, except for share and per share data)

	September 30, 2018			December 31, 2017
	(unaudited)
ASSETS
Investment in real estate
Land and improvements	$	497,343		$	497,343
Building and improvements		475,278			463,727
Tenant improvements		3,040			3,023
Furniture, fixtures and equipment		10,707			10,245
Real estate under development		116,752			96,268
Total investment in real estate		1,103,120			1,070,606
Accumulated depreciation		(86,027	)		(73,714	)
Investment in real estate, net		1,017,093			996,892
Cash and cash equivalents		12,372			7,940
Restricted cash		12,713			13,730
Tenant and other receivables, net of allowance for doubtful accounts of $2,719 and $2,524, respectively		3,259			6,569
Deferred rent		2,743			3,514
Deferred costs and intangible assets, net		10,311			11,894
Prepaid expenses and other assets		9,179			11,546
TOTAL ASSETS	$	1,067,670		$	1,052,085
LIABILITIES AND EQUITY
Liabilities:
Notes payable, net of unamortized loan costs of $10,579 and $11,170, respectively	$	873,110		$	843,946
Accounts payable and accrued liabilities		13,713			8,595
Security deposits		6,831			6,048
Below-market leases, net		3,461			5,075
Other liabilities		3,512			2,830
TOTAL LIABILITIES		900,627			866,494
Equity:
Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares of 12.5% Series A cumulative non-voting preferred stock), zero shares issued and outstanding		—			—
Common stock, $0.01 par value; 500,000,000 shares authorized, 17,812,755 shares issued and outstanding		178			178
Additional paid-in-capital		92,864			92,273
Accumulated deficit		(25,616	)		(17,539	)
Total stockholders’ equity		67,426			74,912
Non-controlling interests		99,617			110,679
TOTAL EQUITY		167,043			185,591
TOTAL LIABILITIES AND EQUITY	$	1,067,670		$	1,052,085

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES
Residential rental income	$	20,180		$	18,558		$	59,148		$	54,674
Commercial income		5,377			5,476			16,129			16,418
Tenant recoveries		1,294			1,162			3,668			3,223
Garage and other income		1,097			812			3,171			2,314
TOTAL REVENUES		27,948			26,008			82,116			76,629
OPERATING EXPENSES
Property operating expenses		6,806			6,519			20,643			20,188
Real estate taxes and insurance		5,824			5,536			16,534			15,005
General and administrative		1,858			2,501			7,602			7,285
Acquisition costs		—			10			—			37
Depreciation and amortization		4,351			4,086			13,382			12,084
TOTAL OPERATING EXPENSES		18,839			18,652			58,161			54,599
INCOME FROM OPERATIONS		9,109			7,356			23,955			22,030
Interest expense, net		(8,052	)		(8,925	)		(24,603	)		(26,508	)
Loss on extinguishment of debt		—			—			(6,981	)		—
Gain on involuntary conversion		194			—			194			—
Net income (loss)		1,251			(1,569	)		(7,435	)		(4,478	)
Net (income) loss attributable to non-controlling interests		(746	)		938			4,434			2,736
Dividends attributable to preferred shares		—			—			—			(8	)
Net income (loss) attributable to common stockholders	$	505		$	(631	)	$	(3,001	)	$	(1,750	)
Basic and diluted net income (loss) per share	$	0.02		$	(0.04	)	$	(0.18	)	$	(0.11	)

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Equity

(In thousands, except for share data)

(Unaudited)

	Number of common shares		Common stock		Additional paid-in- capital			Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance December 31, 2017		17,812,755	$	178	$	92,273		$	(17,539	)	$	74,912		$	110,679		$	185,591
Issuance of common stock		—		—		(7	)		—			(7	)		—			(7	)
Amortization of LTIP grants		—		—		—			—			—			1,670			1,670
Dividends and distributions		—		—		—			(5,076	)		(5,076	)		(7,700	)		(12,776	)
Net loss		—		—		—			(3,001	)		(3,001	)		(4,434	)		(7,435	)
Reallocation of noncontrolling interests		—		—		598			—			598			(598	)		—
Balance September 30, 2018		17,812,755	$	178	$	92,864		$	(25,616	)	$	67,426		$	99,617		$	167,043

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,435	)	$	(4,478	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		12,330			11,396
Amortization of deferred financing costs		984			2,163
Amortization of deferred costs and intangible assets		1,407			1,864
Amortization of above- and below-market leases		(1,438	)		(1,297	)
Loss on extinguishment of debt		6,981			—
Gain on involuntary conversion		(194	)		—
Deferred rent		771			237
Stock-based compensation		1,670			2,268
Change in fair value of interest rate caps		(237	)		359
Changes in operating assets and liabilities:
Restricted cash		1,017			(6,694	)
Tenant and other receivables		3,310			(721	)
Prepaid expenses, other assets and deferred costs		2,295			2,760
Accounts payable and accrued liabilities		1,898			(1,321	)
Security deposits		783			253
Other liabilities		682			1,230
Net cash provided by operating activities		24,824			8,019
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and improvements		(28,455	)		(14,104	)
Insurance proceeds from involuntary conversion		226			—
Proceeds from sale of interest rate caps		385			—
Acquisition deposit		—			(8,126	)
Cash paid in connection with acquisition of real estate		—			(87,586	)
Net cash used in investing activities		(27,844	)		(109,816	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and costs from sale of common stock		(7	)		78,685
Redemption of preferred stock		—			(145	)
Payments of mortgage notes		(580,866	)		(2,545	)
Proceeds from mortgage notes		609,439			59,347
Dividends and distributions		(12,776	)		(12,310	)
Loan issuance and extinguishment costs		(8,338	)		(4,013	)
Net cash provided by financing activities		7,452			119,019
Net increase in cash and cash equivalents		4,432			17,222
Cash and cash equivalents - beginning of period		7,940			37,547
Cash and cash equivalents - end of period	$	12,372		$	54,769
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $4,054 and $1,720 in 2018 and 2017, respectively	$	23,582		$	24,848
Non-cash interest capitalized to real estate under development		888			592
Additions to investment in real estate included in accounts payable and accrued liabilities		6,920			1,522

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Notes to Consolidated Financial Statements

(In thousands, except for share and per share data and as noted)

(Unaudited)

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have prepared the unaudited condensed consolidated financial statements of Clipper Realty Inc. (the “Company” or “we”) and subsidiaries pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 14, 2018, as amended.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

1. Organization

The Company was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions.

On February 9, 2017, the Company priced an initial public offering of 6,390,149 primary shares of its common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) at a price of $13.50 per share (the “IPO”). The net proceeds of the IPO were approximately $78.7 million. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership.

On May 9, 2017, the Company completed the purchase of 107 Columbia Heights, a 161-unit apartment community located in Brooklyn Heights, New York, in vacant condition, for $87.5 million.

On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in Manhattan, New York, for $79.0 million.

As of September 30, 2018, the properties owned by the Company consist of the following (collectively, the “Properties”):

• Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 481,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA;

• Flatbush Gardens in Brooklyn, a 59-building residential housing complex with 2,496 rentable units;

• 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,000 square feet of GLA;

• 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 381,000 square feet of GLA (fully remeasured);

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• Aspen in Manhattan, a 7-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA;

• 107 Columbia Heights in Brooklyn, a 10-story residential building with approximately 154,000 gross square feet of space; and

• 10 West 65^th Street in Manhattan, a 6-story building with approximately 76,000 square feet of residential rental GLA.

The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.

At September 30, 2018, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 40.4% of the aggregate cash distributions from, and the profits and losses of, the LLCs.

The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.

On June 21, 2017, the Company redeemed its Series A cumulative non-voting preferred stock for $145.

2. Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP. The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interest.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Investment in Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

In accordance with ASU 2017-01, "Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

• The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).

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An acquired process is considered substantive if:

• The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process;

• The process cannot be replaced without significant cost, effort or delay; or

• The process is considered unique or scarce.

Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does not believe that any of its properties within the portfolio are impaired as of September 30, 2018.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held-for-sale.

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If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building and improvements	10	–	44 years
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment	3	–	15 years

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.

Restricted Cash

Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.

Tenant and Other Receivables and Allowance for Doubtful Accounts

Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods.

Deferred Costs

Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.

Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the three and nine months ended September 30, 2018 and 2017, the Company did not own any financial instruments for which the change in value was not reported in net income (loss) accordingly and its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations.

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Revenue Recognition

Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for one-year terms, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.

Beginning in 2019, the Company will apply ASU 2014-09, “Revenue with Contracts with Customers.” This ASU does not apply to the Company’s lease revenues, which made up substantially all revenues in 2017 and the first three quarters of 2018. As such, management does not anticipate any significant changes to the timing of the Company’s revenue recognition. The Company intends to implement the standard retrospectively at the date of adoption.

Beginning in 2020, the Company will be required to apply ASU 2016-02, “Leases,” to its lease revenues. For lessors, the accounting remains largely unchanged from the current model. The adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, “Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant.

In March 2018, the Company granted 71,112 LTIP units with a weighted average grant date fair value of $9.00 per unit.

At September 30, 2018 and December 31, 2017, there were 724,448 and 653,336 LTIP units outstanding, respectively, with a weighted grant-date fair value of $12.56 and $12.95 per unit, respectively. As of September 30, 2018, and December 31, 2017, there was $1.1 million and $2.1 million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of September 30, 2018, the weighted average period over which the unrecognized compensation expense will be recorded is approximately 1.7 years.

Income Taxes

The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the U.S. Internal Revenue Code (the “Code”). To qualify as a REIT, the Company is required to distribute dividends equal to at least 90% of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally not subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company may not be able to re-elect as a REIT for the four subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

In accordance with FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operations. The prior three years’ income tax returns are subject to review by the Internal Revenue Service.

The Tax Cuts and Jobs Act was enacted in December 2017 and is generally effective beginning in 2018. This new legislation is not expected to have a material adverse effect on the Company’s business and contains several potentially favorable provisions.

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Fair Value Measurements

Refer to Note 8, “Fair Value of Financial Instruments”.

Derivative Financial Instruments

FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.

Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings. As of September 30, 2018, the Company has no derivatives for which it applies hedge accounting.

Income (Loss) Per Share

Basic and diluted income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. As of September 30, 2018 and 2017, the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic and diluted income (loss) per share pursuant to the two-class method. The Company did not have dilutive securities as of September 30, 2018 or 2017.

The effect of the conversion of the 26,317 Class B LLC units outstanding is not reflected in the computation of basic and diluted income (loss) per share, as the effect would be anti-dilutive. The net income (loss) allocable to such units is reflected as noncontrolling interests in the accompanying consolidated financial statements.

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (unaudited):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2018			2017			2018			2017
Numerator
Net income (loss) attributable to common stockholders	$	505		$	(631	)	$	(3,001	)	$	(1,750	)
Less: income attributable to participating securities		(69	)		(62	)		(200	)		(167	)
Subtotal	$	436		$	(693	)	$	(3,201	)	$	(1,917	)
Denominator
Weighted average common shares outstanding		17,813			17,813			17,813			16,756
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.02		$	(0.04	)	$	(0.18	)	$	(0.11	)

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Recently Issued Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019 with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In August 2018, the Securities and Exchange Commission issued a final rule that amends certain of its disclosure requirements. The rule simplifies various disclosure requirements for public companies including primarily that it (i) eliminates the requirement for public companies to disclose in their filings a schedule of earnings to fixed charges, (ii) requires an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods in interim reports, and (iii) reduces the requirements for market price information disclosures in annual reports. These changes are effective for public companies beginning on November 5, 2018. The Company will comply with these new requirements beginning with its 2018 Annual Report on Form 10-K.

In July 2018, FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which amended ASC 842 to provide a practical expedient to lessors to elect to not separate nonlease components from the associated leases. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In July 2018, FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases.” These amendments provide clarifications and corrections to ASU 2016-02, “Leases (Topic 842).”

In July 2018, FASB issued ASU 2018-09, “Codification Improvements.” These amendments provide clarifications and corrections to certain ASC subtopics including the following: 470-50 (Debt – Modifications and Extinguishments), 480-10 (Distinguishing Liabilities from Equity – Overall), 718-740 (Compensation – Stock Compensation – Income Taxes), 805-740 (Business Combinations – Income Taxes), 815-10 (Derivatives and Hedging – Overall) and 820-10 (Fair Value Measurement – Overall). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In June 2018, FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts with Customers.” This guidance is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early adoption is permitted but not earlier than the adoption of Topic 606. The Company does not believe that this guidance will have a material effect on its consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.

In May 2017, FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting.” ASU 2017-09 clarifies Topic 718 such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before the modification. The standard indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification.

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2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.

The amendments are effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU 2017-09 did not have a material impact on our consolidated financial statements.

In February 2017, FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20),” to add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 is effective for the Company for its annual reporting beginning after December 15, 2018, including interim reporting periods beginning after December 15, 2019. The adoption of ASU 2017-05 is not expected to have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230) – Restricted Cash”. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU does not provide a definition of restricted cash or restricted cash equivalents. The ASU is effective for the Company beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect that ASU No. 2016-18 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A consensus of the Emerging Issues Task Force),” which provides specific guidance on eight cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for the Company beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact, if any, it will have on its consolidated financial statements.

3. Acquisitions

On October 27, 2017, the Company acquired the 10 West 65^th Street property for $79,764, including acquisition costs of $764.

The purchase price was allocated as follows:

Land	$	63,677
Building		14,983
Tenant improvements		18
Furniture and office equipment		336
Leasing commissions		13
In-place leases		732
Other lease-up costs		5
Total	$	79,764

We have prepared the following unaudited pro forma income statement information for the nine months ended September 30, 2017, as if the 10 West 65^th Street acquisition had occurred as of January 1, 2017. The pro forma data is not necessarily indicative of the results that actually would have occurred if the acquisition had been consummated on January 1, 2017.

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	Nine Months Ended September 30, 2017
Revenues	$	78,854
Total expenses		(84,685	)
Net loss	$	(5,831	)

On May 9, 2017, the Company acquired the 107 Columbia Heights property, in vacant condition, for $87,616, including acquisition costs of $116.

The purchase price was allocated as follows:

Land	$	43,433
Building		44,100
Site improvements		83
Total	$	87,616

4. Deferred Costs and Intangible Assets

Deferred costs and intangible assets consist of the following:

	September 30, 2018			December 31, 2017
	(unaudited)
Deferred costs	$	266		$	266
Above-market leases		480			480
Lease origination costs		3,110			3,110
In-place leases		8,078			8,078
Real estate tax abatements		12,571			12,571
Total deferred costs and intangible assets		24,505			24,505
Less accumulated amortization		(14,194	)		(12,611	)
Total deferred costs and intangible assets, net	$	10,311		$	11,894

Amortization of lease origination costs and in-place lease intangible assets was $188 and $228 for the three months ended September 30, 2018 and 2017, respectively, and $1,052 and $688 for the nine months ended September 30, 2018 and 2017, respectively. Amortization of real estate abatements of $119 and $392 for the three months ended September 30, 2018 and 2017, respectively, and $355 and $1,176 for the nine months ended September 30, 2018 and 2017, respectively, is included in real estate taxes and insurance in the consolidated statements of operations. Amortization of above-market leases of $59 and $15 for the three months ended September 30, 2018 and 2017, respectively, and $176 and $43 for the nine months ended September 30, 2018 and 2017, respectively, is included in commercial income in the consolidated statements of operations.

Deferred costs and intangible assets as of September 30, 2018, amortize in future years as follows:

2018 (Remainder)	$	371
2019		1,134
2020		798
2021		768
2022		737
Thereafter		6,503
Total	$	10,311

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5. Below-Market Lease Intangibles

The Company’s below-market lease intangibles liabilities are as follows:

	September 30, 2018			December 31, 2017
	(unaudited)
Below-market leases	$	23,178		$	23,178
Less accumulated amortization		(19,717	)		(18,103	)
Below-market leases, net	$	3,461		$	5,075

Rental income includes amortization of below-market leases of $538 and $446 for the three months ended September 30, 2018 and 2017, respectively, and $1,614 and $1,340 for the nine months ended September 30, 2018 and 2017, respectively.

Below-market leases as of September 30, 2018, amortize in future years as follows:

2018 (Remainder)	$	537
2019		1,299
2020		517
2021		493
2022		423
Thereafter		192
Total	$	3,461

6. Notes Payable

The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:

Property	Maturity	Interest Rate		September 30, 2018			December 31, 2017
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—		$	148,438
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—			19,792
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000			—
250 Livingston Street, Brooklyn, NY (b)	5/6/2023		4.00%		33,715			34,294
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		77,703			78,792
Tribeca House, Manhattan, NY (d)	11/9/2018		LIBOR + 3.75%		—			410,000
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			—
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		68,415			69,383
107 Columbia Heights, Brooklyn, NY (f)	5/9/2020		LIBOR + 3.85%		63,506			60,067
10 West 65th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,350			34,350
Total debt				$	883,689		$	855,116
Unamortized debt issuance costs					(10,579	)		(11,170	)
Total debt, net of unamortized debt issuance costs				$	873,110		$	843,946

(a) On February 21, 2018, the Company repaid the debt secured by the Flatbush Gardens property that was scheduled to mature in 2024, from the proceeds of a $246,000 first mortgage loan with New York Community Bank (“NYCB”). The NYCB loan matures on March 1, 2028, and bears interest at 3.5% for the first five years and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The loan requires interest-only payments through August 2020, and monthly principal and interest payments thereafter based on a 30-year amortization schedule.

(b) The $37,500 mortgage note agreement with Citigroup Global Markets Realty Corp. matures on May 6, 2023, and bears interest at 4.00%. The note requires monthly principal and interest payments of $179.

(c) The NYCB loan matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule.

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(d) On February 21, 2018, the Company repaid the $410,000 loan package secured by the Tribeca House property with the proceeds of a $360,000 loan with Deutsche Bank and cash on hand. The loan matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term.

(e) The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule.

(f) On May 9, 2017, the Company entered into a $59,000 mortgage note agreement with a unit of Blackstone Mortgage Trust, Inc., related to the 107 Columbia Heights acquisition. The Company also entered into a construction loan secured by the building with the same lender that will provide up to $14,700 for eligible capital improvements and carrying costs, of which $4,506 was drawn as of September 30, 2018. The notes mature on May 9, 2020, are subject to two one-year extension options, require interest-only payments and bear interest at one-month LIBOR plus 3.85% (6.1% as of September 30, 2018).

(g) On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65^th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% for the first five years and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through October 2019, and monthly principal and interest payments thereafter based on a 30-year amortization schedule.

The following table summarizes principal payment requirements under terms as of September 30, 2018:

2018 (Remainder)	$	717
2019		3,763
2020		69,524
2021		9,422
2022		9,770
Thereafter		790,493
Total	$	883,689

The Company recognized a loss on extinguishment of debt of approximately $6,981 during the three months ended March 31, 2018. The loss consisted of prepayment and other fees and the write-off of unamortized loan costs.

7. Rental Income under Operating Leases

The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of September 30, 2018, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:

2018 (Remainder)	$	5,555
2019		17,335
2020		10,316
2021		4,695
2022		4,260
Thereafter		12,680
Total	$	54,841

The Company has commercial leases with the City of New York that comprised approximately 19% and 20% of total revenues for the three months ended September 30, 2018 and 2017, respectively, and 19% and 20% of total revenues for the nine months ended September 30, 2018 and 2017, respectively.

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8. Fair Value of Financial Instruments

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued liabilities reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

	September 30, 2018		December 31, 2017
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	883,689	$	855,116
Estimated fair value	$	861,845	$	839,753

The Company purchased interest rate caps in connection with the Tribeca House loans obtained on November 9, 2016, and in connection with the loans obtained for the 107 Columbia Heights acquisition. On April 27, 2018, the Company terminated the Tribeca House instrument for net proceeds of $385. The fair value of the interest rate caps, which are classified as Level 2, is estimated using market inputs and credit valuation inputs.

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The estimated fair values of the interest rate caps are as follows:

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at September 30, 2018		Estimated Fair Value at December 31, 2017
$	410,000	Tribeca House	December 15, 2018		2.0%		—	$	148
$	73,700	107 Columbia Heights	May 9, 2020		3.0%	$	110		34
Total fair value of derivative instruments included in prepaid expenses and other assets						$	110	$	182

These interest rate caps were not designated as hedges; accordingly, changes in fair value of the Tribeca House instrument are recognized in earnings, and changes in fair value of the 107 Columbia Heights instrument are recognized in real estate under development. (Increases) decreases in fair value of the Tribeca House instrument of $30 for the three months ended September 30, 2017, and $(237) and $359 for the nine months ended September 30, 2018 and 2017, respectively, are included in interest expense. (Increases) decreases in fair value of the 107 Columbia Heights instrument of $(13) and $28 for the three months ended September 30, 2018 and 2017, respectively, and $(76) and $92 for the nine months ended September 30, 2018 and 2017, respectively, are recognized in interest expense and capitalized to real estate under development.

The above disclosures regarding fair value of financial instruments are based on pertinent information available as of September 30, 2018, and December 31, 2017, respectively. Although the Company is not aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented herein.

9. Commitments and Contingencies

Legal

On July 3, 2017, the New York Supreme Court (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law 421-g. The Court also awarded the plaintiffs, their attorney’s fees and costs. The Court declared that the plaintiff-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court stayed the above decision; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The Appellate Division decision and order was subject to a motion for leave to appeal, which was granted on April 24, 2018. There can be no assurance as to the outcome of the appeal. Due to the inherent uncertainty and unpredictability of litigation, we cannot determine at this time with any specificity the Company’s potential liability. 

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position, or cash flows.

Commitments

The Company is obligated to provide parking availability through August 2020 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $240 per year.

Concentrations

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

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The breakdown between commercial and residential revenue is as follows:

	Commercial			Residential			Total
Three months ended September 30, 2018		25	%		75	%		100	%
Three months ended September 30, 2017		26	%		74	%		100	%
Nine months ended September 30, 2018		25	%		75	%		100	%
Nine months ended September 30, 2017		26	%		74	%		100	%

10. Related-Party Transactions

The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $87 and $78 for the three months ended September 30, 2018 and 2017, respectively, and $262 and $311 for the nine months ended September 30, 2018 and 2017, respectively.

The Company paid legal and advisory fees to firms in which two of our directors were principals or partners of $18 and $33 for the three months ended September 30, 2018 and 2017, respectively, and $1,898 and $732 for the nine months ended September 30, 2018 and 2017, respectively.

11. Segment Reporting

The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the 107 Columbia Heights property, the 10 West 65^th Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties.

The Company’s income from operations by segment for the three and nine months ended September 30, 2018 and 2017, is as follows:

Three months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	5,377	$	20,180	$	25,557
Tenant recoveries		1,294		—		1,294
Garage and other income		241		856		1,097
Total revenues		6,912		21,036		27,948
Property operating expenses		1,094		5,712		6,806
Real estate taxes and insurance		1,245		4,579		5,824
General and administrative		256		1,602		1,858
Depreciation and amortization		908		3,443		4,351
Total operating expenses		3,503		15,336		18,839
Income from operations	$	3,409	$	5,700	$	9,109

Three months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	5,476	$	18,558	$	24,034
Tenant recoveries		1,162		—		1,162
Garage and other income		203		609		812
Total revenues		6,841		19,167		26,008
Property operating expenses		1,089		5,430		6,519
Real estate taxes and insurance		1,148		4,388		5,536
General and administrative		194		2,307		2,501
Acquisition costs		—		10		10
Depreciation and amortization		803		3,283		4,086
Total operating expenses		3,234		15,418		18,652
Income from operations	$	3,607	$	3,749	$	7,356

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Nine months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	16,129	$	59,148	$	75,277
Tenant recoveries		3,668		—		3,668
Garage and other income		700		2,471		3,171
Total revenues		20,497		61,619		82,116
Property operating expenses		3,344		17,299		20,643
Real estate taxes and insurance		3,462		13,072		16,534
General and administrative		792		6,810		7,602
Depreciation and amortization		2,679		10,703		13,382
Total operating expenses		10,277		47,884		58,161
Income from operations	$	10,220	$	13,735	$	23,955

Nine months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	16,418	$	54,674	$	71,092
Tenant recoveries		3,223		—		3,223
Garage and other income		630		1,684		2,314
Total revenues		20,271		56,358		76,629
Property operating expenses		3,196		16,992		20,188
Real estate taxes and insurance		3,271		11,734		15,005
General and administrative		590		6,695		7,285
Acquisition costs		—		37		37
Depreciation and amortization		2,406		9,678		12,084
Total operating expenses		9,463		45,136		54,599
Income from operations	$	10,808	$	11,222	$	22,030

The Company’s total assets by segment are as follows, as of:

	Commercial		Residential		Total
September 30, 2018	$	212,963	$	854,707	$	1,067,670
December 31, 2017		222,288		829,797		1,052,085

The Company’s interest expense by segment for the three and nine months ended September 30, 2018 and 2017, is as follows:

	Commercial		Residential		Total
Three months ended September 30,
2018	$	1,716	$	6,336	$	8,052
2017		1,941		6,984		8,925
Nine months ended September 30,
2018	$	5,244	$	19,359	$	24,603
2017		5,764		20,744		26,508

The Company’s capital expenditures by segment for the three and nine months ended September 30, 2018 and 2017, are as follows:

	Commercial		Residential		Total
Three months ended September 30,
2018	$	628	$	9,425	$	10,053
2017		598		5,776		6,374
Nine months ended September 30,
2018	$	1,675	$	30,888	$	32,563
2017		3,611		11,902		15,513

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the caption, “Cautionary Note Concerning Forward-Looking Statements,” and in our financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview of Our Company

We are a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a current portfolio in Manhattan and Brooklyn. Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.

Clipper Realty Inc. (the “Company” or “we”) was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes.

In February 2017, the Company sold 6,390,149 primary shares of common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) to investors in an initial public offering (“IPO”) at $13.50 per share. The proceeds, net of offering costs, were approximately $78.7 million. The Company contributed the IPO proceeds to the Operating Partnership in exchange for units in the Operating Partnership.

On May 9, 2017, the Company completed the purchase of 107 Columbia Heights, a 161-unit apartment community located in Brooklyn Heights, New York, for $87.5 million.

On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in Manhattan, New York, for $79.0 million.

As of September 30, 2018, the Company owns:

• two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan;

• one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings;

• two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units);

• one residential/retail rental property at 1955 1^st Avenue in Manhattan;

• one residential rental property at 107 Columbia Heights in the Brooklyn Heights neighborhood of Brooklyn; and

• one residential rental property at 10 West 65^th Street in the Upper West Side neighborhood of Manhattan.

These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.

The Company is in active discussions with the City of New York regarding renewal of its commercial leases at the 250 Livingston Street property, which terminate in August 2020 and comprise approximately 294,000 square feet (since remeasured to approximately 353,000 square feet). The terms being discussed would increase the rent from the current blended $27.71 per square foot to the low-to-mid $40 per square foot range, which is similar to the terms currently in place for the approximate 30% of the commercial space in the building that was leased on January 1, 2017, and for the 141 Livingston Street property. Negotiations are underway and there can be no assurance or prediction of the final outcome of the negotiations.

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The Company recently received notice that Touro College, which currently leases 40 apartment units at the 10 West 65^th Street property in accordance with an agreement through 2019 entered into when the Company purchased the property in October 2017, has exercised its option to terminate the leases, effective January 31, 2019. The Company plans to reposition the apartments and expects to lease them at market rates.

Both the Flatbush Gardens and 107 Columbia Heights properties are located in newly designated qualified opportunity zones, in connection with the opportunity zone community development program offered through the Tax Cuts and Jobs Act of 2017. The federal program encourages private investment in low-income urban and rural communities. Opportunity zones are designed to spur economic development and job creation in specified communities by providing tax benefits to investors, including the potential deferral and exclusion of prior capital gains from taxable income.

The operations of Clipper Realty Inc., and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.

At September 30, 2018, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 40.4% of the aggregate cash distributions from, and the profits and losses of, the LLCs.

Results of Operations

Our focus throughout 2017 and year-to-date 2018 has been to manage our properties to optimize revenues and control costs, while continuing to renovate and reposition certain properties. The discussion below highlights the specific properties contributing to the changes in the results of operations, and focuses on the properties that the Company owned for the full period in each comparison.

Income Statement for the Three Months Ended September 30, 2018 and 2017 (in thousands)

	2018			Less: 10 West 65th Street			2018 excluding 10 West 65th Street			2017			Increase (decrease)			%
Revenues
Residential rental revenue	$	20,180		$	757		$	19,423		$	18,558		$	865			4.7	%
Commercial rental revenue		5,377			—			5,377			5,476			(99	)		(1.8	)%
Tenant recoveries		1,294			—			1,294			1,162			132			11.4	%
Garage and other income		1,097			3			1,094			812			282			34.7	%
Total revenues		27,948			760			27,188			26,008			1,180			4.5	%
Operating Expenses
Property operating expenses		6,806			65			6,741			6,519			222			3.4	%
Real estate taxes and insurance		5,824			219			5,605			5,536			69			1.2	%
General and administrative		1,858			81			1,777			2,501			(724	)		(28.9	)%
Acquisition costs		—			—			—			10			(10	)		(100.0	)%
Depreciation and amortization		4,351			147			4,204			4,086			118			2.9	%
Total operating expenses		18,839			512			18,327			18,652			(325	)		(1.7	)%
Income from operations		9,109			248			8,861			7,356			1,505			20.4	%
Interest expense, net		(8,052	)		(312	)		(7,740	)		(8,925	)		(1,185	)		(13.3	)%
Gain on involuntary conversion		194			—			194			—			194			NM
Net income (loss)	$	1,251		$	(64	)	$	1,315		$	(1,569	)	$	2,884			183.8	%

Revenue. Residential rental revenue, excluding 10 West 65^th Street, increased from $18,558 for the three months ended September 30, 2017, to $19,423 for the three months ended September 30, 2018, primarily due to increases in rental rates and occupancy at the Flatbush Gardens and Tribeca House properties. Base rent per square foot increased at the Flatbush Gardens property from $22.20 (97.3% leased occupancy) at September 30, 2017, to $23.38 (98.6% leased occupancy) at September 30, 2018. Base rent per square foot at the Tribeca House property was $69.09 (93.9% leased occupancy) at September 30, 2017, as compared to $68.92 (93.3% leased occupancy) at September 30, 2018.

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Commercial rental revenue decreased moderately from $5,476 for the three months ended September 30, 2017, to $5,377 for the three months ended September 30, 2018.

Tenant recoveries increased from $1,162 for the three months ended September 30, 2017, to $1,294 for the three months ended September 30, 2018, primarily due to higher billable expenses.

Garage and other income, excluding 10 West 65^th Street, increased from $812 for the three months ended September 30, 2017, to $1,094 for the three months ended September 30, 2018. The increase was primarily due to a scheduled garage rent increase at the Tribeca House property, air conditioning charges at the Flatbush Gardens property and other fees at the Tribeca House property.

Property operating expense. Property operating expenses include property-level costs including compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses, excluding 10 West 65^th Street, increased from $6,519 for the three months ended September 30, 2017, to $6,741 for the three months ended September 30, 2018, primarily due to a higher provision for bad debts.

Real estate taxes and insurance expense. Real estate taxes and insurance expenses, excluding 10 West 65^th Street, increased from $5,536 for the three months ended September 30, 2017, to $5,605 for the three months ended September 30, 2018, primarily due to increased real estate taxes at all properties, substantially offset by the cessation of amortization of real estate tax intangible assets relating to the purchase of the Tribeca House property.

General and administrative expense. General and administrative expenses, excluding 10 West 65^th Street, decreased from $2,501 for the three months ended September 30, 2017, to $1,777 for the three months ended September 30, 2018, primarily due to decreases in LTIP amortization expense and other fees and expenses.

Depreciation and amortization. Depreciation and amortization expense, excluding 10 West 65^th Street, increased from $4,086 for the three months ended September 30, 2017, to $4,204 for the three months ended September 30, 2018, due to additions to real estate.

Interest expense, net. Interest expense, net, excluding 10 West 65^th Street, decreased from $8,925 for the three months ended September 30, 2017, to $7,740 for the three months ended September 30, 2018. The decrease resulted from lower rates obtained in refinancing the Tribeca House and Flatbush Gardens properties in February 2018 and lower amortization of loan costs. Interest expense, excluding 10 West 65^th Street, included amortization of loan costs and changes in fair value of interest rate caps of $210 and $751 for the three months ended September 30, 2018 and 2017, respectively.

Gain on involuntary conversion. Gain on involuntary conversion represented insurance proceeds in excess of the carrying value of assets disposed of related to fire damage suffered by two units at the Flatbush Gardens property.

Net income (loss).   As a result of the foregoing, net income, excluding 10 West 65^th Street, increased from a net loss of $1,569 for the three months ended September 30, 2017, to net income of $1,315 for the three months ended September 30, 2018.

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Income Statement for the Nine Months Ended September 30, 2018 and 2017 (in thousands)

	2018			Less: 10 West 65th Street			2018 excluding 10 West 65th Street			2017			Increase (decrease)			%
Revenues
Residential rental revenue	$	59,148		$	2,267		$	56,881		$	54,674		$	2,207			4.0	%
Commercial rental revenue		16,129			—			16,129			16,418			(289	)		(1.8	)%
Tenant recoveries		3,668			—			3,668			3,223			445			13.8	%
Garage and other income		3,171			10			3,161			2,314			847			36.6	%
Total revenues		82,116			2,277			79,839			76,629			3,210			4.2	%
Operating Expenses
Property operating expenses		20,643			298			20,345			20,188			157			0.8	%
Real estate taxes and insurance		16,534			623			15,911			15,005			906			6.0	%
General and administrative		7,602			205			7,397			7,285			112			1.5	%
Acquisition costs		—			—			—			37			(37	)		(100.0	)%
Depreciation and amortization		13,382			925			12,457			12,084			373			3.1	%
Total operating expenses		58,161			2,051			56,110			54,599			1,511			2.8	%
Income from operations		23,955			226			23,729			22,030			1,699			7.7	%
Interest expense, net		(24,603	)		(935	)		(23,668	)		(26,508	)		(2,840	)		(10.7	)%
Loss on extinguishment of debt		(6,981	)		—			(6,981	)		—			6,981			NM
Gain on involuntary conversion		194			—			194			—			194			NM
Net loss	$	(7,435	)	$	(709	)	$	(6,726	)	$	(4,478	)	$	(2,248	)		(50.2	)%

Revenue. Residential rental revenue, excluding 10 West 65^th Street, increased from $54,674 for the nine months ended September 30, 2017, to $56,881 for the nine months ended September 30, 2018, primarily due to increases in rental rates and occupancy at the Flatbush Gardens and Tribeca House properties. Base rent per square foot increased at the Flatbush Gardens property from $22.20 (97.3% leased occupancy) at September 30, 2017, to $23.38 (98.6% leased occupancy) at September 30, 2018. Base rent per square foot at the Tribeca House property was $69.09 (93.9% leased occupancy) at September 30, 2017, as compared to $68.92 (93.3% leased occupancy) at September 30, 2018.

Commercial rental revenue decreased moderately from $16,418 for the nine months ended September 30, 2017, to $16,129 for the nine months ended September 30, 2018.

Tenant recoveries increased from $3,223 for the nine months ended September 30, 2017, to $3,668 for the nine months ended September 30, 2018, primarily due to higher billable expenses.

Garage and other income, excluding 10 West 65^th Street, increased from $2,314 for the nine months ended September 30, 2017, to $3,161 for the nine months ended September 30, 2018. The increase was primarily due to a garage rent increase at the Tribeca House property, air conditioning charges at the Flatbush Gardens property and other fees at the Tribeca House property.

Property operating expense. Property operating expenses include property-level costs including compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses, excluding 10 West 65^th Street, were essentially flat for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, primarily due to higher gas and oil heating costs, leasing costs, repairs and maintenance costs and supplies costs in 2018, offset by reductions in the provision for bad debts (as the result of an improvement in residential rent collection experience at the Flatbush Gardens property) and property-level personnel costs in 2018.

Real estate taxes and insurance expense. Real estate taxes and insurance expenses, excluding 10 West 65^th Street, increased from $15,005 for the nine months ended September 30, 2017, to $15,911 for the nine months ended September 30, 2018, primarily due to increased taxes at all properties, substantially offset by the cessation of amortization of real estate tax intangible assets relating to the purchase of the Tribeca House property.

General and administrative expense. General and administrative expenses, excluding 10 West 65^th Street, increased from $7,285 for the nine months ended September 30, 2017, to $7,397 for the nine months ended September 30, 2018, primarily due to executive cash bonuses and public company professional fees, partially offset by a decrease in LTIP amortization expense.

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Depreciation and amortization. Depreciation and amortization expense, excluding 10 West 65^th Street, increased from $12,084 for the nine months ended September 30, 2017, to $12,457 for the nine months ended September 30, 2018, due to additions to real estate.

Interest expense, net. Interest expense, net, excluding 10 West 65^th Street, was $26,508 for the nine months ended September 30, 2017, and $23,668 for the nine months ended September 30, 2018. The decrease resulted from lower rates obtained in refinancing the Tribeca House and Flatbush Gardens properties in February 2018 and lower amortization of loan costs. Interest expense, excluding 10 West 65^th Street, included amortization of loan costs and changes in fair value of interest rate caps of $681 and $2,522 for the nine months ended September 30, 2018 and 2017, respectively.

Loss on extinguishment of debt. Loss on extinguishment of debt related to the repayment of the Flatbush Gardens and Tribeca House loans in February 2018. The amount included charges for early extinguishment of the debt and the write-off of unamortized debt costs.

Gain on involuntary conversion. Gain on involuntary conversion represented insurance proceeds in excess of the carrying value of assets disposed of related to fire damage suffered by two units at the Flatbush Gardens property.

Net loss.   As a result of the foregoing, net loss, excluding 10 West 65^th Street, increased from $4,478 for the nine months ended September 30, 2017, to $6,726 for the nine months ended September 30, 2018.

Liquidity and Capital Resources

As of September 30, 2018, we had $873.1 million of indebtedness (net of unamortized issuance costs) secured by our properties, and $12.4 million of cash. As described in Note 6 of the accompanying “Notes to Consolidated Financial Statements,” the Company refinanced its outstanding Flatbush Gardens and Tribeca House loans on February 21, 2018. As a result, we do not have any debt maturing in 2018. No assurance can be given that we will be able to refinance any of our outstanding indebtedness in the future on favorable terms or at all.

In February 2017, we completed an IPO which provided net proceeds of approximately $78.7 million, including the exercise of the underwriters’ over-allotment option in March 2017, and after deducting underwriting discounts and commissions and other offering expenses paid by us.

As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met from cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property.

Short-Term and Long-Term Liquidity Needs

Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through net cash provided by operations, and we believe we will have sufficient resources to meet our short-term liquidity requirements.

Our principal long-term liquidity needs will primarily be to fund additional property acquisitions, major renovation and upgrading projects, and debt payments and retirements at maturity. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings.

We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot provide assurance that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions for REITs and market perceptions about our company.

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We believe that our current cash flows from operations, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries.

Distributions

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. During the three and nine months ended September 30, 2018, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $4.3 million and $12.8 million, respectively.

Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (in thousands)

	Nine Months Ended September 30,
	2018			2017
Operating activities	$	24,824		$	8,019
Investing activities		(27,844	)		(109,816	)
Financing activities		7,452			119,019

Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2018 and 2017, are as follows:

Net cash flow provided by operating activities was $24,824 for the nine months ended September 30, 2018, compared to $8,019 for the nine months ended September 30, 2017.  The net increase during the 2018 period reflected an increase of approximately $14,478 of cash generated by operating assets and liabilities (including reductions in tenant and other receivables and restricted cash), plus an increase of approximately $2,327 of cash flow from operating results.

Net cash used in investing activities was $27,844 for the nine months ended September 30, 2018, compared to $109,816 for the nine months ended September 30, 2017. We spent approximately $28,455 and $14,100 on capital projects for the nine months ended September 30, 2018 and 2017, respectively.  For the nine months ended September 30, 2018, we received approximately $226 of insurance proceeds from the disposal of assets damaged in a fire at a property and approximately $385 of net proceeds from the sale of interest rate caps. For the nine months ended September 30, 2017, we funded approximately $87,600 for the acquisition of the 107 Columbia Heights property and an approximate $8,100 acquisition deposit for the 10 West 65^th Street property.

Net cash provided by financing activities was $7,452 and $119,019 for the nine months ended September 30, 2018 and 2017, respectively. Cash was primarily provided in the nine months ended September 30, 2018, by proceeds from new loans on the Flatbush Gardens and Tribeca House properties ($606,000), offset by repayment of existing loans on the Flatbush Gardens and Tribeca House properties (approximately $578,000), and loan issuance and extinguishment costs ($8,338); and in the nine months ended September 30, 2017, by the IPO completed in February and March ($78,685) and net proceeds from the loan used in the 107 Columbia Heights acquisition (approximately $55,000). The Company paid distributions of $12,776 and $12,310 in the nine months ended September 30, 2018 and 2017, respectively.

Income Taxes

No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members.

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We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable three months ended March 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate so as to satisfy the requirements for qualification as a REIT for federal income tax purposes.

Inflation

Inflation in the United States has been relatively low in recent years and did not have a significant impact on the results of operations for the Company’s business for the periods shown in the consolidated financial statements. We do not believe that inflation currently poses a material risk to the Company. The leases at our residential rental properties, which comprise approximately 72% of our revenue, are short-term in nature. Our longer-term commercial and retail leases would generally allow us to recover some increased costs in the event of significant inflation.

Although the impact of inflation has been relatively insignificant in recent years, it does remain a factor in the United States economy and could increase the cost of acquiring or replacing properties in the future.

Off-Balance Sheet Arrangements

As of September 30, 2018, we do not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Non-GAAP Financial Measures

In this Quarterly Report on Form 10-Q, we disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and net operating income (“NOI”), all of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC.

While management and the investment community in general believe that presentation of these measures provides useful information to investors, neither FFO, AFFO, Adjusted EBITDA, nor NOI should be considered as an alternative to net income or income from operations as an indication of our performance. We believe that to understand our performance further, FFO, AFFO, Adjusted EBITDA, and NOI should be compared with our reported net income or income from operations and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements.

Funds From Operations and Adjusted Funds From Operations

FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and impairment adjustments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.

AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight-line rent adjustments to revenue from long-term leases, amortization costs incurred in originating debt, interest rate cap mark-to-market, amortization of non-cash equity compensation, acquisition costs, loss on extinguishment of debt and gain on involuntary conversion, less recurring capital expenditures.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. Neither FFO nor AFFO represent net income or cash flows from operations computed in accordance with GAAP. You should not consider FFO and AFFO to be alternatives to net income as reliable measures of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (computed in accordance with GAAP) as measures of liquidity.

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Neither FFO nor AFFO measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities computed in accordance with GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.

The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net income (loss) before allocation to non-controlling interests, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
FFO
Net income (loss)	$	1,251		$	(1,569	)	$	(7,435	)	$	(4,478	)
Real estate depreciation and amortization		4,351			4,086			13,382			12,084
FFO	$	5,602		$	2,517		$	5,947		$	7,606
AFFO
FFO	$	5,602		$	2,517		$	5,947		$	7,606
Amortization of real estate tax intangible		119			392			355			1,176
Amortization of above- and below-market leases		(479	)		(431	)		(1,438	)		(1,297	)
Straight-line rent adjustments		258			81			771			237
Amortization of debt origination costs		232			721			984			2,163
Interest rate cap mark-to-market		—			30			(237	)		359
Amortization of LTIP awards		411			840			1,670			2,269
Acquisition costs		—			10			—			37
Loss on extinguishment of debt		—			—			6,981			—
Gain on involuntary conversion		(194	)		—			(194	)		—
Recurring capital spending		(184	)		(134	)		(426	)		(411	)
AFFO	$	5,765		$	4,026		$	14,413		$	12,139

Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization

We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net income (loss) before allocation to non-controlling interests, plus real estate depreciation and amortization, amortization of identifiable intangibles, straight-line rent adjustments to revenue from long-term leases, amortization of non-cash equity compensation, interest expense (net), acquisition costs and loss on extinguishment of debt, less gain on involuntary conversion.

We believe that this measure provides an operating perspective not immediately apparent from GAAP income from operations or net income. We consider Adjusted EBITDA to be a meaningful financial measure of our core operating performance.

However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to that of other REITs.

29

The following table sets forth a reconciliation of Adjusted EBITDA for the periods presented to net income (loss) before allocation to non-controlling interests, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Adjusted EBITDA
Net income (loss)	$	1,251		$	(1,569	)	$	(7,435	)	$	(4,478	)
Real estate depreciation and amortization		4,351			4,086			13,382			12,084
Amortization of real estate tax intangible		119			392			355			1,176
Amortization of above- and below-market leases		(479	)		(431	)		(1,438	)		(1,297	)
Straight-line rent adjustments		258			81			771			237
Amortization of LTIP awards		411			840			1,670			2,269
Interest expense, net		8,052			8,925			24,603			26,508
Acquisition costs		—			10			—			37
Loss on extinguishment of debt		—			—			6,981			—
Gain on involuntary conversion		(194	)		—			(194	)		—
Adjusted EBITDA	$	13,769		$	12,334		$	38,695		$	36,536

Net Operating Income

We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties.

However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs.

The following table sets forth a reconciliation of NOI for the periods presented to income from operations, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
NOI
Income from operations	$	9,109		$	7,356		$	23,955		$	22,030
Real estate depreciation and amortization		4,351			4,086			13,382			12,084
General and administrative expenses		1,858			2,501			7,602			7,285
Acquisition costs		—			10			—			37
Amortization of real estate tax intangible		119			392			355			1,176
Amortization of above- and below-market leases		(479	)		(431	)		(1,438	)		(1,297	)
Straight-line rent adjustments		258			81			771			237
NOI	$	15,216		$	13,995		$	44,627		$	41,552

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K for the year ended December 31, 2017, as amended.

30

Recent Accounting Pronouncements

See Note 2, “Significant Accounting Policies” of our consolidated financial statements for a discussion of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future income, cash flows and fair value relevant to our financial instruments depends upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control, contribute to interest rate risk. To manage this risk, we purchased interest rate caps on the $410.0 million of Tribeca House debt outstanding (prior to the Tribeca House debt refinancing on February 21, 2018) and the $63.5 million of 107 Columbia Heights debt outstanding as of September 30, 2018, that would provide interest rate protection if one-month LIBOR exceeds 2.0% for the Tribeca House loans and 3.0% for the 107 Columbia Heights loans. On April 27, 2018, we terminated the Tribeca House interest rate cap.

A one percent change in interest rates on our $63.5 million of variable rate debt as of September 30, 2018, would impact annual net income by approximately $0.6 million.

The fair value of the Company’s notes payable was approximately $861.8 million and $839.8 million as of September 30, 2018, and December 31, 2017, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of September 30, 2018, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control 

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

31

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDIngs

On July 3, 2017, the New York Supreme Court (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law 421-g. The Court also awarded the plaintiffs, their attorney’s fees and costs. The Court declared that the plaintiff-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court stayed the above decision; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The Appellate Division decision and order was subject to a motion for leave to appeal, which was granted on April 24, 2018. There can be no assurance as to the outcome of the appeal. Due to the inherent uncertainty and unpredictability of litigation, we cannot determine at this time with any specificity the Company’s potential liability.

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position, or cash flows.

item 1a. RISK FACTORS

The risk factors disclosed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition and operating results. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes with respect to such risk factors.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 6. EXHIBITS

Exhibit Number	Description
*31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
*31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**101.INS	XBRL Instance Document.
**101.SCH	XBRL Taxonomy Extension Schema Document.
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
**101 DEF	XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith

**Submitted electronically with the report

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned.

	Clipper realty inc.
November 1, 2018	By:	/s/ David Bistricer
		David Bistricer
		Co-Chairman and Chief Executive Officer

33

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David Bistricer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Clipper Realty Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 1, 2018	By:	/s/ David Bistricer
			David Bistricer
			Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence E. Kreider, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Clipper Realty Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 1, 2018	By:	/s/ Lawrence E. Kreider
			Lawrence E. Kreider
			Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Clipper Realty Inc. (the "Company") for the period ended September 30, 2018, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

     1.     The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

     2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 1, 2018	Signed:	/s/ David Bistricer
			David Bistricer
			Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Clipper Realty Inc. (the "Company") for the period ended September 30, 2018, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

     1.     The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

     2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 1, 2018	Signed:	/s/ Lawrence E. Kreider
			Lawrence E. Kreider
			Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document Information [Line Items]
Entity Registrant Name	Clipper Realty Inc.
Entity Central Index Key	0001649096
Trading Symbol	clpr
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		17,812,755
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Ex Transition Period	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
ASSETS
Land and improvements	$ 497,343,000	$ 497,343,000
Building and improvements	475,278,000	463,727,000
Tenant improvements	3,040,000	3,023,000
Furniture, fixtures and equipment	10,707,000	10,245,000
Real estate under development	116,752,000	96,268,000
Total investment in real estate	1,103,120,000	1,070,606,000
Accumulated depreciation	(86,027,000)	(73,714,000)
Investment in real estate, net	1,017,093,000	996,892,000
Cash and cash equivalents	12,372,000	7,940,000
Restricted cash	12,713,000	13,730,000
Tenant and other receivables, net of allowance for doubtful accounts of $2,719 and $2,524, respectively	3,259,000	6,569,000
Deferred rent	2,743,000	3,514,000
Deferred costs and intangible assets, net	10,311,000	11,894,000
Prepaid expenses and other assets	9,179,000	11,546,000
TOTAL ASSETS	1,067,670,000	1,052,085,000
LIABILITIES AND EQUITY
Notes payable, net of unamortized loan costs of $10,579 and $11,170, respectively	873,110,000	843,946,000
Accounts payable and accrued liabilities	13,713,000	8,595,000
Security deposits	6,831,000	6,048,000
Below-market leases, net	3,461,000	5,075,000
Other liabilities	3,512,000	2,830,000
TOTAL LIABILITIES	900,627,000	866,494,000
Equity:
Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares of 12.5% Series A cumulative non-voting preferred stock), zero shares issued and outstanding
Common stock, $0.01 par value; 500,000,000 shares authorized, 17,812,755 shares issued and outstanding	178,000	178,000
Additional paid-in-capital	92,864,000	92,273,000
Accumulated deficit	(25,616,000)	(17,539,000)
Total stockholders’ equity	67,426,000	74,912,000
Non-controlling interests	99,617,000	110,679,000
TOTAL EQUITY	167,043,000	185,591,000
TOTAL LIABILITIES AND EQUITY	$ 1,067,670,000	$ 1,052,085,000

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Allowance for doubtful accounts	$ 2,719	$ 2,524
Unamortized loan costs	$ 10,579	$ 11,170
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Preferred stock, shares authorized (in shares)	100,000	100,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	17,812,755	17,812,755
Common stock, shares outstanding (in shares)	17,812,755	17,812,755
Series A Cumulative Non-Voting Preferred Stock [Member]
Preferred stock, shares authorized (in shares)	140	140
Preferred stock, dividend rate, percentage	12.50%	12.50%

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
REVENUES
Residential rental income	$ 20,180,000	$ 18,558,000	$ 59,148,000	$ 54,674,000
Commercial income	5,377,000	5,476,000	16,129,000	16,418,000
Tenant recoveries	1,294,000	1,162,000	3,668,000	3,223,000
Garage and other income	1,097,000	812,000	3,171,000	2,314,000
TOTAL REVENUES	27,948,000	26,008,000	82,116,000	76,629,000
OPERATING EXPENSES
Property operating expenses	6,806,000	6,519,000	20,643,000	20,188,000
Real estate taxes and insurance	5,824,000	5,536,000	16,534,000	15,005,000
General and administrative	1,858,000	2,501,000	7,602,000	7,285,000
Acquisition costs		10,000		37,000
Depreciation and amortization	4,351,000	4,086,000	13,382,000	12,084,000
TOTAL OPERATING EXPENSES	18,839,000	18,652,000	58,161,000	54,599,000
INCOME FROM OPERATIONS	9,109,000	7,356,000	23,955,000	22,030,000
Interest expense, net	(8,052,000)	(8,925,000)	(24,603,000)	(26,508,000)
Loss on extinguishment of debt			(6,981,000)
Gain on involuntary conversion	194,000		194,000
Net income (loss)	1,251,000	(1,569,000)	(7,435,000)	(4,478,000)
Net (income) loss attributable to non-controlling interests	(746,000)	938,000	4,434,000	2,736,000
Dividends attributable to preferred shares				(8,000)
Net income (loss) attributable to common stockholders	$ 505,000	$ (631,000)	$ (3,001,000)	$ (1,750,000)
Basic and diluted net income (loss) per share (in dollars per share)	$ 0.02	$ (0.04)	$ (0.18)	$ (0.11)

XML

Consolidated Statements of Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2017	17,812,755
Balance at Dec. 31, 2017	$ 178	$ 92,273	$ (17,539)	$ 74,912	$ 110,679	$ 185,591
Issuance of common stock		(7)		(7)		(7)
Amortization of LTIP grants					1,670	1,670
Dividends and distributions			(5,076)	(5,076)	(7,700)	(12,776)
Net loss			(3,001)	(3,001)	(4,434)	(7,435)
Reallocation of noncontrolling interests		598		598	(598)
Balance (in shares) at Sep. 30, 2018	17,812,755
Balance at Sep. 30, 2018	$ 178	$ 92,864	$ (25,616)	$ 67,426	$ 99,617	$ 167,043

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (7,435,000)	$ (4,478,000)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	12,330,000	11,396,000
Amortization of deferred financing costs	984,000	2,163,000
Amortization of deferred costs and intangible assets	1,407,000	1,864,000
Amortization of above- and below-market leases	(1,438,000)	(1,297,000)
Loss on extinguishment of debt	6,981,000
Gain on involuntary conversion	(194,000)
Deferred rent	771,000	237,000
Stock-based compensation	1,670,000	2,268,000
Change in fair value of interest rate caps	(237,000)	359,000
Changes in operating assets and liabilities:
Restricted cash	1,017,000	(6,694,000)
Tenant and other receivables	3,310,000	(721,000)
Prepaid expenses, other assets and deferred costs	2,295,000	2,760,000
Accounts payable and accrued liabilities	1,898,000	(1,321,000)
Security deposits	783,000	253,000
Other liabilities	682,000	1,230,000
Net cash provided by operating activities	24,824,000	8,019,000
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and improvements	(28,455,000)	(14,104,000)
Insurance proceeds from involuntary conversion	226,000
Proceeds from sale of interest rate caps	385,000
Acquisition deposit		(8,126,000)
Cash paid in connection with acquisition of real estate		(87,586,000)
Net cash used in investing activities	(27,844,000)	(109,816,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and costs from sale of common stock	(7,000)	78,685,000
Redemption of preferred stock		(145,000)
Payments of mortgage notes	(580,866,000)	(2,545,000)
Proceeds from mortgage notes	609,439,000	59,347,000
Dividends and distributions	(12,776,000)	(12,310,000)
Loan issuance and extinguishment costs	(8,338,000)	(4,013,000)
Net cash provided by financing activities	7,452,000	119,019,000
Net increase in cash and cash equivalents	4,432,000	17,222,000
Cash and cash equivalents - beginning of period	7,940,000	37,547,000
Cash and cash equivalents - end of period	12,372,000	54,769,000
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $4,054 and $1,720 in 2018 and 2017, respectively	23,582,000	24,848,000
Non-cash interest capitalized to real estate under development	888,000	592,000
Additions to investment in real estate included in accounts payable and accrued liabilities	$ 6,920	$ 1,522

XML

Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Capitalized interest	$ 4,054	$ 1,720

XML

Note 1 - Organization

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

Organization

The Company was organized in the state of Maryland on

July 7, 2015.

On

August 3, 2015,

we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a

one

-for-

one

basis and are entitled to distributions.

On

February 9, 2017,

the Company priced an initial public offering of

6,390,149

primary shares of its common stock (including the exercise of the over-allotment option, which closed on

March 10, 2017)

at a price of

$13.50

per share (the “IPO”). The net proceeds of the IPO were approximately

$78.7

million. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership.

On

May 9, 2017,

the Company completed the purchase of

107

Columbia Heights, a

161

-unit apartment community located in Brooklyn Heights, New York, in vacant condition, for

$87.5

million.

On

October 27, 2017,

the Company completed the acquisition of an

82

-unit residential property at

10

West

65th

Street in Manhattan, New York, for

$79.0

million.

As of

September 30, 2018,

the properties owned by the Company consist of the following (collectively, the “Properties”):

• Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 481,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA;

• Flatbush Gardens in Brooklyn, a 59 -building residential housing complex with 2,496 rentable units;

• 141 Livingston Street in Brooklyn, a 15 -story office building with approximately 216,000 square feet of GLA;

• 250 Livingston Street in Brooklyn, a 12 -story office and residential building with approximately 381,000 square feet of GLA (fully remeasured);

• Aspen in Manhattan, a 7 -story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA;

• 107 Columbia Heights in Brooklyn, a 10 -story residential building with approximately 154,000 gross square feet of space; and

• 10 West 65 th Street in Manhattan, a 6 -story building with approximately 76,000 square feet of residential rental GLA.

The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections

856

through

860

of the Internal Revenue Code. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.

At

September 30, 2018,

the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to

40.4%

of the aggregate cash distributions from, and the profits and losses of, the LLCs.

The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.

On

June 21, 2017,

the Company redeemed its Series A cumulative non-voting preferred stock for

$145.

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Note 2 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2.

Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP. The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interest.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Investment in Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

In accordance with ASU

2017

-

01,

"Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would

not

qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

• The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).

An acquired process is considered substantive if:

• The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process;

• The process cannot be replaced without significant cost, effort or delay; or

• The process is considered unique or scarce.

Generally, the Company expects that acquisitions of real estate or in-substance real estate will

not

meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does

not

include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does

not

believe that any of its properties within the portfolio are impaired as of

September 30, 2018.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next

twelve

months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is

not

recorded on real estate held-for-sale.

If a tenant vacates its space prior to the contractual termination of the lease and

no

rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building and improvements	10	–	44 years
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment	3	–	15 years

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of

three

months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times,

may

exceed the federally insured limit.

No

losses have been experienced related to such accounts.

Restricted Cash

Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.

Tenant and Other Receivables and Allowance for Doubtful Accounts

Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company

may

recognize additional bad debt expense in future periods.

Deferred Costs

Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.

Deferred financing costs represent commitment fees, legal and other

third

-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do

not

close are expensed in the period the financing transaction is terminated.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the

three

and

nine

months ended

September 30, 2018

and

2017,

the Company did

not

own any financial instruments for which the change in value was

not

reported in net income (loss) accordingly and its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations.

Revenue Recognition

Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is

not

materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for

one

-year terms, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.

Beginning in

2019,

the Company will apply ASU

2014

-

09,

“Revenue with Contracts with Customers.” This ASU does

not

apply to the Company’s lease revenues, which made up substantially all revenues in

2017

and the

first

three

quarters of

2018.

As such, management does

not

anticipate any significant changes to the timing of the Company’s revenue recognition. The Company intends to implement the standard retrospectively at the date of adoption.

Beginning in

2020,

the Company will be required to apply ASU

2016

-

02,

“Leases,” to its lease revenues. For lessors, the accounting remains largely unchanged from the current model. The adoption of ASU

2016

-

02

is

not

expected to have a material impact on the Company’s consolidated financial statements.

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic

718,

“Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant.

In

March 2018,

the Company granted

71,112

LTIP units with a weighted average grant date fair value of

$9.00

per unit.

At

September 30, 2018

and

December 31, 2017,

there were

724,448

and

653,336

LTIP units outstanding, respectively, with a weighted grant-date fair value of

$12.56

and

$12.95

per unit, respectively. As of

September 30, 2018,

and

December 31, 2017,

there was

$1.1

million and

$2.1

million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of

September 30, 2018,

the weighted average period over which the unrecognized compensation expense will be recorded is approximately

1.7

years.

Income Taxes

The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the U.S. Internal Revenue Code (the “Code”). To qualify as a REIT, the Company is required to distribute dividends equal to at least

90%

of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally

not

subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company

may

not

be able to re-elect as a REIT for the

four

subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly,

no

provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

In accordance with FASB ASC Topic

740,

the Company believes that it has appropriate support for the income tax positions taken and, as such, does

not

have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operations. The prior

three

years’ income tax returns are subject to review by the Internal Revenue Service.

The Tax Cuts and Jobs Act was enacted in

December 2017

and is generally effective beginning in

2018.

This new legislation is

not

expected to have a material adverse effect on the Company’s business and contains several potentially favorable provisions.

Fair Value Measurements

Refer to Note

8,

“Fair Value of Financial Instruments”.

Derivative Financial Instruments

FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.

Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives

not

designated as hedges, changes in fair value would be recognized in earnings. As of

September 30, 2018,

the Company has

no

derivatives for which it applies hedge accounting.

Income (Loss) Per Share

Basic and diluted income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. As of

September 30, 2018

and

2017,

the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic and diluted income (loss) per share pursuant to the

two

-class method. The Company did

not

have dilutive securities as of

September 30, 2018

or

2017.

The effect of the conversion of the

26,317

Class B LLC units outstanding is

not

reflected in the computation of basic and diluted income (loss) per share, as the effect would be anti-dilutive. The net income (loss) allocable to such units is reflected as noncontrolling interests in the accompanying consolidated financial statements.

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (unaudited):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2018			2017			2018			2017
Numerator
Net income (loss) attributable to common stockholders	$	505		$	(631	)	$	(3,001	)	$	(1,750	)
Less: income attributable to participating securities		(69	)		(62	)		(200	)		(167	)
Subtotal	$	436		$	(693	)	$	(3,201	)	$	(1,917	)
Denominator
Weighted average common shares outstanding		17,813			17,813			17,813			16,756
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.02		$	(0.04	)	$	(0.18	)	$	(0.11	)

Recently Issued Pronouncements

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

“Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC

820.

This guidance is effective for public companies in fiscal years beginning after

December 15, 2019

with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

August 2018,

the Securities and Exchange Commission issued a final rule that amends certain of its disclosure requirements. The rule simplifies various disclosure requirements for public companies including primarily that it (i) eliminates the requirement for public companies to disclose in their filings a schedule of earnings to fixed charges, (ii) requires an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods in interim reports, and (iii) reduces the requirements for market price information disclosures in annual reports. These changes are effective for public companies beginning on

November 5, 2018.

The Company will comply with these new requirements beginning with its

2018

Annual Report on Form

10

-K.

In

July 2018,

FASB issued ASU

2018

-

11,

“Leases (Topic

842

): Targeted Improvements,” which amended ASC

842

to provide a practical expedient to lessors to elect to

not

separate nonlease components from the associated leases. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

July 2018,

FASB issued ASU

2018

-

10,

“Codification Improvements to Topic

842,

Leases.” These amendments provide clarifications and corrections to ASU

2016

-

02,

“Leases (Topic

842

).”

In

July 2018,

FASB issued ASU

2018

-

09,

“Codification Improvements.” These amendments provide clarifications and corrections to certain ASC subtopics including the following:

470

-

50

(Debt – Modifications and Extinguishments),

480

-

10

(Distinguishing Liabilities from Equity – Overall),

718

-

740

(Compensation – Stock Compensation – Income Taxes),

805

-

740

(Business Combinations – Income Taxes),

815

-

10

(Derivatives and Hedging – Overall) and

820

-

10

(Fair Value Measurement – Overall). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

June 2018,

FASB issued ASU

2018

-

07,

“Compensation – Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic

718

applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic

718

does

not

apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic

606,

“Revenue from Contracts with Customers.” This guidance is effective for the Company for fiscal years beginning after

December 15, 2019,

and interim periods beginning after

December 15, 2020.

Early adoption is permitted but

not

earlier than the adoption of Topic

606.

The Company does

not

believe that this guidance will have a material effect on its consolidated financial statements as it has

not

historically issued share-based payments in exchange for goods or services to be consumed within its operations.

In

May 2017,

FASB issued ASU

2017

-

09,

“Compensation – Stock Compensation (Topic

718

) Scope of Modification Accounting.” ASU

2017

-

09

clarifies Topic

718

such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award

unless

all of the following criteria are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before the modification. The standard indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification.

2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.

The amendments are effective for all entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The adoption of ASU

2017

-

09

did

not

have a material impact on our consolidated financial statements.

In

February 2017,

FASB issued ASU

2017

-

05,

“Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic

610

-

20

),” to add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU

2017

-

05

reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU

2017

-

05

is effective for the Company for its annual reporting beginning after

December 15, 2018,

including interim reporting periods beginning after

December 15, 2019.

The adoption of ASU

2017

-

05

is

not

expected to have a material impact on our consolidated financial statements.

In

November 2016,

the FASB issued ASU

2016

-

18

“Statement of Cash Flows (Topic

230

) – Restricted Cash”. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU does

not

provide a definition of restricted cash or restricted cash equivalents. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect that ASU

No.

2016

-

18

will have on its consolidated financial statements.

In

August 2016,

the FASB issued ASU

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (A consensus of the Emerging Issues Task Force),” which provides specific guidance on

eight

cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact, if any, it will have on its consolidated financial statements.

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Note 3 - Acquisitions

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Business Combination Disclosure [Text Block]

3.

Acquisitions

On

October 27, 2017,

the Company acquired the

10

West

65

th

Street property for

$79,764,

including acquisition costs of

$764.

The purchase price was allocated as follows:

Land	$	63,677
Building		14,983
Tenant improvements		18
Furniture and office equipment		336
Leasing commissions		13
In-place leases		732
Other lease-up costs		5
Total	$	79,764

We have prepared the following unaudited pro forma income statement information for the

nine

months ended

September 30, 2017,

as if the

10

West

65

th

Street acquisition had occurred as of

January 1, 2017.

The pro forma data is

not

necessarily indicative of the results that actually would have occurred if the acquisition had been consummated on

January 1, 2017.

	Nine Months Ended September 30, 2017
Revenues	$	78,854
Total expenses		(84,685	)
Net loss	$	(5,831	)

On

May 9, 2017,

the Company acquired the

107

Columbia Heights property, in vacant condition, for

$87,616,

including acquisition costs of

$116.

The purchase price was allocated as follows:

Land	$	43,433
Building		44,100
Site improvements		83
Total	$	87,616

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Note 4 - Deferred Costs and Intangible Assets

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Deferred Costs and Intangible Assets Disclosure [Text Block]

4.

Deferred Costs and Intangible Assets

Deferred costs and intangible assets consist of the following:

	September 30, 2018			December 31, 2017
	(unaudited)
Deferred costs	$	266		$	266
Above-market leases		480			480
Lease origination costs		3,110			3,110
In-place leases		8,078			8,078
Real estate tax abatements		12,571			12,571
Total deferred costs and intangible assets		24,505			24,505
Less accumulated amortization		(14,194	)		(12,611	)
Total deferred costs and intangible assets, net	$	10,311		$	11,894

Amortization of lease origination costs and in-place lease intangible assets was

$188

and

$228

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$1,052

and

$688

for the

nine

months ended

September 30, 2018

and

2017,

respectively. Amortization of real estate abatements of

$119

and

$392

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$355

and

$1,176

for the

nine

months ended

September 30, 2018

and

2017,

respectively, is included in real estate taxes and insurance in the consolidated statements of operations. Amortization of above-market leases of

$59

and

$15

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$176

and

$43

for the

nine

months ended

September 30, 2018

and

2017,

respectively, is included in commercial income in the consolidated statements of operations.

Deferred costs and intangible assets as of

September 30, 2018,

amortize in future years as follows:

2018 (Remainder)	$	371
2019		1,134
2020		798
2021		768
2022		737
Thereafter		6,503
Total	$	10,311

XML

Note 5 - Below-market Lease Intangibles

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Below Market Lease Intangibles Disclosure [Text Block]

5.

Below-Market Lease Intangibles

The Company’s below-market lease intangibles liabilities are as follows:

	September 30, 2018			December 31, 2017
	(unaudited)
Below-market leases	$	23,178		$	23,178
Less accumulated amortization		(19,717	)		(18,103	)
Below-market leases, net	$	3,461		$	5,075

Rental income includes amortization of below-market leases of

$538

and

$446

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$1,614

and

$1,340

for the

nine

months ended

September 30, 2018

and

2017,

respectively.

Below-market leases as of

September 30, 2018,

amortize in future years as follows:

2018 (Remainder)	$	537
2019		1,299
2020		517
2021		493
2022		423
Thereafter		192
Total	$	3,461

XML

Note 6 - Notes Payable

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Long-term Debt [Text Block]

6.

Notes Payable

The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:

Property	Maturity	Interest Rate		September 30, 2018			December 31, 2017
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—		$	148,438
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—			19,792
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000			—
250 Livingston Street, Brooklyn, NY (b)	5/6/2023		4.00%		33,715			34,294
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		77,703			78,792
Tribeca House, Manhattan, NY (d)	11/9/2018		LIBOR + 3.75%		—			410,000
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			—
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		68,415			69,383
107 Columbia Heights, Brooklyn, NY (f)	5/9/2020		LIBOR + 3.85%		63,506			60,067
10 West 65 th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,350			34,350
Total debt				$	883,689		$	855,116
Unamortized debt issuance costs					(10,579	)		(11,170	)
Total debt, net of unamortized debt issuance costs				$	873,110		$	843,946

(a) On

February 21, 2018,

the Company repaid the debt secured by the Flatbush Gardens property that was scheduled to mature in

2024,

from the proceeds of a

$246,000

first

mortgage loan with New York Community Bank (“NYCB”). The NYCB loan matures on

March 1, 2028,

and bears interest at

3.5%

for the

first

five

years and thereafter at the prime rate plus

2.75%,

subject to an option to fix the rate. The loan requires interest-only payments through

August 2020,

and monthly principal and interest payments thereafter based on a

30

-year amortization schedule.

(b) The

$37,500

mortgage note agreement with Citigroup Global Markets Realty Corp. matures on

May 6, 2023,

and bears interest at

4.00%.

The note requires monthly principal and interest payments of

$179.

(c) The NYCB loan matures on

June 1, 2028,

and bears interest at

3.875%.

The note required interest-only payments through

June 2017,

and monthly principal and interest payments of

$374

thereafter based on a

30

-year amortization schedule.

(d) On

February 21, 2018,

the Company repaid the

$410,000

loan package secured by the Tribeca House property with the proceeds of a

$360,000

loan with Deutsche Bank and cash on hand. The loan matures on

March 6, 2028,

bears interest at

4.506%

and requires interest-only payments for the entire term.

(e) The

$70,000

mortgage note agreement with Capital One Multifamily Finance LLC matures on

July 1, 2028,

and bears interest at

3.68%.

The note required interest-only payments through

July 2017,

and monthly principal and interest payments of

$321

thereafter based on a

30

-year amortization schedule.

(f) On

May 9, 2017,

the Company entered into a

$59,000

mortgage note agreement with a unit of Blackstone Mortgage Trust, Inc., related to the

107

Columbia Heights acquisition. The Company also entered into a construction loan secured by the building with the same lender that will provide up to

$14,700

for eligible capital improvements and carrying costs, of which

$4,506

was drawn as of

September 30, 2018.

The notes mature on

May 9, 2020,

are subject to

two one

-year extension options, require interest-only payments and bear interest at

one

-month LIBOR plus

3.85%

(

6.1%

as of

September 30, 2018).

(g) On

October 27, 2017,

the Company entered into a

$34,350

mortgage note agreement with NYCB, related to the

10

West

65

th

Street acquisition. The note matures on

November 1, 2027,

and bears interest at

3.375%

for the

first

five

years and thereafter at the prime rate plus

2.75%,

subject to an option to fix the rate. The note requires interest-only payments through

October 2019,

and monthly principal and interest payments thereafter based on a

30

-year amortization schedule.

The following table summarizes principal payment requirements under terms as of

September 30, 2018:

2018 (Remainder)	$	717
2019		3,763
2020		69,524
2021		9,422
2022		9,770
Thereafter		790,493
Total	$	883,689

The Company recognized a loss on extinguishment of debt of approximately

$6,981

during the

three

months ended

March 31, 2018.

The loss consisted of prepayment and other fees and the write-off of unamortized loan costs.

XML

Note 7 - Rental Income Under Operating Leases

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Lessor, Operating Leases [Text Block]

7.

Rental Income under Operating Leases

The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of

September 30, 2018,

the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next

five

years and thereafter are as follows:

2018 (Remainder)	$	5,555
2019		17,335
2020		10,316
2021		4,695
2022		4,260
Thereafter		12,680
Total	$	54,841

The Company has commercial leases with the City of New York that comprised approximately

19%

and

20%

of total revenues for the

three

months ended

September 30, 2018

and

2017,

respectively, and

19%

and

20%

of total revenues for the

nine

months ended

September 30, 2018

and

2017,

respectively.

XML

Note 8 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

8.

Fair Value of Financial Instruments

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a

three

-tiered approach. Fair value measurements are classified and disclosed in

one

of the following

three

categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent

third

-party source to determine fair value and classifies such items in Level

1

or Level

2.

In instances where the market for a financial instrument is

not

active, regardless of the availability of a nonbinding quoted market price, observable inputs might

not

be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent

third

party

may

rely more on models with inputs based on information available only to that independent

third

party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do

not

appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases,

may

not

be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued liabilities reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level

2,

is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

	September 30, 2018		December 31, 2017
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	883,689	$	855,116
Estimated fair value	$	861,845	$	839,753

The Company purchased interest rate caps in connection with the Tribeca House loans obtained on

November 9, 2016,

and in connection with the loans obtained for the

107

Columbia Heights acquisition. On

April 27, 2018,

the Company terminated the Tribeca House instrument for net proceeds of

$385.

The fair value of the interest rate caps, which are classified as Level

2,

is estimated using market inputs and credit valuation inputs.

The estimated fair values of the interest rate caps are as follows:

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at September 30, 2018		Estimated Fair Value at December 31, 2017
$	410,000	Tribeca House	December 15, 2018		2.0%		—	$	148
$	73,700	107 Columbia Heights	May 9, 2020		3.0%	$	110		34
Total fair value of derivative instruments included in prepaid expenses and other assets						$	110	$	182

These interest rate caps were

not

designated as hedges; accordingly, changes in fair value of the Tribeca House instrument are recognized in earnings, and changes in fair value of the

107

Columbia Heights instrument are recognized in real estate under development. (Increases) decreases in fair value of the Tribeca House instrument of

$30

for the

three

months ended

September 30, 2017,

and $(

237

) and

$359

for the

nine

months ended

September 30, 2018

and

2017,

respectively, are included in interest expense. (Increases) decreases in fair value of the

107

Columbia Heights instrument of $(

13

) and

$28

for the

three

months ended

September 30, 2018

and

2017,

respectively, and $(

76

) and

$92

for the

nine

months ended

September 30, 2018

and

2017,

respectively, are recognized in interest expense and capitalized to real estate under development.

The above disclosures regarding fair value of financial instruments are based on pertinent information available as of

September 30, 2018,

and

December 31, 2017,

respectively. Although the Company is

not

aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have

not

been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value

may

differ significantly from the amounts presented herein.

XML

Note 9 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

9.

Commitments and Contingencies

Legal

On

July 3, 2017,

the New York Supreme Court (the “Court”) ruled in favor of

41

present or former tenants of apartment units at the Company’s buildings located at

50

Murray Street and

53

Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law

421

-g. The Court also awarded the plaintiffs, their attorney’s fees and costs. The Court declared that the plaintiff-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On

July 18, 2017,

the Court stayed the above decision; the Company subsequently appealed the decision to the Appellate Division, First Department. On

January 18, 2018, 

the Appellate Division unanimously ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The Appellate Division decision and order was subject to a motion for leave to appeal, which was granted on

April 24, 2018.

There can be

no

assurance as to the outcome of the appeal. Due to the inherent uncertainty and unpredictability of litigation, we cannot determine at this time with any specificity the Company’s potential liability. 

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of

1990

at the

141

Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will

not

have a material adverse effect on the Company’s consolidated results of operations, financial position, or cash flows.

Commitments

The Company is obligated to provide parking availability through

August 2020

under a lease with a tenant at the

250

Livingston Street property; the current cost to the Company is approximately

$240

per year.

Concentrations

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

The breakdown between commercial and residential revenue is as follows:

	Commercial			Residential			Total
Three months ended September 30, 2018		25	%		75	%		100	%
Three months ended September 30, 2017		26	%		74	%		100	%
Nine months ended September 30, 2018		25	%		75	%		100	%
Nine months ended September 30, 2017		26	%		74	%		100	%

XML

Note 10 - Related-party Transactions

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

10.

Related-Party Transactions

The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of

$87

and

$78

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$262

and

$311

for the

nine

months ended

September 30, 2018

and

2017,

respectively.

The Company paid legal and advisory fees to firms in which

two

of our directors were principals or partners of

$18

and

$33

for the

three

months ended

September 30, 2018

and

2017,

respectively, and

$1,898

and

$732

for the

nine

months ended

September 30, 2018

and

2017,

respectively.

XML

Note 11 - Segment Reporting

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

11.

Segment Reporting

The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the

141

Livingston Street property and portions of the

250

Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the

107

Columbia Heights property, the

10

West

65

th

Street property and portions of the

250

Livingston Street, Tribeca House and Aspen properties.

The Company’s income from operations by segment for the

three

and

nine

months ended

September 30, 2018

and

2017,

is as follows:

Three months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	5,377	$	20,180	$	25,557
Tenant recoveries		1,294		—		1,294
Garage and other income		241		856		1,097
Total revenues		6,912		21,036		27,948
Property operating expenses		1,094		5,712		6,806
Real estate taxes and insurance		1,245		4,579		5,824
General and administrative		256		1,602		1,858
Depreciation and amortization		908		3,443		4,351
Total operating expenses		3,503		15,336		18,839
Income from operations	$	3,409	$	5,700	$	9,109

Three months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	5,476	$	18,558	$	24,034
Tenant recoveries		1,162		—		1,162
Garage and other income		203		609		812
Total revenues		6,841		19,167		26,008
Property operating expenses		1,089		5,430		6,519
Real estate taxes and insurance		1,148		4,388		5,536
General and administrative		194		2,307		2,501
Acquisition costs		—		10		10
Depreciation and amortization		803		3,283		4,086
Total operating expenses		3,234		15,418		18,652
Income from operations	$	3,607	$	3,749	$	7,356

Nine months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	16,129	$	59,148	$	75,277
Tenant recoveries		3,668		—		3,668
Garage and other income		700		2,471		3,171
Total revenues		20,497		61,619		82,116
Property operating expenses		3,344		17,299		20,643
Real estate taxes and insurance		3,462		13,072		16,534
General and administrative		792		6,810		7,602
Depreciation and amortization		2,679		10,703		13,382
Total operating expenses		10,277		47,884		58,161
Income from operations	$	10,220	$	13,735	$	23,955

Nine months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	16,418	$	54,674	$	71,092
Tenant recoveries		3,223		—		3,223
Garage and other income		630		1,684		2,314
Total revenues		20,271		56,358		76,629
Property operating expenses		3,196		16,992		20,188
Real estate taxes and insurance		3,271		11,734		15,005
General and administrative		590		6,695		7,285
Acquisition costs		—		37		37
Depreciation and amortization		2,406		9,678		12,084
Total operating expenses		9,463		45,136		54,599
Income from operations	$	10,808	$	11,222	$	22,030

The Company’s total assets by segment are as follows, as of:

	Commercial		Residential		Total
September 30, 2018	$	212,963	$	854,707	$	1,067,670
December 31, 2017		222,288		829,797		1,052,085

The Company’s interest expense by segment for the

three

and

nine

months ended

September 30, 2018

and

2017,

is as follows:

	Commercial		Residential		Total
Three months ended September 30,
2018	$	1,716	$	6,336	$	8,052
2017		1,941		6,984		8,925
Nine months ended September 30 ,
2018	$	5,244	$	19,359	$	24,603
2017		5,764		20,744		26,508

The Company’s capital expenditures by segment for the

three

and

nine

months ended

September 30, 2018

and

2017,

are as follows:

	Commercial		Residential		Total
Three months ended September 30,
2018	$	628	$	9,425	$	10,053
2017		598		5,776		6,374
Nine months ended September 30,
2018	$	1,675	$	30,888	$	32,563
2017		3,611		11,902		15,513

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Basis of Consolidation

The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP. The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interest.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Real Estate, Policy [Policy Text Block]

Investment in Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

In accordance with ASU

2017

-

01,

"Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would

not

qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

• The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).

An acquired process is considered substantive if:

• The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process;

• The process cannot be replaced without significant cost, effort or delay; or

• The process is considered unique or scarce.

Generally, the Company expects that acquisitions of real estate or in-substance real estate will

not

meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does

not

include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does

not

believe that any of its properties within the portfolio are impaired as of

September 30, 2018.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next

twelve

months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is

not

recorded on real estate held-for-sale.

If a tenant vacates its space prior to the contractual termination of the lease and

no

rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building and improvements	10	–	44 years
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment	3	–	15 years

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of

three

months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times,

may

exceed the federally insured limit.

No

losses have been experienced related to such accounts.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Tenant and Other Receivables and Allowance for Doubtful Accounts

Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company

may

recognize additional bad debt expense in future periods.

Deferred Charges, Policy [Policy Text Block]

Deferred Costs

Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.

Deferred financing costs represent commitment fees, legal and other

third

-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do

not

close are expensed in the period the financing transaction is terminated.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the

three

and

nine

months ended

September 30, 2018

and

2017,

the Company did

not

own any financial instruments for which the change in value was

not

reported in net income (loss) accordingly and its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is

not

materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for

one

-year terms, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.

Beginning in

2019,

the Company will apply ASU

2014

-

09,

“Revenue with Contracts with Customers.” This ASU does

not

apply to the Company’s lease revenues, which made up substantially all revenues in

2017

and the

first

three

quarters of

2018.

As such, management does

not

anticipate any significant changes to the timing of the Company’s revenue recognition. The Company intends to implement the standard retrospectively at the date of adoption.

Beginning in

2020,

the Company will be required to apply ASU

2016

-

02,

“Leases,” to its lease revenues. For lessors, the accounting remains largely unchanged from the current model. The adoption of ASU

2016

-

02

is

not

expected to have a material impact on the Company’s consolidated financial statements.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic

718,

“Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant.

In

March 2018,

the Company granted

71,112

LTIP units with a weighted average grant date fair value of

$9.00

per unit.

At

September 30, 2018

and

December 31, 2017,

there were

724,448

and

653,336

LTIP units outstanding, respectively, with a weighted grant-date fair value of

$12.56

and

$12.95

per unit, respectively. As of

September 30, 2018,

and

December 31, 2017,

there was

$1.1

million and

$2.1

million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of

September 30, 2018,

the weighted average period over which the unrecognized compensation expense will be recorded is approximately

1.7

years.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the U.S. Internal Revenue Code (the “Code”). To qualify as a REIT, the Company is required to distribute dividends equal to at least

90%

of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally

not

subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company

may

not

be able to re-elect as a REIT for the

four

subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly,

no

provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

In accordance with FASB ASC Topic

740,

the Company believes that it has appropriate support for the income tax positions taken and, as such, does

not

have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operations. The prior

three

years’ income tax returns are subject to review by the Internal Revenue Service.

The Tax Cuts and Jobs Act was enacted in

December 2017

and is generally effective beginning in

2018.

This new legislation is

not

expected to have a material adverse effect on the Company’s business and contains several potentially favorable provisions.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Measurements

Refer to Note

8,

“Fair Value of Financial Instruments”.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments

FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.

Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives

not

designated as hedges, changes in fair value would be recognized in earnings. As of

September 30, 2018,

the Company has

no

derivatives for which it applies hedge accounting.

Earnings Per Share, Policy [Policy Text Block]

Income (Loss) Per Share

Basic and diluted income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. As of

September 30, 2018

and

2017,

the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic and diluted income (loss) per share pursuant to the

two

-class method. The Company did

not

have dilutive securities as of

September 30, 2018

or

2017.

The effect of the conversion of the

26,317

Class B LLC units outstanding is

not

reflected in the computation of basic and diluted income (loss) per share, as the effect would be anti-dilutive. The net income (loss) allocable to such units is reflected as noncontrolling interests in the accompanying consolidated financial statements.

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (unaudited):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2018			2017			2018			2017
Numerator
Net income (loss) attributable to common stockholders	$	505		$	(631	)	$	(3,001	)	$	(1,750	)
Less: income attributable to participating securities		(69	)		(62	)		(200	)		(167	)
Subtotal	$	436		$	(693	)	$	(3,201	)	$	(1,917	)
Denominator
Weighted average common shares outstanding		17,813			17,813			17,813			16,756
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.02		$	(0.04	)	$	(0.18	)	$	(0.11	)

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Pronouncements

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

“Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC

820.

This guidance is effective for public companies in fiscal years beginning after

December 15, 2019

with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

August 2018,

the Securities and Exchange Commission issued a final rule that amends certain of its disclosure requirements. The rule simplifies various disclosure requirements for public companies including primarily that it (i) eliminates the requirement for public companies to disclose in their filings a schedule of earnings to fixed charges, (ii) requires an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods in interim reports, and (iii) reduces the requirements for market price information disclosures in annual reports. These changes are effective for public companies beginning on

November 5, 2018.

The Company will comply with these new requirements beginning with its

2018

Annual Report on Form

10

-K.

In

July 2018,

FASB issued ASU

2018

-

11,

“Leases (Topic

842

): Targeted Improvements,” which amended ASC

842

to provide a practical expedient to lessors to elect to

not

separate nonlease components from the associated leases. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

July 2018,

FASB issued ASU

2018

-

10,

“Codification Improvements to Topic

842,

Leases.” These amendments provide clarifications and corrections to ASU

2016

-

02,

“Leases (Topic

842

).”

In

July 2018,

FASB issued ASU

2018

-

09,

“Codification Improvements.” These amendments provide clarifications and corrections to certain ASC subtopics including the following:

470

-

50

(Debt – Modifications and Extinguishments),

480

-

10

(Distinguishing Liabilities from Equity – Overall),

718

-

740

(Compensation – Stock Compensation – Income Taxes),

805

-

740

(Business Combinations – Income Taxes),

815

-

10

(Derivatives and Hedging – Overall) and

820

-

10

(Fair Value Measurement – Overall). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

In

June 2018,

FASB issued ASU

2018

-

07,

“Compensation – Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic

718

applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic

718

does

not

apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic

606,

“Revenue from Contracts with Customers.” This guidance is effective for the Company for fiscal years beginning after

December 15, 2019,

and interim periods beginning after

December 15, 2020.

Early adoption is permitted but

not

earlier than the adoption of Topic

606.

The Company does

not

believe that this guidance will have a material effect on its consolidated financial statements as it has

not

historically issued share-based payments in exchange for goods or services to be consumed within its operations.

In

May 2017,

FASB issued ASU

2017

-

09,

“Compensation – Stock Compensation (Topic

718

) Scope of Modification Accounting.” ASU

2017

-

09

clarifies Topic

718

such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award

unless

all of the following criteria are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before the modification. The standard indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification.

2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.

The amendments are effective for all entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The adoption of ASU

2017

-

09

did

not

have a material impact on our consolidated financial statements.

In

February 2017,

FASB issued ASU

2017

-

05,

“Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic

610

-

20

),” to add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU

2017

-

05

reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU

2017

-

05

is effective for the Company for its annual reporting beginning after

December 15, 2018,

including interim reporting periods beginning after

December 15, 2019.

The adoption of ASU

2017

-

05

is

not

expected to have a material impact on our consolidated financial statements.

In

November 2016,

the FASB issued ASU

2016

-

18

“Statement of Cash Flows (Topic

230

) – Restricted Cash”. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU does

not

provide a definition of restricted cash or restricted cash equivalents. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect that ASU

No.

2016

-

18

will have on its consolidated financial statements.

In

August 2016,

the FASB issued ASU

2016

-

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (A consensus of the Emerging Issues Task Force),” which provides specific guidance on

eight

cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact, if any, it will have on its consolidated financial statements.

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Note 2 - Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Property, Plant and Equipment, Useful Life [Table Text Block]

Building and improvements	10	–	44 years
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment	3	–	15 years

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2018			2017			2018			2017
Numerator
Net income (loss) attributable to common stockholders	$	505		$	(631	)	$	(3,001	)	$	(1,750	)
Less: income attributable to participating securities		(69	)		(62	)		(200	)		(167	)
Subtotal	$	436		$	(693	)	$	(3,201	)	$	(1,917	)
Denominator
Weighted average common shares outstanding		17,813			17,813			17,813			16,756
Basic and diluted net income (loss) per share attributable to common stockholders	$	0.02		$	(0.04	)	$	(0.18	)	$	(0.11	)

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Note 3 - Acquisitions (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Land	$	63,677
Building		14,983
Tenant improvements		18
Furniture and office equipment		336
Leasing commissions		13
In-place leases		732
Other lease-up costs		5
Total	$	79,764

Land	$	43,433
Building		44,100
Site improvements		83
Total	$	87,616

Business Acquisition, Pro Forma Information [Table Text Block]

	Nine Months Ended September 30, 2017
Revenues	$	78,854
Total expenses		(84,685	)
Net loss	$	(5,831	)

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Note 4 - Deferred Costs and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Deferred Costs and Intangible Assets [Table Text Block]

	September 30, 2018			December 31, 2017
	(unaudited)
Deferred costs	$	266		$	266
Above-market leases		480			480
Lease origination costs		3,110			3,110
In-place leases		8,078			8,078
Real estate tax abatements		12,571			12,571
Total deferred costs and intangible assets		24,505			24,505
Less accumulated amortization		(14,194	)		(12,611	)
Total deferred costs and intangible assets, net	$	10,311		$	11,894

Schedule of Deferred Costs and Intangible Assets, Future Amortization Expense [Table Text Block]

2018 (Remainder)	$	371
2019		1,134
2020		798
2021		768
2022		737
Thereafter		6,503
Total	$	10,311

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Note 5 - Below-market Lease Intangibles (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Below-Market Lease Intangibles Liabilities [Table Text Block]

	September 30, 2018			December 31, 2017
	(unaudited)
Below-market leases	$	23,178		$	23,178
Less accumulated amortization		(19,717	)		(18,103	)
Below-market leases, net	$	3,461		$	5,075

Below Market Lease, Future Amortization Income [Table Text Block]

2018 (Remainder)	$	537
2019		1,299
2020		517
2021		493
2022		423
Thereafter		192
Total	$	3,461

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Note 6 - Notes Payable (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

Property	Maturity	Interest Rate		September 30, 2018			December 31, 2017
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—		$	148,438
Flatbush Gardens, Brooklyn, NY (a)	10/1/2024		3.88%		—			19,792
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000			—
250 Livingston Street, Brooklyn, NY (b)	5/6/2023		4.00%		33,715			34,294
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		77,703			78,792
Tribeca House, Manhattan, NY (d)	11/9/2018		LIBOR + 3.75%		—			410,000
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			—
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		68,415			69,383
107 Columbia Heights, Brooklyn, NY (f)	5/9/2020		LIBOR + 3.85%		63,506			60,067
10 West 65 th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,350			34,350
Total debt				$	883,689		$	855,116
Unamortized debt issuance costs					(10,579	)		(11,170	)
Total debt, net of unamortized debt issuance costs				$	873,110		$	843,946

Schedule of Maturities of Long-term Debt [Table Text Block]

2018 (Remainder)	$	717
2019		3,763
2020		69,524
2021		9,422
2022		9,770
Thereafter		790,493
Total	$	883,689

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Note 7 - Rental Income Under Operating Leases (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Lessor, Operating Lease, Payments to be Received, Maturity [Table Text Block]

2018 (Remainder)	$	5,555
2019		17,335
2020		10,316
2021		4,695
2022		4,260
Thereafter		12,680
Total	$	54,841

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Note 8 - Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	September 30, 2018		December 31, 2017
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	883,689	$	855,116
Estimated fair value	$	861,845	$	839,753

Schedule of Derivative Instruments [Table Text Block]

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at September 30, 2018		Estimated Fair Value at December 31, 2017
$	410,000	Tribeca House	December 15, 2018		2.0%		—	$	148
$	73,700	107 Columbia Heights	May 9, 2020		3.0%	$	110		34
Total fair value of derivative instruments included in prepaid expenses and other assets						$	110	$	182

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Note 9 - Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Commercial			Residential			Total
Three months ended September 30, 2018		25	%		75	%		100	%
Three months ended September 30, 2017		26	%		74	%		100	%
Nine months ended September 30, 2018		25	%		75	%		100	%
Nine months ended September 30, 2017		26	%		74	%		100	%

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Note 11 - Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Three months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	5,377	$	20,180	$	25,557
Tenant recoveries		1,294		—		1,294
Garage and other income		241		856		1,097
Total revenues		6,912		21,036		27,948
Property operating expenses		1,094		5,712		6,806
Real estate taxes and insurance		1,245		4,579		5,824
General and administrative		256		1,602		1,858
Depreciation and amortization		908		3,443		4,351
Total operating expenses		3,503		15,336		18,839
Income from operations	$	3,409	$	5,700	$	9,109

Three months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	5,476	$	18,558	$	24,034
Tenant recoveries		1,162		—		1,162
Garage and other income		203		609		812
Total revenues		6,841		19,167		26,008
Property operating expenses		1,089		5,430		6,519
Real estate taxes and insurance		1,148		4,388		5,536
General and administrative		194		2,307		2,501
Acquisition costs		—		10		10
Depreciation and amortization		803		3,283		4,086
Total operating expenses		3,234		15,418		18,652
Income from operations	$	3,607	$	3,749	$	7,356

Nine months ended September 30, 2018	Commercial		Residential		Total
Rental revenues	$	16,129	$	59,148	$	75,277
Tenant recoveries		3,668		—		3,668
Garage and other income		700		2,471		3,171
Total revenues		20,497		61,619		82,116
Property operating expenses		3,344		17,299		20,643
Real estate taxes and insurance		3,462		13,072		16,534
General and administrative		792		6,810		7,602
Depreciation and amortization		2,679		10,703		13,382
Total operating expenses		10,277		47,884		58,161
Income from operations	$	10,220	$	13,735	$	23,955

Nine months ended September 30, 2017	Commercial		Residential		Total
Rental revenues	$	16,418	$	54,674	$	71,092
Tenant recoveries		3,223		—		3,223
Garage and other income		630		1,684		2,314
Total revenues		20,271		56,358		76,629
Property operating expenses		3,196		16,992		20,188
Real estate taxes and insurance		3,271		11,734		15,005
General and administrative		590		6,695		7,285
Acquisition costs		—		37		37
Depreciation and amortization		2,406		9,678		12,084
Total operating expenses		9,463		45,136		54,599
Income from operations	$	10,808	$	11,222	$	22,030

	Commercial		Residential		Total
September 30, 2018	$	212,963	$	854,707	$	1,067,670
December 31, 2017		222,288		829,797		1,052,085

	Commercial		Residential		Total
Three months ended September 30,
2018	$	1,716	$	6,336	$	8,052
2017		1,941		6,984		8,925
Nine months ended September 30 ,
2018	$	5,244	$	19,359	$	24,603
2017		5,764		20,744		26,508

	Commercial		Residential		Total
Three months ended September 30,
2018	$	628	$	9,425	$	10,053
2017		598		5,776		6,374
Nine months ended September 30,
2018	$	1,675	$	30,888	$	32,563
2017		3,611		11,902		15,513

XML

Note 1 - Organization (Details Textual) $ / shares in Units, $ in Thousands	Oct. 27, 2017 USD ($)	Jun. 21, 2017 USD ($)	May 09, 2017 USD ($)	Feb. 09, 2017 USD ($) $ / shares shares	Sep. 30, 2018 ft²	Aug. 03, 2015
Formation Transaction, Units Converted to Commons Shares, Ratio						1
Percentage of Aggregate Cash Distributions From, and Profits and Losses					40.40%
Series A Cumulative Non-Voting Preferred Stock [Member]
Stock Redeemed or Called During Period, Value | $		$ 145
Residential Rental [Member] | Residential Property At 10 West 65th Street [Member]
Number of Units	82
Business Combination, Consideration Transferred, Total | $	$ 79,000
107 Columbia Heights in Brooklyn, NY [Member]
Number of Stories					10
107 Columbia Heights in Brooklyn, NY [Member] | Apartment Building [Member]
Number of Units			161
Business Combination, Consideration Transferred, Total | $			$ 87,500
Gross Leasable Area					154,000
Tribeca House properties in Manhattan [Member]
Number of Buildings					2
Tribeca House properties in Manhattan [Member] | Residential Rental [Member]
Gross Leasable Area					481,000
Tribeca House properties in Manhattan [Member] | Rental Retail and Parking [Member]
Gross Leasable Area					77,000
Tribeca House properties in Manhattan, Building One [Member]
Number of Stories					21
Tribeca House properties in Manhattan, Building Two [Member]
Number of Stories					12
Flatbush Gardens in Brooklyn [Member] | Multifamily [Member]
Number of Buildings					59
Number of Rentable Units					2,496
141 Livingston Street in Brooklyn [Member] | Office Building [Member]
Number of Stories					15
Gross Leasable Area					216,000
250 Livingston Street in Brooklyn [Member] | Office and Residential Building [Member]
Number of Stories					12
Gross Leasable Area					381,000
Aspen [Member]
Number of Stories					7
Aspen [Member] | Residential Rental [Member]
Gross Leasable Area					166,000
Aspen [Member] | Retail Site [Member]
Gross Leasable Area					21,000
Property at 10 W 65th St. Manhattan, NY [Member] | Residential Rental [Member]
Number of Stories					6
Gross Leasable Area					76,000
IPO [Member] | Common Stock [Member]
Stock Issued During Period, Shares, New Issues | shares				6,390,149
Shares Issued, Price Per Share | $ / shares				$ 13.50
Proceeds from Issuance Initial Public Offering | $				$ 78,700

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Note 2 - Significant Accounting Policies (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Mar. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options		$ 1,100		$ 2,100
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		1 year 255 days
Income Tax Expense (Benefit), Total		$ 0
Weighted Average Number Diluted Shares Outstanding Adjustment, Total		0	0
Class B LLC Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		26,317
LTIP Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	71,112
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance		724,448		653,336
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance		$ 12.56		$ 12.95

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Note 2 - Significant Accounting Policies - Estimated Useful Lives of Assets (Details)	9 Months Ended
	Sep. 30, 2018
Building and Building Improvements [Member] | Minimum [Member]
Estimated useful life (Year)	10 years
Building and Building Improvements [Member] | Maximum [Member]
Estimated useful life (Year)	44 years
Tenant Improvements [Member]
Estimated useful life	Shorter of useful life or lease term
Furniture, Fixtures and Equipment [Member] | Minimum [Member]
Estimated useful life (Year)	3 years
Furniture, Fixtures and Equipment [Member] | Maximum [Member]
Estimated useful life (Year)	15 years

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Note 2 - Significant Accounting Policies - Basic and Diluted Earnings (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net income (loss) attributable to common stockholders	$ 505	$ (631)	$ (3,001)	$ (1,750)
Less: income attributable to participating securities	(69)	(62)	(200)	(167)
Subtotal	$ 436	$ (693)	$ (3,201)	$ (1,917)
Weighted average common shares outstanding (in shares)	17,813	17,813	17,813	16,756
Basic and diluted net income (loss) per share attributable to common stockholders (in dollars per share)	$ 0.02	$ (0.04)	$ (0.18)	$ (0.11)

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Note 3 - Acquisitions (Details Textual) - USD ($) $ in Thousands			3 Months Ended		9 Months Ended
	Oct. 27, 2017	May 09, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Business Combination, Acquisition Related Costs				$ 10		$ 37
Property at 10 W 65th St. Manhattan, NY [Member]
Business Combination, Consideration Transferred, Total	$ 79,764
Business Combination, Acquisition Related Costs	$ 764
107 Columbia Heights in Brooklyn, NY [Member]
Business Combination, Consideration Transferred, Total		$ 87,616
Business Combination, Acquisition Related Costs		$ 116

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Note 3 - Acquisitions- Properties Acquisition (Details) - USD ($) $ in Thousands	Oct. 27, 2017	May 09, 2017
Property at 10 W 65th St. Manhattan, NY [Member]
Land	$ 63,677
Building	14,983
Tenant improvements	18
Furniture and office equipment	336
Leasing commissions	13
In-place leases	732
Other lease-up costs	5
Total	$ 79,764
107 Columbia Heights in Brooklyn, NY [Member]
Land		$ 43,433
Building		44,100
Total		87,616
Site improvements		$ 83

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Note 3 - Acquisitions - Pro Forma Data (Details) - Property at 10 W 65th St. Manhattan, NY [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2017 USD ($)
Revenues	$ 78,854
Total expenses	(84,685)
Net loss	$ (5,831)

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Note 4 - Deferred Costs and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Amortization of Lease Origination Costs and In-place Lease Intangible Assets	$ 188	$ 228	$ 1,052	$ 688
Amortization of Real Estate Abatements	119	392	355	1,176
Above Market Leases [Member]
Amortization of Intangible Assets, Total	$ 59	$ 15	$ 176	$ 43

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Note 4 - Deferred Costs and Intangible Assets - Deferred Costs and Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Deferred costs	$ 266	$ 266
Above-market leases	480	480
Lease origination costs	3,110	3,110
In-place leases	8,078	8,078
Real estate tax abatements	12,571	12,571
Total deferred costs and intangible assets	24,505	24,505
Less accumulated amortization	(14,194)	(12,611)
Total	$ 10,311	$ 11,894

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Note 4 - Deferred Costs and Intangible Assets - Future Amortization Expense (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
2018 (Remainder)	$ 371
2019	1,134
2020	798
2021	768
2022	737
Thereafter	6,503
Total	$ 10,311	$ 11,894

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Note 5 - Below-market Lease Intangibles (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Amortization of Below Market Lease	$ 538	$ 446	$ 1,614	$ 1,340

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Note 5 - Below-market Lease Intangibles - Below-market Lease Intangibles Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Below-market leases	$ 23,178	$ 23,178
Less accumulated amortization	(19,717)	(18,103)
Total	$ 3,461	$ 5,075

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Note 5 - Below-market Lease Intangibles - Future Amortization Income (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
2018 (Remainder)	$ 537
2019	1,299
2020	517
2021	493
2022	423
Thereafter	192
Total	$ 3,461	$ 5,075

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Note 6 - Notes Payable (Details Textual) - USD ($)				3 Months Ended			9 Months Ended		60 Months Ended	132 Months Ended
	Feb. 21, 2018	May 09, 2017	May 01, 2013	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Nov. 01, 2027	Jul. 31, 2028	Jun. 30, 2028	Dec. 31, 2017	Oct. 27, 2017	Nov. 09, 2016	Jun. 27, 2016	May 11, 2016
Long-term Debt, Gross				$ 883,689,000			$ 883,689,000					$ 855,116,000
Gain (Loss) on Extinguishment of Debt, Total					$ (6,981,000)		$ (6,981,000)
Secured First Mortgage Loan [Member] | New York Community Bank [Member]
Long-term Debt, Gross	$ 246,000,000
Debt Instrument, Interest Rate, Stated Percentage	3.50%
Debt Instrument, Interest Only Payments Period	2 years 180 days
Secured First Mortgage Loan [Member] | New York Community Bank [Member] | Prime Rate [Member]
Derivative, Basis Spread on Variable Rate	2.75%
Mortgages 1 [Member] | Citigroup Global Markets Realty Corp [Member]
Long-term Debt, Gross			$ 37,500,000
Debt Instrument, Interest Rate, Stated Percentage			4.00%
Debt Instrument, Periodic Payment, Total			$ 179,000
Mortgages 2 [Member] | New York Community Bank [Member] | 141 Livingston Street, Brooklyn [Member]
Debt Instrument, Interest Rate, Stated Percentage																3.875%
Mortgages 2 [Member] | New York Community Bank [Member] | 141 Livingston Street, Brooklyn [Member] | Scenario, Forecast [Member]
Debt Instrument, Periodic Payment, Total											$ 374,000
Refinanced Loans [Member] | DB and SL Green Finance [Member] | Tribeca House Properties [Member]
Long-term Debt, Gross														$ 410,000,000
Fixed Interest Rate Financing [Member]
Long-term Debt, Gross	$ 360,000,000
Debt Instrument, Interest Rate, Stated Percentage	4.506%
Mortgages [Member] | New York Community Bank [Member] | Property at 10 W 65th St. Manhattan, NY [Member]
Long-term Debt, Gross													$ 34,350,000
Debt Instrument, Interest Rate, Stated Percentage													3.375%
Mortgages [Member] | New York Community Bank [Member] | Prime Rate [Member] | Property at 10 W 65th St. Manhattan, NY [Member] | Scenario, Forecast [Member]
Debt Instrument, Basis Spread on Variable Rate									2.75%
Mortgages [Member] | Capital One Multifamily Finance LLC [Member] | Aspen [Member]
Long-term Debt, Gross															$ 70,000,000
Debt Instrument, Interest Rate, Stated Percentage															3.68%
Mortgages [Member] | Capital One Multifamily Finance LLC [Member] | Aspen [Member] | Scenario, Forecast [Member]
Debt Instrument, Periodic Payment, Total										$ 321,000
Mortgages [Member] | Blackstone Real Estate Special Situations Advisors LLC [Member] | 107 Columbia Heights in Brooklyn, NY [Member]
Long-term Debt, Gross		$ 59,000,000
Mortgages [Member] | Blackstone Real Estate Special Situations Advisors LLC [Member] | London Interbank Offered Rate (LIBOR) [Member] | 107 Columbia Heights in Brooklyn, NY [Member]
Debt Instrument, Basis Spread on Variable Rate		3.85%
Debt Instrument, Interest Rate, Effective Percentage				6.10%			6.10%
Construction Loans [Member] | Blackstone Real Estate Special Situations Advisors LLC [Member] | 107 Columbia Heights in Brooklyn, NY [Member]
Debt Agreement Maximum Borrowing Capacity		$ 14,700,000
Proceeds from Issuance of Long-term Debt, Total							$ 4,506

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Note 6 - Notes Payable - Mortgages and Mezzanine Note Payable (Details) - USD ($) $ in Thousands		9 Months Ended
		Sep. 30, 2018	Dec. 31, 2017
Debt, gross		$ 883,689	$ 855,116
Unamortized debt issuance costs		(10,579)	(11,170)
Total debt, net of unamortized debt issuance costs		$ 873,110	843,946
Mortgages and Mezzanine Notes 1[Member] | Flatbush Gardens, Brooklyn, NY [Member]
Maturity date	[1]	Oct. 01, 2024
Interest rate	[1]	3.88%
Debt, gross	[1]		148,438
Mortgages and Mezzanine Notes 1[Member] | 250 Livingston Street in Brooklyn [Member]
Maturity date	[2]	May 06, 2023
Interest rate	[2]	4.00%
Debt, gross	[2]	$ 33,715	34,294
Mortgages and Mezzanine Notes 1[Member] | 141 Livingston Street, Brooklyn [Member]
Maturity date	[3]	Jun. 01, 2028
Interest rate	[3]	3.875%
Debt, gross	[3]	$ 77,703	78,792
Mortgages and Mezzanine Notes 1[Member] | Tribeca House Properties [Member]
Maturity date	[4]	Nov. 09, 2018
Debt, gross	[4]		410,000
Mortgages and Mezzanine Notes 1[Member] | Tribeca House Properties [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest rate	[4]	3.75%
Mortgages and Mezzanine Notes 1[Member] | Aspen [Member]
Maturity date	[5]	Jul. 01, 2028
Interest rate	[5]	3.68%
Debt, gross	[5]	$ 68,415	69,383
Mortgages and Mezzanine Notes 1[Member] | 107 Columbia Heights in Brooklyn, NY [Member]
Maturity date	[6]	May 09, 2020
Debt, gross	[6]	$ 63,506	60,067
Mortgages and Mezzanine Notes 1[Member] | 107 Columbia Heights in Brooklyn, NY [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest rate	[6]	3.85%
Mortgages and Mezzanine Notes 1[Member] | Property at 10 W 65th St. Manhattan, NY [Member]
Maturity date	[7]	Nov. 01, 2027
Interest rate	[7]	3.375%
Debt, gross	[7]	$ 34,350	34,350
Mortgages and Mezzanine Notes 2[Member] | Flatbush Gardens, Brooklyn, NY [Member]
Maturity date	[1]	Oct. 01, 2024
Interest rate	[1]	3.88%
Debt, gross	[1]		19,792
Mortgages and Mezzanine Notes 2[Member] | Tribeca House Properties [Member]
Maturity date	[4]	Mar. 06, 2028
Interest rate	[4]	4.506%
Debt, gross	[4]	$ 360,000
Mortgages and Mezzanine Notes 3[Member] | Flatbush Gardens, Brooklyn, NY [Member]
Maturity date	[1]	Mar. 01, 2028
Interest rate	[1]	3.50%
Debt, gross	[1]	$ 246,000
Mortgages and Mezzanine Notes [Member]
Unamortized debt issuance costs		$ (10,579)	$ (11,170)

[1] On February 21, 2018, the Company repaid the debt secured by the Flatbush Gardens property that was scheduled to mature in 2024, from the proceeds of a $246,000 first mortgage loan with New York Community Bank ("NYCB"). The NYCB loan matures on March 1, 2028, and bears interest at 3.5% for the first five years and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The loan requires interest-only payments through August 2020, and monthly principal and interest payments thereafter based on a 30-year amortization schedule.

[2] The $37,500 mortgage note agreement with Citigroup Global Markets Realty Corp. matures on May 6, 2023, and bears interest at 4.00%. The note requires monthly principal and interest payments of $179.

[3] The NYCB loan matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule.

[4] On February 21, 2018, the Company repaid the $410,000 loan package secured by the Tribeca House property with the proceeds of a $360,000 loan with Deutsche Bank and cash on hand. The loan matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term.

[5] The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule.

[6] On May 9, 2017, the Company entered into a $59,000 mortgage note agreement with a unit of Blackstone Mortgage Trust, Inc., related to the 107 Columbia Heights acquisition. The Company also entered into a construction loan secured by the building with the same lender that will provide up to $14,700 for eligible capital improvements and carrying costs, of which $4,506 was drawn as of September 30, 2018. The notes mature on May 9, 2020, are subject to two one-year extension options, require interest-only payments and bear interest at one-month LIBOR plus 3.85% (6.1% as of September 30, 2018).

[7] On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% for the first five years and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through October 2019, and monthly principal and interest payments thereafter based on a 30-year amortization schedule.

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Note 6 - Notes Payable - Summarizes Principal Payment (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
2018 (Remainder)	$ 717
2019	3,763
2020	69,524
2021	9,422
2022	9,770
Thereafter	790,493
Total	$ 883,689	$ 855,116

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Note 7 - Rental Income Under Operating Leases (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Total Revenue [Member] | Customer Concentration Risk [Member] | City of New York [Member]
Concentration Risk, Percentage	19.00%	20.00%	19.00%	20.00%

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Note 7 - Rental Income Under Operating Leases - Minimum Future Cash Rents Receivable (Details) $ in Thousands	Sep. 30, 2018 USD ($)
2018 (Remainder)	$ 5,555
2019	17,335
2020	10,316
2021	4,695
2022	4,260
Thereafter	12,680
Total	$ 54,841

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Note 8 - Fair Value of Financial Instruments (Details Textual) - USD ($)		3 Months Ended		9 Months Ended
	Apr. 27, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Proceeds from Derivative Instrument, Investing Activities				$ 385,000
Tribeca House Instrument [Member]
Proceeds from Derivative Instrument, Investing Activities	$ 385,000
Interest Rate Cap 1 [Member] | Not Designated as Hedging Instrument [Member]
Derivative, Gain (Loss) on Derivative, Net, Total			$ 30,000	(237,000)	359,000
Interest Rate Cap 2 [Member] | Not Designated as Hedging Instrument [Member]
Derivative, Gain (Loss) on Derivative, Net, Total		$ (13,000)	$ 28,000	$ (76,000)	$ 92,000

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Note 8 - Fair Value of Financial Instruments - Carrying Amount and Fair Value of Mortgage Notes Payable (Details) - Mortgages [Member] - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Reported Value Measurement [Member]
Mortgage notes payable	$ 883,689	$ 855,116
Estimate of Fair Value Measurement [Member]
Mortgage notes payable	$ 861,845	$ 839,753

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Note 8 - Fair Value of Financial Instruments - Interest Rate Caps in Connection With Mortgage Loans (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Estimated fair market value	$ 110	$ 182
Interest Rate Cap 1 [Member]
Notional amount	$ 410,000
Maturity date	Dec. 15, 2018
Strike rate	2.00%
Estimated fair market value		148
Interest Rate Cap 2 [Member]
Notional amount	$ 73,700
Maturity date	May 09, 2020
Strike rate	3.00%
Estimated fair market value	$ 110	$ 34

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Note 9 - Commitments and Contingencies (Details Textual) $ in Thousands	Sep. 30, 2018 USD ($)
Obligated to Provide Parking [Member]
Other Commitment, Total	$ 240

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Note 9 - Commitments and Contingencies - Summary of Concentrations Risk by Segment (Details) - Total Revenue [Member] - Geographic Concentration Risk [Member] - New York City [Member]	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Concentration risk	100.00%	100.00%	100.00%	100.00%
Commercial Segment [Member]
Concentration risk	25.00%	26.00%	25.00%	26.00%
Residential Segment [Member]
Concentration risk	75.00%	74.00%	75.00%	74.00%

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Note 10 - Related-party Transactions (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Firms in Which Two Directors Were Principals or Partners [Member]
Related Party Transaction, Amounts of Transaction	$ 18	$ 33	$ 1,898	$ 732
General and Administrative Expense [Member] | Overhead Charged Related to Office Expenses [Member]
Related Party Transaction, Amounts of Transaction	$ 87	$ 78	$ 262	$ 311

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Note 11 - Segment Reporting - Income From Operations by Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Rental revenues	$ 25,557	$ 24,034	$ 75,277	$ 71,092
Tenant recoveries	1,294	1,162	3,668	3,223
Garage and other income	1,097	812	3,171	2,314
Total revenues	27,948	26,008	82,116	76,629
Property operating expenses	6,806	6,519	20,643	20,188
Real estate taxes and insurance	5,824	5,536	16,534	15,005
General and administrative	1,858	2,501	7,602	7,285
Depreciation and amortization	4,351	4,086	13,382	12,084
Total operating expenses	18,839	18,652	58,161	54,599
Income from operations	9,109	7,356	23,955	22,030
Acquisition costs		10		37
Total Assets	1,067,670		1,067,670		$ 1,052,085
Interest expense	8,052	8,925	24,603	26,508
Capital expenditures	10,053	6,374	32,563	15,513
Commercial Segment [Member]
Rental revenues	5,377	5,476	16,129	16,418
Tenant recoveries	1,294	1,162	3,668	3,223
Garage and other income	241	203	700	630
Total revenues	6,912	6,841	20,497	20,271
Property operating expenses	1,094	1,089	3,344	3,196
Real estate taxes and insurance	1,245	1,148	3,462	3,271
General and administrative	256	194	792	590
Depreciation and amortization	908	803	2,679	2,406
Total operating expenses	3,503	3,234	10,277	9,463
Income from operations	3,409	3,607	10,220	10,808
Acquisition costs
Total Assets	212,963		212,963		222,288
Interest expense	1,716	1,941	5,244	5,764
Capital expenditures	628	598	1,675	3,611
Residential Segment [Member]
Rental revenues	20,180	18,558	59,148	54,674
Tenant recoveries
Garage and other income	856	609	2,471	1,684
Total revenues	21,036	19,167	61,619	56,358
Property operating expenses	5,712	5,430	17,299	16,992
Real estate taxes and insurance	4,579	4,388	13,072	11,734
General and administrative	1,602	2,307	6,810	6,695
Depreciation and amortization	3,443	3,283	10,703	9,678
Total operating expenses	15,336	15,418	47,884	45,136
Income from operations	5,700	3,749	13,735	11,222
Acquisition costs		10		37
Total Assets	854,707		854,707		$ 829,797
Interest expense	6,336	6,984	19,359	20,744
Capital expenditures	$ 9,425	$ 5,776	$ 30,888	$ 11,902