Investments in Unconsolidated Joint Ventures

6 Months Ended

Jun. 30, 2022

Investments in Unconsolidated Joint Ventures

Investments in Unconsolidated Joint Ventures

Note 13 – Investments in Unconsolidated Joint Ventures

We own a 50% interest in a joint venture (the “Berkley JV”) formed to acquire and operate The Berkley, a 95-unit multi-family property.  In December 2016, the Berkley JV closed on the acquisition of The Berkley for a purchase price of $68.885 million. On February 28, 2020, in connection with a refinancing, the Berkley JV repaid the acquisition loan in full and replaced it with a new 7-year, $33.0 million loan (the “New Berkley Loan”) which bore interest at a fixed rate of 2.717% and was interest only during the initial five years.  We and our joint venture partner were joint and several recourse carve-out guarantors under the New Berkley Loan.  In October 2021, we entered into a loan agreement with our joint venture partner (see Note 6 – Loans Payable and Secured Line of Credit – The Berkley Partner Loan), which was paid off in full when this property was sold in April 2022.  The Berkley JV sold The Berkley in April 2022 for a sale price of $70.8 million. In connection with the sale of the property, the Berkley JV recognized a gain on sale of approximately $9.0 million as well as a gain of $2.0 million upon settlement of the underlying interest rate swap.

We own a 10% interest in the 250 North 10^th JV formed to acquire and operate 250 North 10^th, a recently built 234-unit apartment building in Williamsburg, Brooklyn, New York.  In January 2020, the 250 North 10^th JV closed on the acquisition of the property for a purchase price of $137.75 million, of which $82.75 million was financed through a 15-year mortgage loan (the “250 North 10^th Note”) secured by 250 North 10^th and the balance was paid in cash. Our share of the equity totaling approximately $5.9 million was funded through the Partner Loan from our joint venture partner. The

Partner Loan bears interest at 7.0% which is payable to the extent of available cash flow and is prepayable any time within its four year term. Our partner has the option of having the Partner Loan repaid in our common stock if the price of our common stock exceeds $6.50 per share at the time of conversion. The non-recourse 250 North 10^th Note bears interest at 3.39% for the duration of the loan term and has covenants, defaults and a non-recourse carve out guaranty executed by us. We earned an acquisition fee at closing and are entitled to ongoing asset management fees and a promote upon the achievement of certain performance hurdles.  See Note 6 - Loans Payable and Secured Line of Credit – 250 North 10^th Note. As of June 30, 2022, the net carrying amount of our investment in this entity was $4.6 million and our maximum exposure to loss in this entity is limited to the carrying amount of our investment.

As we do not control the 250 North 10^th JV (and did not control The Berkley JV), we account for these joint ventures under the equity method of accounting.  We entered into an interest rate swap on February 28, 2020, whereby we recognized our share of the fair value of this liability of approximately $77,000 of income and $369,000 of expense during the six months ended June 30, 2022 and 2021, respectively. The combined balance sheets for our unconsolidated joint ventures at June 30, 2022 and December 31, 2021 are as follows (dollars in thousands):

	June 30,		December 31,
	2022		2021
ASSETS
Real estate, net	$	114,874	$	164,143
Cash and cash equivalents		1,370		1,244
Restricted cash		670		891
Tenant and other receivables, net		224		225
Prepaid expenses and other assets, net		1,032		315
Intangible assets, net		9,945		21,527
Total assets	$	128,115	$	188,345
LIABILITIES
Mortgages payable, net	$	80,401	$	112,934
Accounts payable and accrued expenses		1,420		1,849
Total liabilities		81,821		114,783
MEMBERS’ EQUITY
Members’ equity		49,777		87,654
Accumulated deficit		(3,483)		(14,092)
Total members’ equity		46,294		73,562
Total liabilities and members’ equity	$	128,115	$	188,345
Our investments in unconsolidated joint ventures	$	4,643	$	17,938

The statements of operations for our unconsolidated joint ventures for the three and six months ended June 30, 2022 and 2021 are as follows (dollars in thousands):

	For the Three Months Ended		For the Three Months Ended		For the Six Months Ended		For the Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2022		2021		2022		2021
Revenues
Rental revenues	$	2,759	$	3,185	$	6,022	$	6,164
Total revenues		2,759		3,185		6,022		6,164
Operating Expenses
Property operating expenses		769		931		1,881		1,996
Real estate taxes		17		25		42		50
General and administrative		(12)		3		(10)		5
Amortization		493		583		1,076		1,314
Depreciation		762		988		1,723		1,972
Total operating expenses		2,029		2,530		4,712		5,337
Operating income		730		655		1,310		827
Gain on sale of real estate		8,981		—		8,981		—
Gain on sale of interest rate swap		2,005		—		2,005		—
Interest expense		(782)		(957)		(1,712)		(1,896)
Interest expense - amortization of deferred finance costs		(56)		(73)		(128)		(145)
Interest (expense) income - change in fair market value of interest rate swap		(1,528)		(341)		153		(737)
Net income (loss)	$	9,350	$	(716)	$	10,609	$	(1,951)
Our equity in net income (loss) from unconsolidated joint ventures	$	4,560	$	(264)	$	5,306	$	(636)