5. JOINT VENTURES AND PARTNERSHIPS

UDR has entered into joint ventures and partnerships with unrelated third parties to acquire real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net, on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2018 and 2017 (dollars in thousands):


				Number of
		Number of		Apartment
		Properties		Homes	Investment at				UDR’s Ownership Interest
	Location of	December 31,		December 31,	December 31,		December 31,		December 31,		December 31,
Joint Venture	Properties	2018		2018	2018		2017		2018		2017
Operating and development:
UDR/MetLife I	Los Angeles, CA	1	operating community	150	$	30,839	$	34,653	50.0	%	50.0	%
UDR/MetLife II	Various	18	operating communities	4,059		296,807		303,702	50.0	%	50.0	%
Other UDR/MetLife	Various	5	operating communities	1,437		115,668		135,563	50.6	%	50.6	%
Joint Ventures
UDR/MetLife Vitruvian Park®	Addison, TX	4	operating communities;	1,513		71,730		78,404	50.0	%	50.0	%
		5	land parcels
UDR/KFH	Washington, D.C.	3	operating communities	660		5,507		8,958	30.0	%	30.0	%
West Coast Development Joint Ventures (c)	Los Angeles, CA	1	operating community	293		36,143		37,916	47.0	%	47.0	%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment, preferred equity investments and other investments					$	556,694	$	599,196



							Investment at				Income from investments
				Years To	UDR		December 31,		December 31,		Year Ended December 31,
Developer Capital Program (a)	Location	Rate		Maturity	Commitment (b)		2018		2017		2018		2017		2016
Preferred equity investments:
West Coast Development Joint Ventures (c)	Various	6.5	%	N/A	$	—	$	65,417	$	64,226	$	865	$	23,230	$	2,350
1532 Harrison (d)	San Francisco, CA	11.0	%	3.5		24,645		24,986		11,346		2,228		511		—
1200 Broadway (e)	Nashville, TN	8.0	%	3.8		55,558		58,982		18,011		2,970		370		—
Junction (f)	Santa Monica, CA	12.0	%	3.6		8,800		9,211		—		406		—		—
1300 Fairmount (g)	Philadelphia, PA	9.0	%	4.6		51,393		8,318		—		159		—		—
Essex (h)	Orlando, FL	12.5	%	4.7		12,886		9,940		—		258		—		—
Other investments:
The Portals (i)	Washington, D.C.	11.0	%	2.4		38,559		43,167		26,535		3,692		839		—
Other investment ventures	N/A	N/A		N/A	$	18,000		4,154		1,516	$	(267)	$	(30)	$	—
Total Developer Capital Program								224,175		121,634
Total investment in and advances to unconsolidated joint ventures, net							$	780,869	$	720,830

(a)

The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.

(b)

Represents UDR’s maximum funding commitment only and therefore excludes other activity such as income from investments.

(c)

In May 2015, the Company entered into a joint venture agreement with an unaffiliated joint venture partner and paid $136.3 million for a 48% ownership interest in a portfolio of five communities that were under construction. The communities are located in three of the Company’s core, coastal markets: Seattle, Washington, Los Angeles, California and Orange County, California. UDR earns a 6.5% preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80% occupancy for 90 consecutive days, while the joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization, income and expense are shared based on each partner’s ownership percentage and the Company no longer receives a 6.5% preferred return on its investment in the stabilized community. The Company serves as property manager and earns a management fee during the lease-up phase and subsequent operation of each of the communities. The unaffiliated joint venture partner is the general partner of the joint venture and the developer of the communities.

At inception of the agreement, the Company had a fixed-price option to acquire the remaining interest in each community commencing one year after completion. The unaffiliated joint venture partner is providing certain guaranties.

In January 2017, the Company exercised its fixed-price option to purchase the joint venture partner’s ownership interest in one of the five communities, a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). As a result of the consolidation, the Company recorded a gain on consolidation of $12.2 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. In connection with the purchase, the construction loan on the community was paid in full.

During 2017, the joint venture sold two of the four remaining communities, a 211 home operating community in Seattle, Washington for a sales price of approximately $101.3 million and a 399 home operating community in Anaheim, California for a sales price of approximately $148.0 million.

During the year ended December 31, 2018, the fixed-price option to acquire one of the two remaining communities held by the West Coast Development Joint Ventures (as defined below) expired. The community achieved stabilization during 2017, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages. The Company and its joint venture partner plan to continue operating the community.

As of December 31, 2018, construction was completed on the remaining community subject to the fixed-price acquisition option. During the year ended December 31, 2018, the community achieved stabilization, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in the 386 home operating community in Anaheim, California, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $33.5 million. As a result, in January 2019, the Company consolidated the operating community and it will no longer be accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Esate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In March 2017 and May 2017, the Company entered into two additional joint venture agreements with the unaffiliated joint venture partner and paid $15.5 million for a 49% ownership interest in a 155 home community in Seattle, Washington, for which construction was complete as of December 31, 2018, and $16.1 million for a 49% ownership interest in a 276 home community in Hillsboro, Oregon, for which construction was complete as of December 31, 2018 (together with the May 2015 joint venture described above, the “West Coast Development Joint Ventures”). UDR earns a 6.5% preferred return on its investments through the communities’ date of stabilization, as defined above, while our joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization of the communities, income and expense will be shared based on each partner’s ownership percentage and the Company will no longer receive a 6.5% preferred return on its investment. The Company will serve as property manager and will earn a management fee during the lease-up phase and subsequent operation of the stabilized communities. The unaffiliated joint venture partner is the general partner and the developer of the communities. The Company has concluded it does not control the joint ventures and accounts for them under the equity method of accounting.

During the year ended December 31, 2018, the community in Seattle, Washington achieved stabilization, at which time the Company and its joint venture partner began allocating income and expenses based on their ownership percentages.

The Company has a fixed-price option to acquire the remaining interest in the communities beginning one year after completion for a total price of $61.3 million and $72.3 million, respectively. The unaffiliated joint venture partner is providing certain guaranties and there are construction loans on the communities.

In January 2019, the Company exercised its fixed-price option to purchase its joint venture partner’s ownership interest in one of the two communities, a 155 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $20.0 million. As a result, in January 2019, the Company consolidated the operating community and it will no longer be accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Esate Owned). In connection with the purchase, the construction loan on the community was paid in full.

The Company’s recorded equity investment in the West Coast Development Joint Ventures at December 31, 2018 and 2017 of $101.6 million and $102.1 million, respectively, is inclusive of outside basis costs and our accrued but unpaid preferred return.

(d)

In June 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 136 apartment home community in San Francisco, California. The Company’s preferred equity investment of up to $24.6 million earns a preferred return of 11.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(e)

In September 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 313 apartment home community in Nashville, Tennessee. The Company’s preferred equity investment of up to $55.6 million earns a preferred return of 8.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(f)

In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 66 apartment home community in Santa Monica, CA. The Company’s preferred equity investment of $8.8 million earns a preferred return of 12.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(g)

In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 471 apartment home community in Philadelphia, PA. The Company’s preferred equity investment of up to $51.4 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(h)

In September 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 330 apartment home community in Orlando, FL. The Company’s preferred equity investment of up to $12.9 million earns a preferred return of 12.5% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(i)

In May 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner. The joint venture has made a mezzanine loan to a third-party developer of a 373 apartment home community in Washington, D.C. The unaffiliated joint venture partner is the managing member of the joint venture. The mezzanine loan is for up to $71.0 million at an interest rate of 13.5% per annum and carries a term of four years with one 12-month extension option. The Company’s commitment to the joint venture is approximately $38.6 million and earns a weighted average return of approximately 11.0% per annum. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

As of December 31, 2018 and 2017, the Company had deferred fees of $11.0 million and $10.9 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

The Company recognized management fees of $11.6 million, $11.4 million, and $11.3 million during the years ended December 31, 2018, 2017, and 2016, respectively, for our management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2018, 2017, and 2016.

Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2018, 2017, and 2016 (dollars in thousands):


							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2018	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	3,187	$	158,738	$	61,967	$	26,096	$	20,703	$	16,392	$	287,083
Property operating expenses		3,066		56,403		21,998		13,732		8,318		8,830		112,347
Real estate depreciation and amortization		3,392		44,721		35,437		9,495		14,487		7,679		115,211
Operating income/(loss)		(3,271)		57,614		4,532		2,869		(2,102)		(117)		59,525
Interest expense		(1,872)		(49,118)		(17,408)		(6,051)		(6,739)		(6,175)		(87,363)
Other income/(loss)		—		—		—		—		—		148		148
Net income/(loss)	$	(5,143)	$	8,496	$	(12,876)	$	(3,182)	$	(8,841)	$	(6,144)	$	(27,690)

Condensed Balance Sheets:
Total real estate, net	$	124,112	$	1,609,903	$	653,729	$	315,541	$	182,970	$	281,729	$	3,167,984
Cash and cash equivalents		698		11,192		8,242		8,865		1,794		8,614		39,405
Other assets		1,074		18,670		4,904		2,241		1,320		1,610		29,819
Total assets		125,884		1,639,765		666,875		326,647		186,084		291,953		3,237,208
Third party debt, net		70,833		1,089,231		454,647		162,131		165,699		171,879		2,114,420
Accounts payable and accrued liabilities		1,935		21,258		9,753		14,968		1,860		9,943		59,717
Total liabilities		72,768		1,110,489		464,400		177,099		167,559		181,822		2,174,137
Total equity	$	53,116	$	529,276	$	202,475	$	149,548	$	18,525	$	110,131	$	1,063,071


							UDR/
					Other		MetLife				West Coast
As of and For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2017	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	—	$	156,920	$	48,032	$	23,025	$	20,327	$	18,812	$	267,116
Property operating expenses		93		52,450		21,908		11,839		8,159		9,520		103,969
Real estate depreciation and amortization		—		45,144		32,625		7,169		14,480		7,387		106,805
Gain/(loss) on the sale of real estate		(17)		(609)		—		—		—		72,216		71,590
Operating income/(loss)		(110)		58,717		(6,501)		4,017		(2,312)		74,121		127,932
Interest expense		—		(50,603)		(13,894)		(5,030)		(5,264)		(4,038)		(78,829)
Net income attributable to noncontrolling interest		—		—		—		—		—		439		439
Net income/(loss)	$	(110)	$	8,114	$	(20,395)	$	(1,013)	$	(7,576)	$	69,644	$	48,664

Condensed Balance Sheets:
Total real estate, net	$	108,958	$	1,641,338	$	687,492	$	299,420	$	195,625	$	252,352	$	3,185,185
Cash and cash equivalents		514		11,947		8,596		7,612		829		4,214		33,712
Other assets		2		15,037		4,290		1,972		905		979		23,185
Total assets		109,474		1,668,322		700,378		309,004		197,359		257,545		3,242,082
Third party debt, net		30,555		1,108,156		443,147		131,281		165,801		126,626		2,005,566
Accounts payable and accrued liabilities		12,700		19,477		15,003		16,931		1,745		17,389		83,245
Total liabilities		43,255		1,127,633		458,150		148,212		167,546		144,015		2,088,811
Total equity	$	66,219	$	540,689	$	242,228	$	160,792	$	29,813	$	113,530	$	1,153,271


							UDR/
					Other		MetLife				West Coast
For the	UDR/		UDR/		UDR/MetLife		Vitruvian				Development
Year Ended December 31, 2016	MetLife I		MetLife II		Joint Ventures		Park®		UDR/KFH		Joint Ventures		Total
Condensed Statements of Operations:
Total revenues	$	278	$	169,175	$	18,090	$	22,916	$	19,997	$	12,174	$	242,630
Property operating expenses		552		52,322		11,655		11,730		7,828		7,117		91,204
Real estate depreciation and amortization		52		46,135		16,353		6,835		14,444		6,218		90,037
Operating income/(loss)		(326)		70,718		(9,918)		4,351		(2,275)		(1,161)		61,389
Interest expense		—		(51,173)		(6,164)		(5,095)		(5,369)		(2,166)		(69,967)
Income/(loss) from discontinued operations		(375)		34,201		—		—		—		—		33,826
Net income attributable to noncontrolling interest		—		—		—		—		—		(62)		(62)
Net income/(loss)	$	(701)	$	53,746	$	(16,082)	$	(744)	$	(7,644)	$	(3,265)	$	25,310

Other than the West Coast Development Joint Ventures, the condensed summary financial information relating to the entities in which we have an interest through the Developer Capital Program is not included in the tables above. As of and for the year ended December 31, 2018, combined total assets, liabilities, equity, revenues, and expenses for such entities were $248.1 million, $22.5 million, $225.6 million, $6.0 million, and $1.8 million, respectively. As of and for the year ended December 31, 2017, combined total assets, liabilities, equity, revenues, and expenses for such entities were $79.1 million, $0.8 million, $78.3 million, $7.8 million, and $9.5 million, respectively. For the year ended December 31, 2016, combined total revenues and expenses for such entities were $8.5 million, and $12.2 million, respectively.