Notes Receivable, Preferred Equity and Other Real Estate Related Investments

During 2013, the Company made total investments in notes receivable and preferred equity investments of $45.0 million and total collections of $29.6 million.

The following table reconciles notes receivable investments from January 1, 2011 to December 31, 2013:



	For the years ended December 31,
(dollars in thousands)	2013			2012			2011
Beginning Balance	$	129,278		$	59,989		$	89,202
Additions during period:
New investments	45,000			108,629			34,758
Deductions during period:
Collections of principal	(29,583		)	(25,388		)	(56,517		)
Conversion to real estate through receipt of deed or through foreclosure	(18,500		)	(14,000		)	—
Reclass to investments in unconsolidated affiliates	—			—			(8,000		)
Non-cash accretion of notes receivable	461			453			786
Reserves	—			(405		)	(240		)
Ending Balance	$	126,656		$	129,278		$	59,989

As of December 31, 2013, the Company’s notes receivable, net, approximated $126.7 million and were collateralized by the underlying properties, the borrower’s ownership interest in the entities that own the properties and/or by the borrower’s personal guarantee. Notes receivable were as follows at December 31, 2013:

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Notes Receivable, Preferred Equity and Other Real Estate Related Investments, continued



Note Description	Effective interest rate (1)	First Priority Liens		Net Carrying Amount of Notes Receivable as of December 31, 2013		Net Carrying Amount of Notes Receivable as of December 31, 2012		Maturity Date	Extension Options
(dollars in thousands)
First Mortgage Loan	5.5%	$	—	$	42,000	$	25,000	1/31/2014	—
First Mortgage Loan	7.7%	—		12,000		—		1/1/2015	—
Zero Coupon Loan ²	24.0%	166,200		4,431		3,961		1/3/2016	—
Preferred Equity	8.1%	20,855		13,000		—		9/1/2017	—
Mezzanine Loan	15.0%	—		30,879		30,879		11/9/2020	—
First Mortgage Loan	8.0%	—		6,400		8,000		Demand	—
Mezzanine Loan ³	10.0%	89,566		9,089		9,089		Demand	—
First Mortgage Loan	5.3%	—		—		18,500		Demand	—
Mezzanine Loan ⁴	15.0%	16,668		3,834		3,834		Upon Capital Event	—
Construction Loan	20.5%	—		—		5,400		12/31/2012	—
First Mortgage Loan	12.0%	—		—		12,333		12/1/2013	—
First Mortgage Loan	6.0%	—		—		10,250		12/31/2013	—
Individually less than 3% ⁵	2.5% + LIBOR to 17.5%	37,623		5,023		2,032		12/31/2014 to Capital Event	—
Total				$	126,656	$	129,278

Notes:

(1) The effective interest rate includes origination and exit fees.

(2) The principal balance for this accrual only loan is increased by the interest accrued

(3) Comprised of three cross-collateralized loans from one borrower, which are non-performing

(4) Non-performing loan

(5) Consists of four loans, two of which are non-performing, with an aggregate face value of $5.7 million, of which $3.7 million has been reserved

During January 2013, Fund III received a payment of $2.5 million, representing the full principal and interest on a note that had been previously written off. This has been recognized as other income in the consolidated statement of income.

During February 2013, Fund III, in conjunction with its acquisition of Nostrand Place (Note 2), received repayment on $13.0 million of its first mortgage loan of $18.5 million and contributed the remaining unliquidated balance to a joint venture.

During March 2013, the Company received a payment of $5.4 million, representing full payment on a construction loan.

During September 2013, the Company received a payment of $10.3 million, representing full payment of principal and accrued interest on a first mortgage loan that was scheduled to mature on December 31, 2013.

During November 2013, Fund I received payment of $12.5 million representing the remaining $12.2 million of principal on its note related to the sale of the Kroger/Safeway portfolio and $0.3 million of interest.

ACADIA REALTY TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Notes Receivable, Preferred Equity and Other Real Estate Related Investments, continued

During December 2013, the Company received a $1.6 million payment on an $8.0 million note representing the release price on one of the three properties on which the note was collateralized. The balance of $6.4 million remains outstanding.

During December 2013, the Company made a preferred equity investment in a joint venture for $13.0 million. The joint venture owns a property and the agreement provides the Company with the first right of offer to purchase the property should the Members decide to sell. The investment has a mandatory redemption date of September 1, 2017 and earns a preferred return rate of 8.1%.

During December 2013, the Company made a $12.0 million loan, which is collateralized by a property located in Manhattan. The loan bears interest at 7.7% and matures January 1, 2015.

During December 2013, the Company amended a $25.0 million loan which bore interest at 9.0% and was set to mature January 1, 2014. The amended note increased the principal amount to $42.0 million and adjusted the interest rate to 5.5%. The amended note matured on January 31, 2014. This note is collateralized by a property which is currently under contract to acquire.

During December 2013, the Company made a $3.0 million loan in conjunction with the acquisition of a long term master lease for a property located in Manhattan. The loan is collateralized by operating partnership units given to the buyer as part of the purchase price. The loan bears interest at LIBOR plus 2.5% and matures December 2020.

The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company's loan in relation to other debt secured by the collateral and the prospects of the borrower. As of December 31, 2013, the Company held six non-performing notes aggregating $18.6 million for which payment was delinquent. Based primarily on the indicators noted above, the Company has established a reserve of $3.7 million as of December 31, 2013 related to these notes.

The following table reconciles the activity in the allowance for notes receivable from December 31, 2011 to December 31, 2013:



	Allowance for
(dollars in thousands)	Notes Receivable
Balance at December 31, 2011	$	3,276
Additional reserves	405
Recoveries	—
Charge-offs and reclassifications	—
Balance at December 31, 2012	$	3,681
Additional reserves	—
Recoveries	—
Charge-offs and reclassifications	—
Balance at December 31, 2013	$	3,681