Investments in Partially Owned Entities

12 Months Ended

Dec. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

Investments in Partially Owned Entities

Investments in Partially Owned Entities

Fifth Avenue and Times Square JV

As of December 31, 2022, we own a 51.5% common interest in a joint venture ("Fifth Avenue and Times Square JV") which owns interests in properties located at 640 Fifth Avenue, 655 Fifth Avenue, 666 Fifth Avenue, 689 Fifth Avenue, 697-703 Fifth Avenue, 1535 Broadway and 1540 Broadway (collectively, the "Properties"). The remaining 48.5% common interest in the joint venture is owned by a group of institutional investors (the "Investors"). Our 51.5% common interest in the joint venture represents an effective 51.0% interest in the Properties. The 48.5% common interest in the joint venture owned by the Investors represents an effective 47.2% interest in the Properties.

We also own $1.828 billion of preferred equity security interests in certain of the properties. The preferred equity has an annual coupon of 4.25% through April 2024, increasing to 4.75% for the subsequent five years and thereafter at a formulaic rate. It can be redeemed under certain conditions on a tax deferred basis.

Fifth Avenue and Times Square JV was formed in April 2019, when we contributed our interests in the Properties to the joint venture and transferred a 48.5% common interest in the joint venture to the Investors (the “Transaction”). The Transaction valued the Properties at $5.556 billion, resulting in a $2.571 billion net gain, before noncontrolling interests of $11,945,000, including a gain related to the step up in our basis of the retained portion of the assets to fair value. During 2020, Manhattan street retail suffered negative market conditions, which was further stressed by the COVID-19 pandemic, resulting in our recognition of other-than-temporary impairment losses of $413,349,000, before noncontrolling interests of $4,289,000, for the year ended December 31, 2020. While the Manhattan street retail market has since stabilized, the recovery of rental rates is likely to be further elongated and stabilize at lower levels than previously expected. These factors have resulted in a further decline in the value of our investment, which we determined was other-than-temporary based on our inability to forecast a recovery over our anticipated holding period. Accordingly, we recognized an impairment loss of $489,859,000, before noncontrolling interests of $6,822,000, for the year ended December 31, 2022 which is included in “(loss) income from partially owned entities” on our consolidated statements of income. In determining the fair value of our investment, we considered, among other factors, a discounted cash flow analysis based upon market conditions and expectations of growth.

As of December 31, 2022, the carrying amount of our investment in the joint venture was less than our share of the equity in the net assets of the joint venture by approximately $864,317,000, the basis difference primarily resulting from the non-cash impairment losses discussed above. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Fifth Avenue and Times Square JV’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as a reduction to depreciation expense over their estimated useful lives.

We receive an annual fee for managing the Properties equal to 2% of the gross revenues from the Properties. In addition, we are entitled to a development fee of 5% of development costs, plus reimbursement of certain costs, for development projects performed by us. We are entitled to 1.5% of development costs, plus reimbursement of certain costs, as a supervisory fee for development projects not performed by us. We provide leasing services for fees calculated based on a percentage of rents, less any commissions paid to third-party real estate brokers, if applicable. We jointly provide leasing services for the retail space with Crown Retail Services LLC, and exclusively provide leasing services for the office space. We recognized property management fee income, included in "fee and other income" on our consolidated statements of income, of $4,397,000, $4,297,000 and $3,982,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

BMS, our wholly-owned subsidiary, supervises cleaning, security and engineering services at certain of the Properties. We recognized income for these services, included in "fee and other income" on our consolidated statements of income, of $4,571,000, $3,993,000 and $3,595,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

We believe, based on comparable fees charged by other real estate companies, that the fees described above are consistent with the market.

On April 18, 2022, we received a $13,613,000 refund of New York City real property transfer tax that we previously paid in connection with the transfer of the Properties to Fifth Avenue and Times Square JV in April 2019. The receipt of the refund was recognized in "net gains on disposition of wholly owned and partially owned assets" on our consolidated statements of income for the year ended December 31, 2022.

5. Investments in Partially Owned Entities - continued

Fifth Avenue and Times Square JV - continued

On December 21, 2022, the 697-703 Fifth Avenue $450,000,000 non-recourse mortgage loan matured and was not repaid, at which time the lenders declared an event of default. During December 2022, $29,000,000 of property-level funds were applied by the lenders against the principal balance resulting in a $421,000,000 loan balance as of December 31, 2022. The loan bears default interest at the Prime Rate plus 1.00% (8.50% as of December 31, 2022). The Fifth Avenue and Times Square JV is in negotiations with the lenders regarding a restructuring but there can be no assurance as to the timing and ultimate resolution of these negotiations.

Alexander’s, Inc

As of December 31, 2022, we own 1,654,068 Alexander’s common shares, or approximately 32.4% of Alexander’s common equity. We manage, develop and lease Alexander’s properties pursuant to agreements which expire in March of each year and are automatically renewable. As of December 31, 2022 and 2021, Alexander’s owed us an aggregate of $801,000 and $879,000, respectively, pursuant to such agreements.

As of December 31, 2022, the market value (“fair value” pursuant to ASC Topic 820, Fair Value Measurements ("ASC 820")) of our investment in Alexander’s, based on Alexander’s December 31, 2022 closing share price of $220.06, was $363,994,000, or $276,198,000 in excess of the carrying amount on our consolidated balance sheet. As of December 31, 2022, the carrying amount of our investment in Alexander’s, excluding amounts owed to us, exceeds our share of the equity in the net assets of Alexander’s by approximately $29,972,000. The majority of this basis difference resulted from the excess of our purchase price for the Alexander’s common stock acquired over the book value of Alexander’s net assets. Substantially all of this basis difference was allocated, based on our estimates of the fair values of Alexander’s assets and liabilities, to real estate (land and buildings). We are amortizing the basis difference related to the buildings into earnings as additional depreciation expense over their estimated useful lives. This depreciation is not material to our share of equity in Alexander’s net income.

Management, Development, Leasing and Other Agreements

We receive an annual fee for managing Alexander’s and all of its properties equal to the sum of (i) $2,800,000, (ii) 2% of the gross revenue from the Rego Park II Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $354,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. In addition, we are entitled to a development fee of 6% of development costs, as defined.

We provide Alexander’s with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through twentieth year of a lease term and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by Alexander’s tenants. In the event third-party real estate brokers are used, our fee increases by 1% and we are responsible for the fees to the third-parties. We are also entitled to a commission upon the sale of any of Alexander’s assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000, and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.

BMS, our wholly-owned subsidiary, supervises (i) cleaning, engineering and security services at Alexander’s 731 Lexington Avenue property and (ii) security services at Alexander’s Rego Park I, Rego Park II properties and The Alexander apartment tower. During the years ended December 31, 2022, 2021 and 2020, we recognized $4,601,000, $4,234,000 and $3,613,000 of income, respectively, for these services.

330 West 34th Street land owner joint venture

On August 18, 2022, the joint venture that owns the fee interest in the 330 West 34th Street land, in which we have a 34.8% interest, completed a $100,000,000 refinancing. The interest-only loan bears interest at a fixed rate of 4.55% and matures in September 2032. In connection with the refinancing, we realized net proceeds of $10,500,000. The loan replaces the previous $50,150,000 loan that bore interest at a fixed rate of 5.71%.

5.     Investments in Partially Owned Entities – continued

Below is a schedule of our investments in partially owned entities.

(Amounts in thousands)	Percentage Ownership at December 31, 2022	Balance as of December 31,
		2022		2021
Investments:
Fifth Avenue and Times Square JV (see page 89 for details)	51.5%	$	2,272,320	$	2,770,633
Partially owned office buildings/land(1)	Various	182,180		299,101
Alexander’s (see page 90 for details)	32.4%	87,796		91,405
Other investments(2)	Various	122,777		136,250
		$	2,665,073	$	3,297,389
Investments in partially owned entities included in other liabilities(3):
7 West 34th Street	53.0%	$	(65,522)	$	(60,918)
85 Tenth Avenue	49.9%	(16,006)		(18,067)
		$	(81,528)	$	(78,985)

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(1)Includes interests in 280 Park Avenue, 650 Madison Avenue (balance reduced to zero in 2022), 512 West 22nd Street, 61 Ninth Avenue and others.

(2)Includes interests in Independence Plaza, Rosslyn Plaza and others.

(3)Our negative basis results from distributions in excess of our investment.

Below is a schedule of (loss) income from partially owned entities.

(Amounts in thousands)	Percentage Ownership at December 31, 2022	For the Year Ended December 31,
		2022		2021		2020
Our share of net (loss) income:
Fifth Avenue and Times Square JV (see page 89 for details)
Non-cash impairment loss	51.5%	$	(489,859)	$	—	$	(413,349)
Equity in net income(1)		55,248		47,144		21,063
Return on preferred equity, net of our share of the expense		37,416		37,416		37,357
		(397,195)		84,560		(354,929)
Alexander's (see page 90 for details):
Equity in net income(2)	32.4%	18,439		20,116		13,326
Net gain on sale of land		—		14,576		—
Management, leasing and development fees		4,534		5,429		5,309
		22,973		40,121		18,635
Partially owned office buildings(3)	Various	(110,261)		6,384		11,943
Other investments(4)	Various	23,132		(548)		(4,761)
		$	(461,351)	$	130,517	$	(329,112)

________________________________________

(1)Our share of depreciation and amortization expense in 2022 and 2021 was reduced compared to 2020 primarily due to non-cash impairment losses recognized in 2020.

(2)2020 includes our $4,846 share of write-offs of lease receivables deemed uncollectible.

(3)Includes interests in 280 Park Avenue, 650 Madison Avenue, One Park Avenue (consolidated from August 5, 2021), 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others. 2022 includes a $93,353 impairment loss on our investment in 650 Madison Avenue.

(4)Includes interests in Independence Plaza, Rosslyn Plaza and others. 2022 includes $17,185 of net gains from dispositions of two investments.

5.     Investments in Partially Owned Entities - continued

Below is a summary of the debt of our partially owned entities.

(Amounts in thousands)	Percentage Ownership at December 31, 2022	Maturity	Weighted Average Interest Rate at December 31, 2022(1)	100% Partially Owned Entities’ Debt(2) at December 31,
				2022		2021
Mortgages Payable:
Partially owned office buildings(3)	Various	2023-2029	4.82%	$	3,288,977	$	3,297,999
Alexander's	32.4%	2024-2027	4.12%	1,096,544		1,096,544
Fifth Avenue and Times Square JV(4)	51.5%	2022-2024	5.55%	921,000		950,000
Other(5)	Various	2023-2032	5.14%	1,377,492		1,342,162

________________________________________

(1)Represents the interest rate in effect as of period end based on the appropriate reference rate as of the contractual reset date plus contractual spread, adjusted for hedging instruments, as applicable.

(2)All amounts are non-recourse to us except (i) the $500,000 mortgage loan on 640 Fifth Avenue, included in the Fifth Avenue and Times Square JV, and (ii) the $300,000 mortgage loan on 7 West 34th Street.

(3)Includes interests in 280 Park Avenue, 650 Madison Avenue, 7 West 34th Street, 512 West 22nd Street, 61 Ninth Avenue, 85 Tenth Avenue and others.

(4)Includes the 697-703 Fifth Avenue mortgage loan which was not repaid upon its December 2022 maturity, resulting in an event of default. See page 90 for details.

(5)Includes interests in Independence Plaza, Rosslyn Plaza and others.

Based on our ownership interest in the partially owned entities above, our pro rata share of the debt of these partially owned entities was $2,697,226,000 and $2,699,405,000 as of December 31, 2022 and 2021, respectively.

Summary of Condensed Combined Financial Information

The following is a summary of condensed combined financial information for all of our partially owned entities.

(Amounts in thousands)	As of December 31,
	2022		2021
Balance Sheet:
Assets	$	12,012,000	$	12,689,000
Liabilities	7,519,000		7,553,000
Noncontrolling interests	2,095,000		2,069,000
Equity	2,398,000		3,067,000

(Amounts in thousands)	For the Year Ended December 31,
	2022		2021		2020
Income Statement:
Total revenue	$	1,189,000	$	1,184,000	$	1,163,000
Net (loss) income	(404,000)		190,000		45,000
Net (loss) income attributable to the entities	(483,000)		114,000		(33,000)