Investments in Real Estate Entities

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Entities

As of September 30, 2020, the Company had investments in eight unconsolidated real estate entities with ownership interest percentages ranging from 20.0% to 50.0%. The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects.

During the three and nine months ended September 30, 2020, Archstone Multifamily Partners AC LP (the "U.S. Fund") sold Avalon Venice on Rose, located in Venice, CA, containing 70 apartment homes and 9,000 square feet of commercial space for $65,000,000. The Company's share of the gain was $5,157,000. In conjunction with the disposition of this community, the U.S. Fund repaid $27,117,000 of secured indebtedness at par.

During the three and nine months ended September 30, 2020, the Company entered into a joint venture to develop, own, and operate AVA Arts District, an apartment community located in Los Angeles, CA, which is currently under construction and expected to contain 475 apartment homes when complete. The Company has a 25.0% interest in the venture, and the venture partner owns the remaining 75.0% interest. The Company's total expected equity investment is approximately $27,600,000, of which $14,800,000 has already been contributed. The venture has secured a $165,600,000 variable rate construction loan to fund approximately 60% of the development of AVA Arts District, of which no amounts have been drawn as of September 30, 2020. The venture will commence draws under the loan subsequent to required equity contributions by the venture partners. The Company has guaranteed the construction loan on behalf of the venture, and any obligations under the construction loan guarantee, except for obligations arising from misconduct by the Company, are required capital contributions of the partners based on ownership interest. The venture is considered an unconsolidated VIE as the Company was not considered to be the primary beneficiary due to shared control and decision making with its venture partner. The Company and its venture partner share decision making authority for all significant aspects of the venture's activities including, but not limited to, changes in the ownership, changes to the development plan or budget, and major operating decisions including annual business plans.

The following is a combined summary of the financial position of the entities accounted for using the equity method discussed above as of the dates presented, including development joint ventures started and unconsolidated communities sold during the respective periods (dollars in thousands):


	9/30/2020		12/31/2019
	(unaudited)
Assets:
Real estate, net	$	1,222,762	$	1,204,470
Other assets	265,048		196,488
Total assets	$	1,487,810	$	1,400,958

Liabilities and partners' capital:
Mortgage notes payable, net (1)	$	749,555	$	782,257
Other liabilities	158,875		157,379
Partners' capital	579,380		461,322
Total liabilities and partners' capital	$	1,487,810	$	1,400,958

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(1) The Company has not guaranteed the outstanding debt, nor does the Company have any obligation to fund this debt should the unconsolidated entity be unable to do so.

The following is a combined summary of the operating results of the entities accounted for using the equity method discussed above for the periods presented (dollars in thousands):


	For the three months ended				For the nine months ended
	9/30/2020		9/30/2019		9/30/2020		9/30/2019
	(unaudited)				(unaudited)
Rental and other income	$	28,800	$	37,382	$	92,299	$	108,635
Operating and other expenses	(12,782)		(14,535)		(37,034)		(42,624)
Gain on sale of communities	18,408		—		18,448		—
Interest expense, net	(8,024)		(8,385)		(24,133)		(25,482)
Depreciation expense	(8,704)		(9,324)		(26,106)		(49,366)
Net income (loss)	$	17,698	$	5,138	$	23,474	$	(8,837)

Company's share of net income (loss) (1)	$	5,611	$	2,175	$	8,357	$	2,377
Amortization of excess investment and other	(528)		(532)		(1,587)		(1,597)
Equity in income from unconsolidated real estate investments	$	5,083	$	1,643	$	6,770	$	780

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(1) Includes the Company's share of gain on sale of communities.

Expensed Transaction, Development and Other Pursuit Costs

The Company capitalizes pre-development costs incurred in pursuit of new development opportunities for which the Company currently believes future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Initial pre-development costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur, in the amounts of $4,289,000 and $2,562,000 for the nine months ended September 30, 2020 and 2019, respectively. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Casualty and Impairment of Long-Lived Assets

In the Company's evaluation of its real estate portfolio for impairment, as discussed below, it considered the impact of the COVID-19 pandemic and did not identify any indicators of impairment as a result.

The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property or long-lived asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the property or long-lived asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property or long-lived asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three and nine months ended September 30, 2020 and 2019.

The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the for-sale condominium units exceeds the carrying value. For-sale condominium inventory is stated at cost, unless the carrying amount of the inventory is not recoverable when compared to the fair value. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. In addition, the Company incurs marketing and administrative costs related to the for-sale condominiums. For the three and nine months ended September 30, 2020 and 2019, the Company did not identify any indicators of impairment for its for-sale condominium inventory.

The Company assesses its portfolio of land held for both development and investment for impairment if the intent of the Company changes with respect to either the development of, or the expected holding period for, the land. During the three and nine months ended September 30, 2020 and 2019, the Company did not recognize any impairment charges on its investment in land.

The Company evaluates its unconsolidated investments for other than temporary impairment, considering both the extent and amount by which the carrying value of the investment exceeds the fair value, and the Company's intent and ability to hold the investment to recover its carrying value. The Company also evaluates its proportionate share of any impairment of assets held by unconsolidated investments. There were no other than temporary impairment losses recognized for any of the Company's investments in unconsolidated real estate entities, or impairments recognized by those entities, during the three and nine months ended September 30, 2020 and 2019.