Investments in Real Estate Entities

12 Months Ended

Dec. 31, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Entities

The Company accounts for its investments in unconsolidated real estate entities under the equity method of accounting, as discussed in Note 1, “Organization, Basis of Presentation and Significant Accounting Policies,” under Principles of Consolidation. The significant accounting policies of the Company's unconsolidated real estate entities are consistent with those of the Company in all material respects. Certain of these investments are subject to various buy‑sell provisions or other rights which are customary in real estate joint venture agreements. The Company and its partners in these entities may initiate these provisions to either sell the Company's interest or acquire the joint venture interest from the Company's partner.

The following presents the Company's activities in unconsolidated real estate entities for the years ended December 31, 2020, 2019 and 2018:

Archstone Multifamily Partners AC LP (the “U.S. Fund”)—The Company is the general partner of the U.S. Fund and has a 28.6% combined general partner and limited partner equity interest. The Company acquired its interest in the U.S. Fund as part of the Archstone Acquisition (as defined in Note 5, “Investments in Real Estate Entities,” of the Consolidated Financial Statements in Item 8 in the Company's Form 10-K filed February 22, 2019). During 2020, 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 proportionate share of the gain in accordance with GAAP was $5,157,000. In conjunction with the disposition of the community, the U.S. Fund repaid $27,117,000 of secured indebtedness at par. The U.S. Fund sold one community in each 2019 and 2018, and the Company's proportionate share of the gains in accordance with GAAP was $5,788,000 and $8,636,000, respectively.

Multifamily Partners AC JV LP (the “AC JV”)—The Company has a 20.0% equity interest in the AC JV, and acquired its interest as part of the Archstone Acquisition. During 2018, the AC JV sold one community, and the Company's proportionate share of the gain in accordance with GAAP was $2,019,000.

Legacy JV—As part of the Archstone Acquisition the Company entered into a limited liability company agreement with Equity Residential, through which it assumed obligations of Archstone in the form of preferred interests, some of which are governed by tax protection arrangements (the “Legacy JV”). The Company has a 40.0% interest in the Legacy JV. During the years ended December 31, 2020, 2019 and 2018, the Legacy JV redeemed certain of the preferred interests and paid accrued dividends, of which the Company's portion was $1,000,000, $1,400,000 and $1,120,000, respectively. At December 31, 2020, the remaining preferred interests had an aggregate liquidation value of $35,382,000, the Company's 40.0% share of which was included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

North Point II JV, LP—During 2016, the Company entered into a joint venture to develop, own, and operate AVA North Point, an apartment community located in Cambridge, MA, which completed construction during 2018 and contains 265 apartment homes. The Company owned a 55.0% interest in the venture. During the year ended December 31, 2019, the Company acquired the 45.0% equity interest of AVA North Point that was owned by the venture partner, for a purchase price of $71,280,000. Upon acquisition, the Company consolidated AVA North Point as a wholly-owned operating community.

NYTA MF Investors LLC (“NYC Joint Venture”)—During 2018, the Company contributed five wholly-owned operating communities located in New York City, NY to a newly formed joint venture with the intent to own and operate the communities. The Company retained a 20.0% interest in the venture with the partners sharing in returns in accordance with their ownership interests. In conjunction with the formation of the venture in 2018, the Company sold the five communities, containing an aggregate of 1,301 apartment homes and 58,000 square feet of commercial space, to the venture for a sales price of $758,900,000. The Company received net cash proceeds of $276,799,000 and the venture assumed $395,939,000 of secured indebtedness from the Company. The Company recognized a gain on sale of $179,861,000, including the recognition of the Company's 20.0% retained interest at fair value.

Avalon Alderwood MF Member, LLC—During 2019, the Company entered into a joint venture to develop, own, and operate Avalon Alderwood Mall, an apartment community located in Lynnwood, WA, which is currently under construction and expected to contain 328 apartment homes (unaudited) when complete. The Company has a 50.0% interest in the venture, which is considered a VIE, though the Company was not considered to be the primary beneficiary because it shares control 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 or capital structure, and the capital budget to construct Avalon Alderwood Mall.

Arts District Joint Venture—During 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 (unaudited) and 56,000 square feet (unaudited) of commercial space when completed. The Company has a 25.0% interest in the venture with a total expected equity investment of approximately $27,600,000, of which $19,500,000 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 December 31, 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.

AvalonBay Value Added Fund II, L.P. (“Fund II”)—During 2018, the Company held an investment in and received the final distributions for the AvalonBay Value Added Fund II, L.P. (“Fund II”), a private, discretionary real estate investment vehicle formed in 2008. The Company completed the dissolution of Fund II in 2018. A wholly owned subsidiary of the Company was the general partner of Fund II. The Company had an equity interest of 31.3% in Fund II, and upon achievement of a threshold return the Company had a right to incentive distributions for its promoted interest based on current returns earned by Fund II which represented 40.0% of further Fund II distributions, which was in addition to its proportionate share of the remaining 60.0% of distributions. During the year ended December 31, 2018, the Company recognized income of $925,000 for its promoted interest which was reported as a component of equity in income of unconsolidated real estate entities on the accompanying Consolidated Statements of Comprehensive Income.

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


	12/31/20		12/31/19
Assets:
Real estate, net	$	1,249,730	$	1,204,470
Other assets	255,606		196,488
Total assets	$	1,505,336	$	1,400,958
Liabilities and partners' capital:
Mortgage notes payable, net (1)	$	751,257	$	782,257
Other liabilities	163,808		157,379
Partners' capital	590,271		461,322
Total liabilities and partners' capital	$	1,505,336	$	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 and presented on the accompanying Consolidated Statements of Comprehensive Income, for the years presented (dollars in thousands):


	For the year ended
	12/31/20		12/31/19 (1)		12/31/18 (2)
Rental and other income	$	118,474	$	144,431	$	92,533
Operating and other expenses	(49,509)		(55,732)		(35,840)
Gain on sale of communities	18,450		21,748		54,202
Interest expense, net	(31,982)		(33,896)		(22,500)
Depreciation expense	(34,606)		(58,387)		(26,706)
Net income	$	20,827	$	18,164	$	61,689

Company's share of net income (3)	$	8,538	$	10,779	$	17,519
Amortization of excess investment and other	(2,116)		(2,127)		(2,249)
Equity in income from unconsolidated real estate investments	$	6,422	$	8,652	$	15,270

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(1) Amounts include results from AVA North Point through the date the Company acquired its venture partner's 45.0% equity interest.

(2) Amounts include results from the NYC Joint Venture from the date the venture was formed.

(3) Includes the Company's share of gain on sale of communities and income recognized for its promoted interest.

Investments in Consolidated Real Estate Entities

During the year ended December 31, 2020, the Company did not acquire any communities. In addition to AVA North Point, during the year ended December 31, 2019, the Company acquired five communities, containing an aggregate 1,175 apartment homes, which were acquired for an aggregate purchase price of $345,450,000. During the year ended December 31, 2018, the Company acquired four communities, containing an aggregate 1,096 apartment homes, which were acquired for an aggregate purchase price of $334,450,000.

The Company accounted for these as asset acquisitions and recorded the acquired assets and assumed liabilities, including identifiable intangibles, at their relative fair values based on the purchase price and acquisition costs incurred. The Company used third party pricing or internal models for the values of the land, a valuation model for the values of the buildings, and an internal model to determine the fair values of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.