Variable Interest Entities

6 Months Ended

Jun. 30, 2019

Variable Interest Entities [Abstract]

Other Real Estate Partnerships

The Other Real Estate Partnerships are variable interest entities ("VIEs") of the Operating Partnership and the Operating Partnership is the primary beneficiary, thus causing the Other Real Estate Partnerships to be consolidated by the Operating Partnership. In addition, the Operating Partnership is a VIE of the Company and the Company is the primary beneficiary.

The following table summarizes the assets and liabilities of the Other Real Estate Partnerships included in our consolidated balance sheets, net of intercompany amounts:



	June 30, 2019		December 31, 2018
ASSETS
Assets:
Net Investment in Real Estate	$	255,559	$	260,528
Other Assets, Net	23,742		25,059
Total Assets	$	279,301	$	285,587
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable, Net	$	13,164	$	20,497
Other Liabilities, Net	7,520		9,045
Partners' Capital	258,617		256,045
Total Liabilities and Partners' Capital	$	279,301	$	285,587

Joint Venture

During the second quarter 2018, we entered into the Joint Venture with a third party partner for the purpose of developing, leasing, operating and potentially selling approximately 532 net developable acres of land located in the Phoenix, Arizona metropolitan area. The purchase price of the land was $49,000 and was acquired by the Joint Venture via cash equity contributions from us and our joint venture partner. Through a wholly-owned TRS of the Operating Partnership, we own a 49% interest in the Joint Venture.

During the six months ended June 30, 2019, the Joint Venture sold three land parcels, totaling 236 net developable acres, for gross proceeds of $57,178 and a total gain on sale of real estate of $30,236. Our economic share of the gain on sale is $14,816. However, we were the purchaser of one of the land parcels, acquiring 39 net developable acres from the Joint Venture. Accordingly, we netted our gain on sale pertaining to that sale in the amount of $3,121 against the basis of the land acquired. During the six months ended June 30, 2018, the Joint Venture sold one land parcel, totaling 21 net developable acres, for gross proceeds of $3,973 and total gain on sale of real estate of $181. Net income of the Joint Venture for the six months ended June 30, 2019 and 2018 was $30,148 and $154, respectively.

Under the Joint Venture's operating agreement, we act as the managing member of the Joint Venture and are entitled to receive fees for providing management, leasing, development, construction supervision, disposition and asset management services to the Joint Venture. In addition, the Joint Venture's operating agreement provides us the ability to earn an incentive fee based on the ultimate financial performance of the Joint Venture. In accordance with GAAP, for the three months ended June 30, 2019, we calculated the incentive fee using a hypothetical liquidation basis assuming the remaining net assets of the Joint Venture were distributed at book value. Under this hypothetical liquidation methodology, we recognized an incentive fee of approximately $4,900, which is recorded in the Equity In Income of Joint Venture line item in the statement of operations and as an increase to the Investment in Joint Venture line item on the balance sheet. Any incentive fee earned will be calculated based on the final economic performance of the Joint Venture and will be paid towards the end of the Joint Venture's life.

As part of our assessment of the appropriate accounting treatment for the Joint Venture, we reviewed the operating agreement of the Joint Venture in order to determine our rights and the rights of our joint venture partner, including whether those rights are protective or participating. We found that the operating agreement contains certain protective rights, such as the requirement of both member's approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget. However, we also found that we and our Joint Venture partner jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) review and approve the Joint Venture's tax return before filing and (iv) approve each lease at a developed property. We consider the latter rights substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the Joint Venture. As such, we concluded to account for our investment in the Joint Venture under the equity method of accounting.