Notes Receivable

12 Months Ended

Dec. 31, 2010

NOTE 5 — Notes Receivable

The following table summarizes our notes receivable at December 31, 2010 and 2009 (in thousands):


	2010									2009
	Unconsolidated									Unconsolidated
	Real Estate			Non-						Real Estate			Non-
	Partnerships			Affiliates			Total			Partnerships			Affiliates			Total
Par value notes	$	10,821		$	17,899		$	28,720		$	11,353		$	20,862		$	32,215
Discounted notes		980			145,888			146,868			5,095			141,468			146,563
Allowance for loan losses		(905	)		(37,061	)		(37,966	)		(2,153	)		(37,061	)		(39,214	)

Total notes receivable	$	10,896		$	126,726		$	137,622		$	14,295		$	125,269		$	139,564


Face value of discounted notes	$	31,755		$	158,621		$	190,376		$	37,709		$	155,848		$	193,557

Included in notes receivable from unconsolidated real estate partnerships at December 31, 2010 and 2009, are $2.3 million and $2.4 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at an annual interest rate of 12.0%.

Included in the notes receivable from non-affiliates at December 31, 2010 and 2009, are $103.9 million and $102.2 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at various annual interest rates ranging between 3.5% and 12.0% and averaging 4.1%.

Notes receivable from non-affiliates at December 31, 2010 and 2009, include notes receivable totaling $89.3 million and $87.4 million, respectively, from certain entities (the “borrowers”) that are wholly owned by a single individual. We originated these notes in November 2006 pursuant to a loan agreement that provides for total funding of approximately $110.0 million, including $16.4 million for property improvements and an interest reserve, of which $3.8 million had not been funded as of December 31, 2010. The notes mature in November 2016, bear interest at LIBOR plus 2.0%, are partially guaranteed by the owner of the borrowers, and are collateralized by second mortgages on 84 buildings containing 1,596 residential units and 43 commercial spaces in West Harlem, New York City. In conjunction with the loan agreement, we entered into a purchase option and put agreement with the borrowers under which we may purchase some or all of the buildings and, subject to achieving specified increases in rental income, the borrowers may require us to purchase the buildings (see Note 8). We determined that the stated interest rate on the notes on the date the loan was originated was a below-market interest rate and recorded a $19.4 million discount to reflect the estimated fair value of the notes based on an estimated market interest rate of LIBOR plus 4.0%. The discount was determined to be attributable to our real estate purchase option, which we recorded separately in other assets. Accretion of this discount, which is included in interest income in our consolidated statements of operations, totaled $0.9 million in 2010, $0.9 million in 2009 and $0.7 million in 2008. The value of the purchase option asset will be included in the cost of properties acquired pursuant to the option or otherwise be charged to expense. We determined that the borrowers are VIEs and, based on qualitative and quantitative analysis, determined that the individual who owns the borrowers and partially guarantees the notes is the primary beneficiary.

As part of the March 2002 acquisition of Casden Properties, Inc., we invested $50.0 million for a 20% passive interest in Casden Properties LLC, an entity organized to acquire, re-entitle and develop land parcels in Southern California. Based upon the profit allocation agreement, we account for this investment as a note receivable from a non-affiliate and through 2008 were amortizing the discounted value of the investment to the $50.0 million previously estimated to be collectible, through the initial dissolution date of the entity. As a result of a declines in land values in Southern California, we determined our recorded investment amount was not fully recoverable, and accordingly recognized impairment losses of $20.7 million ($12.4 million net of tax) during the three months ended December 31, 2009 and $16.3 million ($10.0 million net of tax) during the three months ended December 31, 2008.

The activity in the allowance for loan losses related to our notes receivable from unconsolidated real estate partnerships and non-affiliates, in total for both par value notes and discounted notes, for the years ended December 31, 2010 and 2009, is as follows (in thousands):


	Unconsolidated
	Real Estate
	Partnerships			Non-Affiliates
Balance at December 31, 2008	$	(4,863	)	$	(17,743	)
Provisions for losses on notes receivable		(2,231	)		—
Recoveries of losses on notes receivable		—			1,422
Provisions for impairment loss on investment in Casden Properties LLC		—			(20,740	)
Write offs charged against allowance		4,367			—
Net reductions due to consolidation of real estate partnerships and property dispositions		574			—

Balance at December 31, 2009	$	(2,153	)	$	(37,061	)
Provisions for losses on notes receivable		(304	)		(220	)
Recoveries of losses on notes receivable		116			—
Write offs charged against allowance		639			220
Net reductions due to consolidation of real estate partnerships and property dispositions		797			—

Balance at December 31, 2010	$	(905	)	$	(37,061	)

In addition to the provisions shown above, during the year ended December 31, 2010, we wrote off $0.5 million of receivables that were not reserved through the allowance.

Additional information regarding our par value notes and discounted notes impaired during the years ended December 31, 2010 and 2009 is presented in the table below (in thousands):


	2010			2009
Par value notes:
Allowance for losses recognized	$	(796	)	$	(1,158	)
Carrying amounts of loans prior to impairments		1,115			3,819
Average recorded investment in impaired loans		1,255			7,589
Interest income recognized related to impaired loans		75			84

Discounted notes:
Allowance for losses recognized	$	(110	)	$	(996	)
Carrying amounts of loans prior to impairments		110			1,580
Average recorded investment in impaired loans		538			3,503
Interest income recognized related to impaired loans		—			—

The remaining $27.0 million of our par value notes receivable at December 31, 2010, is estimated to be collectible and, therefore, interest income on these par value notes is recognized as earned. Of our total par value notes outstanding at December 31, 2010, notes with balances of $17.5 million have stated maturity dates and the remainder have no stated maturity date and are governed by the terms of the partnership agreements pursuant to which the loans were extended. At December 31, 2010, none of the par value notes with stated maturity dates were past due. The information in the table above regarding our discounted notes excludes the impairment related to our investment in Casden Properties LLC. No interest income has been recognized on our investment in Casden Properties LLC following the initial impairment recognized during 2008.

In addition to the interest income recognized on impaired loans shown above, we recognized interest income, including accretion, of $7.7 million, $5.8 million and $9.2 million for the years ended December 31, 2010, 2009 and 2008, respectively, related to our remaining notes receivable.