Investments in Unconsolidated Joint Ventures

3 Months Ended

Mar. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Joint Ventures

We have investments in several real estate joint ventures with various partners. As of March 31, 2018 and December 31, 2017, none of our investments in unconsolidated joint ventures were VIEs. All of the investments below are voting interest entities. As we do not control the joint ventures listed below, we account for them under the equity method of accounting.

The table below provides general information on each of our joint ventures as of March 31, 2018:



Property	Partner	Ownership Interest⁽¹⁾	Economic Interest⁽¹⁾	Unaudited Approximate Square Feet	Acquisition Date⁽²⁾	Acquisition Price⁽²⁾ (in thousands)
919 Third Avenue⁽³⁾	New York State Teacher's Retirement System	51.00%	51.00%	1,454,000	January 2007	$	1,256,727
131-137 Spring Street	Invesco Real Estate	20.00%	20.00%	68,342	August 2015	277,750
Mezzanine Loan⁽⁴⁾	Private Investors	33.33%	33.33%	—	May 2017	15,000


(1)	Ownership interest and economic interest represent the Company's interests in the joint venture as of March 31, 2018. Changes in ownership or economic interests within the current year are disclosed in the notes below.


(2)	Acquisition date and price represent the date on which the Company initially acquired an interest in the joint venture and the actual or implied gross purchase price for the joint venture on that date. Acquisition date and price are not adjusted for subsequent acquisitions or dispositions of interest.

(3)

In January 2018, the partnership agreement for our investment was modified resulting in the Company no longer having a controlling interest in this investment. As a result the investment was deconsolidated as of January 1, 2018. The Company recorded its non-controlling interest at fair value resulting in a $54.9 million fair value adjustment in the consolidated statement of operations. This fair value was allocated to the assets and liabilities, including identified intangibles of the property.

(4)

In May 2017, the Company contributed a mezzanine loan secured by a commercial property in midtown Manhattan to a joint venture and retained a 33.33% interest in the venture. The carrying value is net of $10.0 million that was sold, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting. The loan matures in November 2018.

Acquisition, Development and Construction Arrangements

Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50%, we have accounted for these debt and preferred equity investments under the equity method. As of March 31, 2018 and December 31, 2017, the carrying value for acquisition, development and construction arrangements were as follows (in thousands):



Loan Type	March 31, 2018		December 31, 2017		Maturity Date
Mezzanine Loan⁽¹⁾	$	27,628	$	26,716	July 2036
Mezzanine Loan and Preferred Equity⁽²⁾	—		100,000
	$	27,628	$	126,716


(1)	The Company has the ability to convert this loan into an equity position starting in 2021 and the borrower is able to force this conversion in 2024.


(2)	The mezzanine loan was repaid and the preferred equity interest was redeemed in March 2018.

Sale of Joint Venture Interests or Properties

We did not sell any joint venture interests or properties during the three months ended March 31, 2018.

Joint Venture Mortgages and Other Loans Payable

We generally finance our joint ventures with non-recourse debt. In certain cases we have provided guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at March 31, 2018 and December 31, 2017, respectively, are as follows (amounts in thousands):



Property	Economic Interest ⁽¹⁾		Maturity Date	Interest Rate ⁽²⁾			March 31, 2018			December 31, 2017
Fixed Rate Debt:
919 Third Avenue	51.00	%	June 2023		5.12	%	$	500,000		$	—
Floating Rate Debt:
131-137 Spring Street	20.00	%	August 2020	L+	1.55	%	$	141,000		$	141,000
Total joint venture mortgages and other loans payable							$	641,000		$	141,000
Deferred financing costs, net							(2,585		)	(2,862		)
Total joint venture mortgages and other loans payable, net							$	638,415		$	138,138


(1)	Economic interest represents the Company's interests in the joint venture as of March 31, 2018. Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures table above.


(2)	Interest rates as of March 31, 2018. Floating rate debt is presented with the stated interest rate spread over 30-day LIBOR, unless otherwise specified.

The combined balance sheets for the unconsolidated joint ventures, at March 31, 2018 and December 31, 2017 are as follows (in thousands):



	March 31, 2018		December 31, 2017
Assets ⁽¹⁾
Commercial real estate property, net	$	1,318,894	$	273,116
Debt and preferred equity investments, net	42,628		141,716
Other assets	516,579		15,735
Total assets	$	1,878,101	$	430,567
Liabilities and members' equity ⁽¹⁾
Mortgages and other loans payable, net	$	638,415	$	138,138
Other liabilities	380,762		18,908
Members' equity	858,924		273,521
Total liabilities and members' equity	$	1,878,101	$	430,567
Company's investments in unconsolidated joint ventures	$	380,381	$	130,217


(1)	The combined assets, liabilities and equity for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.

The combined statements of operations for the unconsolidated joint ventures for the three months ended March 31, 2018 and 2017, are as follows (in thousands):



	Three Months Ended March 31,
	2018		2017
Total revenues	$	36,246	$	11,249
Operating expenses	6,700		211
Real estate taxes	6,748		313
Interest expense, net of interest income	6,807		825
Amortization of deferred financing costs	277		277
Depreciation and amortization	12,487		2,101
Total expenses	$	33,019	$	3,727
Net income ⁽¹⁾	$	3,227	$	7,522
Company's equity in net income from unconsolidated joint ventures ⁽¹⁾	$	2,747	$	4,255


(1)	The combined statements of operation and the Company's equity in net income for the unconsolidated joint ventures reflects the effect of step ups in basis on the retained non-controlling interests in deconsolidated investments as a result of the adoption of ASC 610-20 in January 2018.

RECKSON OPERATING PARTNERSHIP LP 10-Q