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Real Estate Joint Ventures | 12 Months Ended
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Dec. 31, 2011
Real Estate Joint Ventures |
Real Estate Joint Ventures |
6. Real Estate Joint Ventures During the periods included herein, we had an investment in one unconsolidated real estate joint venture accounted for using the equity method of accounting. Information pertaining to this joint venture investment is set forth below (dollars in thousands):
Investment Balance at(1) |  |  |  |  |  |  |  |  |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
December 31, 2011 |  | December 31, 2010 |  | Date Acquired |  | Ownership |  | Nature of Activity |  | Maximum Exposure to Loss(2) |
$ | (6,071 | ) | $ | (5,545 | ) | 9/29/2005 |  |  | 20 | % | Operates 16 buildings |  | $ | — |
(1) The carrying amount of our investment in this joint venture was lower than our share of the equity in the joint venture by $5.2 million at December 31, 2011 and 2010 due to our deferral of gain on the contribution by us of real estate into the joint venture upon its formation. A difference will continue to exist to the extent the nature of our continuing involvement in the joint venture remains the same. (2) Derived from the sum of our investment balance and maximum additional unilateral capital contributions or loans required from us. Not reported above are additional amounts that we and our partner are required to fund when needed by this joint venture; these funding requirements are proportional to our respective ownership percentages. Also not reported above are additional unilateral contributions or loans from us, the amounts of which are uncertain, that we would be required to make if certain contingent events occur (see Note 21). Net cash flows of the joint venture are distributed to the partners in proportion to their respective ownership interests. We recognized fees from the joint venture totaling $119,000 in 2009 for property management, construction and leasing services but recognized no such fees in 2011 and 2010. The following table sets forth condensed balance sheets for this unconsolidated real estate joint venture (in thousands):
|  | December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |
Properties, net |  | $ | 59,792 |  | $ | 61,521 |
Other assets |  |  | 3,529 |  |  | 4,174 |
Total assets |  | $ | 63,321 |  | $ | 65,695 |
Liabilities (primarily debt) |  | $ | 67,710 |  | $ | 67,454 |
Owners' equity |  |  | (4,389 | ) |  | (1,759 | )
Total liabilities and owners' equity |  | $ | 63,321 |  | $ | 65,695 |
The following table sets forth condensed statements of operations for this unconsolidated real estate joint venture (in thousands):
|  | For the Years Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
Revenues |  | $ | 7,577 |  | $ | 8,405 |  | $ | 9,031 |
Property operating expenses |  |  | (3,673 | ) |  | (3,600 | ) |  | (3,438 | )
Interest expense |  |  | (3,913 | ) |  | (3,937 | ) |  | (3,981 | )
Depreciation and amortization expense |  |  | (2,463 | ) |  | (3,154 | ) |  | (3,198 | )
Net loss |  | $ | (2,472 | ) | $ | (2,286 | ) | $ | (1,586 | )
The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at December 31, 2011 (dollars in thousands):
|  |  |  |  |  |  |  | December 31, 2011(1) |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | Date Acquired |  | Ownership % at 12/31/2011 |  | Nature of Activity |  | Total Assets |  | Pledged Assets |  | Total Liabilities |
M Square Associates, LLC |  | 6/26/2007 |  |  | 50.0 | % | Operating two buildings and developing others(2) |  | $ | 59,941 |  | $ | 47,901 |  | $ | 44,265 |
LW Redstone Company, LLC |  | 3/23/2010 |  |  | 85.0 | % | Developing business park(3) |  |  | 48,985 |  |  | — |  |  | 9,014 |
Arundel Preserve #5, LLC |  | 7/2/2007 |  |  | 50.0 | % | Operating one building(4) |  |  | 30,254 |  |  | 29,353 |  |  | 17,343 |
COPT-FD Indian Head, LLC |  | 10/23/2006 |  |  | 75.0 | % | Developing land parcel(5) |  |  | 6,538 |  |  | — |  |  | 2 |
MOR Forbes 2 LLC |  | 12/24/2002 |  |  | 50.0 | % | Operating one building(6) |  |  | 3,884 |  |  | — |  |  | 29 |
|  |  |  |  |  |  |  |  | $ | 149,602 |  | $ | 77,254 |  | $ | 70,653 |
(1) Excludes amounts eliminated in consolidation. (2) This joint venture's properties are in College Park, Maryland (in the Suburban Maryland region). (3) This joint venture's property is in Huntsville, Alabama. (4) This joint venture's property is in Hanover, Maryland (in the Baltimore/Washington Corridor). (5) This joint venture's property is in Charles County, Maryland. (6) This joint venture's property is in Lanham, Maryland (in the Suburban Maryland region). With regard to our consolidated joint ventures: • For M Square Associates, LLC, net cash flows of this entity will be distributed to the partners as follows: (1) member loans and accrued interest; (2) our preferred return and capital contributions used to fund infrastructure costs; (3) the partners' preferred returns and capital contributions used to fund all other costs, including the base land value credit, in proportion to the accrued returns and capital accounts; and (4) residual amounts distributed 50% to each member. • For LW Redstone, LLC, net cash flow distributions to the partners vary depending on the source of the funds distributed and the nature of the capital fundings outstanding at the time of distribution. In the case of all distribution sources, we are first entitled to repayment of operating deficits funded by us and preferred returns on such fundings. We are also generally entitled to repayment of infrastructure and vertical construction costs funded by us and preferred returns on such fundings before our partner is entitled to receive repayment of its equity contribution. In addition, we will be entitled to 85% of distributable cash in excess of preferred returns. • For Arundel Preserve #5, LLC, net cash flows will be distributed to the partners as follows: (1) member loans and accrued interest; (2) preferred returns in proportion to the partners' respective capital accounts; (3) repayment of any building operating reserves funded by us; and (4) residual cash flows in proportion to the partners' respective ownership interests. • For COPT-FD Indian Head, LLC, net cash flows will be distributed to the partners in proportion to their respective ownership interests. • For MOR Forbes 2 LLC, net cash flows will be distributed to the partners in proportion to their respective ownership interests. With regard to our accounting for real estate joint ventures: • we account for the investment in our one unconsolidated real estate joint venture using the equity method of accounting primarily because: (1) we share with our partner the power to direct the matters that most significantly impact the activities of the joint venture, including the management and operations of the properties and disposal rights with respect to such properties; and (2) our partner has the right to receive benefits and absorb losses that could be significant to the VIE through its proportionately larger investment; and • we consolidate our consolidated real estate joint ventures because we have: (1) the power to direct the matters that most significantly impact the activities of the joint ventures, including development, leasing and management of the properties constructed by the VIEs; and (2) the right to receive returns on our fundings and, in many cases, the obligation to fund the activities of the ventures to the extent that third-party financing is not obtained, both of which could be potentially significant to the VIEs. In connection with LW Redstone, LLC, we anticipate funding certain infrastructure costs (up to a maximum of $76.0 million) that we expect will be reimbursed by the City of Huntsville; as of December 31, 2011, we advanced $17.7 million to the City to fund such costs (included in prepaid expenses and other assets on our consolidated balance sheet). We also expect to fund additional development and construction costs through equity contributions to the extent that third party financing is not obtained. Our partner is not required to make any future contributions to the joint venture. Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 21.

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