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Other Investments | 9 Months Ended
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Sep. 30, 2018
Investments, All Other Investments [Abstract] |
Other Investments | Other Investments The Company's other investments and its proportionate share of earnings from equity method investments were as follows ($ in thousands):
|  |  | Equity in Earnings (Losses)
| Carrying Value as of |  | For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| September 30, 2018 |  | December 31, 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Real estate equity investments |  |  |  |  |  |  |  |  |  |  |
iStar Net Lease I LLC ("Net Lease Venture")(1) | $ | — |  |  | $ | 121,139 |  |  | $ | — |  |  | $ | 962 |  |  | $ | 4,100 |  |  | $ | 2,975 |
Safety, Income & Growth Inc. ("SAFE")(2) | 150,533 |  |  | 83,868 |  |  | 775 |  |  | 340 |  |  | 2,927 |  |  | 388 |
Other real estate equity investments(2) | 144,517 |  |  | 102,616 |  |  | (2,062 | ) |  | 549 |  |  | (2,087 | ) |  | 9,098 |
Subtotal | 295,050 |  |  | 307,623 |  |  | (1,287 | ) |  | 1,851 |  |  | 4,940 |  |  | 12,461 |
Other strategic investments(3) | 7,268 |  |  | 13,618 |  |  | 652 |  |  | 610 |  |  | (9,521 | ) |  | 1,216 |
Total | $ | 302,318 |  |  | $ | 321,241 |  |  | $ | (635 | ) |  | $ | 2,461 |  |  | $ | (4,581 | ) |  | $ | 13,677 |
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(1) | The Company consolidated the assets and liabilities of the Net Lease Venture on June 30, 2018 (refer to Net Lease Venture below).
(2) | On January 1, 2018, the Company recorded a step-up in basis to fair value of its retained noncontrolling interest relating to the sale of its Ground Lease business (refer to Note 4) and other transactions where the Company sold or contributed real estate to a venture and previously recognized partial gains. Prior to the adoption of ASU 2017-05 (refer to Note 3), the Company was required to recognize gains on only the portion of its interest transferred to third parties and was precluded from recognizing a gain on its retained noncontrolling interest, which was carried at the Company’s historical cost basis.
(3) | For the nine months ended September 30, 2018, equity in earnings (losses) includes a $10.0 million impairment on a foreign equity method investment due to local market conditions.
Net Lease Venture—In February 2014, the Company partnered with a sovereign wealth fund to form a net lease venture (the "Net Lease Venture") to acquire and develop net lease assets and gave a right of first offer to the venture on all new net lease investments. The Company and its partner had joint decision making rights pertaining to the acquisition of new investments. Upon the expiration of the investment period on June 30, 2018, the Company obtained control of the venture through its unilateral rights of management and disposition of the assets. As a result, the expiration of the investment period resulted in a reconsideration event under GAAP and the Company determined that the Net Lease Venture is a VIE for which the Company is the primary beneficiary. Effective June 30, 2018, the Company consolidated the Net Lease Venture as an asset acquisition under ASC 810. The Company recorded a gain of $67.9 million in "Gain on consolidation of equity method investment" in the Company's consolidated statement of operations as a result of the consolidation. The Net Lease Venture had previously been accounted for as an equity method investment. The Company has an equity interest in the Net Lease Venture of approximately 51.9% and recorded a $188.3 million increase to "Noncontrolling interests" and $11.8 million increase to "Redeemable noncontrolling interest" on the Company's consolidated balance sheet as a result of the consolidation. The Company is responsible for managing the venture in exchange for a management fee and incentive fee. Several of the Company's senior executives whose time is substantially devoted to the Net Lease Venture have a 0.6% equity ownership in the venture via co-investment. These senior executives are also entitled to an amount equal to 50.0% of any incentive fee received based on the 47.5% partner's interest. In July 2018, the Company entered into a new venture ("Net Lease Venture II") with an investment strategy similar to the Net Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments originated by the Company. The Company has an equity interest in the new venture of approximately 51.9%, which will be accounted for as an equity method investment, and is responsible for managing the venture in exchange for a management fee and incentive fee. During the three months ended September 30, 2018, after the effect of eliminations, the Company earned $0.3 million of management fees with respect to services provided to other investors in the Net Lease Venture, which was recorded as a reduction to "Net income attributable to noncontrolling interests" in the Company's consolidated statements of operations. During the nine months ended September 30, 2018, the Company recorded management fees of $1.3 million from the Net Lease Venture. During the three and nine months ended September 30, 2017, the Company recorded management fees of $0.6 million and $1.5 million, respectively, from the Net Lease Venture. These management fees are included in "Other income" in the Company's consolidated statements of operations. Safety, Income & Growth Inc.—The Company and two institutional investors capitalized SIGI Acquisition, Inc. ("SIGI") on April 14, 2017 to acquire, manage and capitalize Ground Leases. The Company contributed $55.5 million for an initial 49.1% noncontrolling interest in SIGI and the two institutional investors contributed an aggregate $57.5 million for an initial 50.9% controlling interest in SIGI. A wholly-owned subsidiary of the Company that held the Company's Ground Lease business and assets merged with and into SIGI on April 14, 2017 with SIGI surviving the merger and being renamed Safety, Income & Growth Inc. ("SAFE"). Through this merger and related transactions, the institutional investors acquired a controlling interest in the Company's Ground Lease business. The Company's carrying value of the Ground Lease assets was approximately $161.1 million. Shortly before the Acquisition Transactions, the Company completed the $227.0 million 2017 Secured Financing on its Ground Lease assets (refer to Note 10). The Company received all of the proceeds of the 2017 Secured Financing. The Company received an additional $113.0 million of proceeds in the Acquisition Transactions, including $55.5 million that the Company contributed to SAFE in its initial capitalization. As a result of the Acquisition Transactions, the Company deconsolidated the 12 properties and the associated 2017 Secured Financing. The Company accounted for this transaction as an in substance sale of real estate and recognized a gain of $123.4 million, reflecting the aggregate gain less the fair value of the Company's retained interest in SAFE. As a result of the adoption of ASU 2017-05, on January 1, 2018, the Company recorded an increase to retained earnings of $55.5 million, bringing the Company's aggregate gain on the sale of its Ground Lease business to approximately $178.9 million. On June 27, 2017, SAFE completed its initial public offering (the "Offering") raising $205.0 million in gross proceeds and concurrently completed a $45.0 million private placement to the Company. In addition, the Company paid $18.9 million in organization and offering costs of the up to $25.0 million in organization and offering costs it agreed to pay in connection with the Offering and concurrent private placement. The Company expensed the portion of offering costs that was attributable to other investors in "Other expense" in the Company's consolidated statements of operations and capitalized the portion of offering costs attributable to the Company's ownership interest in "Other investments" on the Company's consolidated balance sheets. Subsequent to the initial public offering, the Company purchased 2.2 million shares of SAFE's common stock for $41.7 million, for an average cost of $18.67 per share, pursuant to two 10b5-1 plans in accordance with Rules 10b5-1 and 10b-18 under the Securities and Exchange Act of 1934, as amended, under which the Company could buy shares of SAFE's common stock in the open market. During the three months ended September 30, 2018, iStar purchased an additional 133,524 shares of SAFE's common stock in open market and negotiated transactions for $2.2 million, for an average cost of $16.39 per share. As of September 30, 2018, the Company owned approximately 40.5% of SAFE's common stock outstanding. A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee, payable solely in shares of SAFE's common stock, equal to the sum of 1.0% of SAFE's total equity up to $2.5 billion and 0.75% of SAFE's total equity in excess of $2.5 billion. The Company is not entitled to receive any performance or incentive compensation. The Company is also entitled to receive expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company waived both the management fee and certain of the expense reimbursements through June 30, 2018. For the six months ended June 30, 2018, the Company waived $1.8 million and $0.8 million, respectively, of management fees and expense reimbursements. For the three months ended September 30, 2018, the Company recorded $0.9 million and $0.4 million, respectively, of management fees and expense reimbursements. Subsequent to September 30, 2018, the Company was issued 45,941 shares of SAFE's common stock for payment of the management fee for the three months ended September 30, 2018. The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity. Following is a list of investments that the Company has transacted with SAFE: In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan had an initial term of one year and was extended for an additional year and will be used for the renovation of a medical office building in Atlanta, GA. $15.5 million of the loan was funded as of September 30, 2018. During the three and nine months ended September 30, 2018, the Company recorded $0.4 million and $1.0 million of interest income, respectively, on the loan.The transaction was approved by the Company's and SAFE's independent directors. In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up development of Great Oaks Multifamily, a to-be-built 301-unit community within the Great Oaks Master Plan of San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and up to a $7.2 million leasehold improvement allowance; and (ii) a $80.5 million leasehold first mortgage. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million. The forward purchase contract was approved by the Company's and SAFE's independent directors. In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan has an initial term of one year and will be used for the acquisition of 100 and 200 Glenridge Point, two multi-tenant office buildings in Atlanta, GA. During the three and nine months ended September 30, 2018, the Company recorded $0.6 million and $0.8 million of interest income, respectively, on the loan. The transaction was approved by the Company's and SAFE's independent directors. In June 2018, the Company sold two industrial facilities located in Miami, FL to a third-party and simultaneously structured and entered into two Ground Leases. The Company then sold the two Ground Leases to SAFE. Net proceeds from the transactions totaled $36.1 million and the Company recognized a $24.5 million gain on sale. The transactions were approved by the Company's and SAFE's independent directors. Other real estate equity investments—As of September 30, 2018, the Company's other real estate equity investments include equity interests in real estate ventures ranging from 15.5% to 95.0%, comprised of investments of $74.1 million in operating properties and $70.4 million in land assets. As of December 31, 2017, the Company's other real estate equity investments included $38.8 million in operating properties and $63.8 million in land assets. In August 2018, the Company provided a $33.0 million mezzanine loan, of which $28.9 million was funded as of September 30, 2018, to an unconsolidated entity in which the Company owns a 50% equity interest. As of September 30, 2018, the loan is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheet. During the three and nine months ended September 30, 2018, the Company recorded $0.4 million of interest income on the mezzanine loan. In December 2016, the Company sold a land and development asset to a newly formed unconsolidated entity in which the Company owns a 50.0% equity interest. The Company provided financing to the entity in the form of a $27.0 million senior loan commitment, of which $27.0 million and $25.4 million was funded as of September 30, 2018 and December 31, 2017, respectively, and is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheets. During the three and nine months ended September 30, 2018, the Company recorded $0.5 million and $1.5 million of interest income, respectively, on the senior loan. During the three and nine months ended September 30, 2017, the Company recorded $0.5 million and $1.4 million of interest income, respectively, on the senior loan. Other strategic investments—As of September 30, 2018 and December 31, 2017, the Company also had investments in real estate related funds and other strategic investments in real estate entities.

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