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Investment in Unconsolidated Ventures | 12 Months Ended
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Dec. 31, 2015
Equity Method Investments And Joint Ventures [Abstract] |
INVESTMENT IN UNCONSOLIDATED VENTURES | 4. INVESTMENT IN UNCONSOLIDATED VENTURES As of December 31, 2015, the Company held ownership interests in 16 unconsolidated Real Estate Ventures for an aggregate investment balance of $239.9 million, of which $241.0 million is included in assets and $1.1 million is included in other liabilities relating to the negative investment balance of one real estate venture. The Company formed or acquired interests in these ventures with unaffiliated parties to develop or manage office, residential and/or mixed-use properties or to acquire land in anticipation of possible development of office, residential and/or mixed-use properties. As of December 31, 2015, nine of the real estate ventures owned 31 office buildings that contain an aggregate of approximately 4.3 million net rentable square feet; two real estate ventures owned 4.3 acres of undeveloped parcels of land; three real estate ventures owned 2.2 acres of land under active development; one real estate venture owned a residential tower that contains 345 apartment units and one real estate venture owned an apartment complex that contains 398 units. The Company accounts for its unconsolidated interests in its Real Estate Ventures using the equity method. The Company’s unconsolidated interests range from 20% to 70%, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures. The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the historical financial information of the individual Real Estate Ventures. The Company does not record operating losses of the Real Estate Ventures in excess of its investment balance unless the Company is liable for the obligations of the Real Estate Venture or is otherwise committed to provide financial support to the Real Estate Venture. The Company’s investment in Real Estate Ventures as of December 31, 2015 and 2014, and the Company’s share of the Real Estate Ventures’ income (loss) for the years ended December 31, 2015 and 2014 was as follows (in thousands):
|  |  |  |  |  | Carrying Amount |  |  | Company's Share of Real Estate Venture Income (Loss) |  |  | Real Estate Venture Debt at 100% |  |  |  |  |  |  |
|  | Ownership Percentage (a) |  |  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |  |  | Current Interest Rate |  |  | Debt Maturity
Office Properties |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Brandywine-AI Venture LLC |  |  | 50% |  |  | $ | 50,760 |  |  | $ | 45,712 |  |  | $ | (229 | ) |  | $ | (185 | ) |  | $ | 132,717 |  |  | $ | 133,843 |  |  |  | 3.94 | % |  | (c)
DRA (G&I) Austin (b) |  |  | 50% |  |  |  | 60,427 |  |  |  | 40,374 |  |  |  | (1,235 | ) |  |  | (574 | ) |  |  | 410,066 |  |  |  | 382,100 |  |  |  | 3.38 | % |  | (d)
1000 Chesterbrook Blvd. |  |  | 50% |  |  |  | 1,895 |  |  |  | 2,152 |  |  |  | 117 |  |  |  | 388 |  |  |  | 23,610 |  |  |  | 24,251 |  |  |  | 4.75 | % |  | Dec 2021
Four Tower Bridge |  |  | 65% |  |  |  | 1,684 |  |  |  | 1,474 |  |  |  | 211 |  |  |  | (144 | ) |  |  | 10,162 |  |  |  | 10,353 |  |  |  | 5.20 | % |  | Feb 2021
PJP VII |  |  | 25% |  |  |  | 872 |  |  |  | 911 |  |  |  | 211 |  |  |  | 177 |  |  |  | 5,621 |  |  |  | 5,785 |  |  | L+2.65% |  |  | Dec 2019
PJP II |  |  | 30% |  |  |  | 435 |  |  |  | 403 |  |  |  | 32 |  |  |  | 73 |  |  |  | 3,201 |  |  |  | 3,492 |  |  |  | 6.12 | % |  | Nov 2023
PJP V |  |  | 25% |  |  |  | 305 |  |  |  | 216 |  |  |  | 189 |  |  |  | 166 |  |  |  | 5,035 |  |  |  | 5,242 |  |  |  | 6.47 | % |  | Aug 2019
PJP VI |  |  | 25% |  |  |  | 45 |  |  |  | 45 |  |  |  | 151 |  |  |  | (67 | ) |  |  | 7,918 |  |  |  | 8,168 |  |  |  | 6.08 | % |  | Apr 2023
Invesco, L.P. (h) |  |  |  |  |  |  | - |  |  |  | - |  |  |  | 349 |  |  |  | 989 |  |  |  | - |  |  |  | - |  |  |  |  |  |  |
Broadmoor Austin Associates (h) |  |  |  |  |  |  | - |  |  |  | 65,407 |  |  |  | (377 | ) |  |  | (460 | ) |  |  | - |  |  |  | 53,516 |  |  |  |  |  |  |
G&I Interchange Office LLC (DRA-N. PA) (h) |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (658 | ) |  |  | - |  |  |  | 174,595 |  |  |  |  |  |  |
Coppell Associates (e) |  |  | 50% |  |  |  | (1,130 | ) |  |  | (1,214 | ) |  |  | 84 |  |  |  | (45 | ) |  |  | 15,515 |  |  |  | 15,747 |  |  |  | 5.75 | % |  | Feb 2016
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HSRE-Campus Crest IX, LLC (b) |  |  | 30% |  |  |  | 15,003 |  |  |  | 14,314 |  |  |  | (188 | ) |  |  | 67 |  |  |  | 95,562 |  |  |  | 90,245 |  |  | L+2.20% |  |  | Jul 2016
4040 Wilson |  |  | 50% |  |  |  | 36,626 |  |  |  | 27,415 |  |  |  | (106 | ) |  |  | (132 | ) |  |  | - |  |  |  | - |  |  |  |  |  |  |
TB-BDN Plymouth Apartments |  |  | 50% |  |  |  | 12,338 |  |  |  | 12,720 |  |  |  | (252 | ) |  |  | (83 | ) |  |  | 50,964 |  |  |  | 29,481 |  |  | L+1.70% |  |  | Dec 2017
Residence Inn Tower Bridge (h) |  |  |  |  |  |  | - |  |  |  | 723 |  |  |  | 367 |  |  |  | 107 |  |  |  | - |  |  |  | 13,394 |  |  |  |  |  |  |
Development Properties |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Brandywine 1919 Ventures (b) (f) |  |  | 50% |  |  |  | 29,086 |  |  |  | 12,823 |  |  |  | - |  |  |  | (21 | ) |  |  | 19,411 |  |  |  | - |  |  | L+2.25% |  |  | Oct 2018
51 N Street |  |  | 70% |  |  |  | 16,725 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |
1250 First Street Office |  |  | 70% |  |  |  | 14,312 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |
Seven Tower Bridge |  |  | 20% |  |  |  | 491 |  |  |  | 315 |  |  |  | (135 | ) |  |  | (388 | ) |  |  | 14,789 |  |  |  | 14,865 |  |  |  | 3.44 | % |  | (g)
|  |  |  |  |  | $ | 239,874 |  |  | $ | 223,790 |  |  | $ | (811 | ) |  | $ | (790 | ) |  | $ | 794,571 |  |  | $ | 965,077 |  |  |  |  |  |  |
(a) | Ownership percentage represents the Company’s entitlement to residual distributions after payments of priority returns, where applicable.
(b) | The basis differences associated with these ventures are allocated between cost and the underlying equity in the net assets of the investee and is accounted for as if the entity were consolidated (i.e., allocated to the Company’s relative share of assets and liabilities with an adjustment to recognize equity in earnings for the appropriate depreciation/amortization).
(c) | The debt for these properties is comprised of three fixed rate mortgages: (1) $38.8 million with a 4.40% fixed interest rate due January 1, 2019, (2) $27.6 million with a 4.65% fixed interest rate due January 1, 2022, and (3) $66.5 million with a 3.22% fixed interest rate due August 1, 2019, resulting in a time weighted average rate of 3.94%.
(d) | The debt for these properties includes seven mortgages: (1) $34.0 million that was swapped to a 1.59% fixed rate (or an all-in fixed rate of 3.52% incorporating the 1.93% spread) due November 1, 2018, (2) $55.8 million that was swapped to a 1.49% fixed rate (or an all-in rate of 3.19% incorporating the 1.70% spread) due October 15, 2018, (3) $140.3 million that was swapped to a 1.43% fixed rate (for an all-in fixed rate of 3.44% incorporating the 2.01% spread) due November 1, 2018, (4) $29.0 million with a 4.50% fixed interest rate due April 6, 2019, (5) $34.5 million with a 3.87% fixed interest rate due August 6, 2019, (6) $86.4 million that was swapped to a 1.36% fixed rate (or all-in fixed rate of 3.36% incorporating the 2.00% spread) due February 28, 2020, and (7) $30.0 million with a rate of LIBOR + 1.85% with a cap of 2.75%, resulting in a time and dollar weighted average rate of 3.38%.
(e) | Carrying amount represents the negative investment balance of the venture and is included in other liabilities.
(f) | The stated rate for the construction loan is LIBOR + 2.25%. The interest rate spread decreases to 2.00% upon receipt of certificate of occupancy. It is further reduced to 1.75% upon stabilization. To fulfill interest rate protection requirements an interest rate cap was purchased at 4.50%.
(g) | Comprised of two fixed rate mortgages totaling $8.0 million that mature on March 1, 2017 and accrue interest at a current rate of 7.00%, a $0.9 million 3.00% fixed rate loan through its September 1, 2025 maturity, a $2.0 million 4.00% fixed rate loan with interest only through its February 7, 2016 maturity and a $3.9 million 3.00% fixed rate loan with interest only beginning March 11, 2018 through its March 11, 2020 maturity, resulting in a time and dollar weighted average rate of 3.4%.
(h) | The ownership interest in Invesco, L.P. was sold prior to December 31, 2014. The Company purchased the remaining 50% interest in Broadmoor Austin Associates on June 22, 2015. The ownership interest in DRA-N. PA was disposed of on August 12, 2015. The ownership interest in Residence Inn Tower Bridge was sold on December 30, 2015. See below for further detail on 2015 dispositions.
The following is a summary of the financial position of the Real Estate Ventures as of December 31, 2015 and December 31, 2014 (in thousands):
| December 31, 2015 |  |  | December 31, 2014 |
Net property | $ | 1,258,999 |  |  | $ | 1,281,282 |
Other assets |  | 158,672 |  |  |  | 195,121 |
Other liabilities |  | 68,028 |  |  |  | 68,481 |
Debt |  | 794,571 |  |  |  | 965,077 |
Equity |  | 554,072 |  |  |  | 442,845 |
Company’s share of equity (Company’s basis) (a) (b) | $ | 241,004 |  |  | $ | 225,004 |
(a) | This amount includes the effect of the basis difference between the Company’s historical cost basis and the basis recorded at the Real Estate Venture level, which is typically amortized over the life of the related assets and liabilities. Basis differentials occur from the impairment of investments, purchases of third party interests in existing Real Estate Ventures and upon the transfer of assets that were previously owned by the Company into a Real Estate Venture. In addition, certain acquisition, transaction and other costs may not be reflected in the net assets at the Real Estate Venture level.
(b) | Does not include the negative investment balance of one real estate venture totaling $1.1 million and $1.2 million as of December 31, 2015 and 2014, respectively, which is included in other liabilities.
The following is a summary of results of operations of the Real Estate Ventures in which the Company had interests as of December 31, 2015, 2014 and 2013 (in thousands):
| Years ended December 31, |
| 2015 |  |  | 2014 |  |  | 2013 |
Revenue | $ | 164,928 |  |  | $ | 147,236 |  |  | $ | 102,919 |
Operating expenses |  | (70,136 | ) |  |  | (61,268 | ) |  |  | (40,436 | )
Interest expense, net |  | (34,584 | ) |  |  | (36,511 | ) |  |  | (26,529 | )
Depreciation and amortization |  | (68,100 | ) |  |  | (57,109 | ) |  |  | (35,138 | )
Net income (loss) | $ | (7,892 | ) |  | $ | (7,652 | ) |  | $ | 816 |
Company’s share of income (loss) (Company’s basis) | $ | (811 | ) |  | $ | (790 | ) |  | $ | 3,664 |
As of December 31, 2015, the aggregate principal payments of recourse and non-recourse debt payable to third-parties are as follows (in thousands):
2016 |  | $ | 120,811 |
2017 |  |  | 68,319 |
2018 |  |  | 244,403 |
2019 |  |  | 175,975 |
2020 |  |  | 92,761 |
Thereafter |  |  | 92,302 |
|  | $ | 794,571 |
Residence Inn Tower Bridge On December 30, 2015, the Company sold its entire 50% ownership interest in an unconsolidated real estate venture known as Residence Inn Tower Bridge (the “Residence Inn”). The proceeds to the Company, net of closing costs and related debt payoff, were $6.1 million. The carrying amount of the Company’s investment in the Residence Inn amounted to $0.9 million at the sale date, resulting in a $5.2 million gain on sale of its interest in the Real Estate Venture. JBG Ventures On May 29, 2015, the Company and an unaffiliated third party, JBG/DC Manager, LLC ("JBG"), formed 51 N 50 Patterson, Holdings, LLC Venture ("51 N Street") and 1250 First Street Office, LLC Venture ("1250 First Street"), as real estate ventures, with the Company owning a 70.0% interest and JBG owning a 30.0% interest in each of the two ventures. At formation, the Company and JBG made cash contributions of $15.2 million and $6.5 million, respectively, to 51 N Street, which was used to purchase 0.9 acres of undeveloped land. At formation, the Company and JBG made cash capital contributions of $13.2 million and $5.7 million, respectively, to 1250 First Street, which was used to purchase 0.5 acres of undeveloped land. Based upon the facts and circumstances at formation of each of the two ventures with JBG, the Company determined that each venture is a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the variable interest model under the accounting standard for consolidation in order to determine whether to consolidate the JBG Ventures. JBG is the managing member of the ventures, and pursuant to the operating and related agreements, major decisions require the approval of both members. Based upon each member's shared power over the activities of each of the two ventures, which most significantly impact the economics of the ventures, neither venture is consolidated by the Company. Each venture is accounted for under the equity method of accounting. Broadmoor Austin Associates On June 22, 2015, the Company became the sole owner of Broadmoor Austin Associates upon the Company's acquisition from an unaffiliated third party of the remaining 50.0% ownership interest in Broadmoor Austin Associates. Broadmoor Austin Associates owns seven office buildings in Austin, Texas. See Note 3, "Real Estate Investments," for further information. 25 M Street (Akridge) On May 12, 2015, the Company contributed the parcel of land purchased on April 9, 2015 into a newly formed real estate venture known as 25 M Street, a joint venture between the Company and Akridge, an unaffiliated third party. See Note 3, "Real Estate Investments," for further information. Based on the facts and circumstances at formation of 25 M Street, the Company determined that 25 M Street is a variable interest entity (VIE) in accordance with the accounting standard for consolidation of VIEs. Accordingly, the Company used the variable interest model under the accounting standard for consolidation in order to determine whether to consolidate 25 M Street. Under the operating and related agreements the Company has the power to control substantially all of the activities which most significantly impact the economics of 25 M Street, and accordingly, 25 M Street is consolidated within the Company’s financial statements. As of December 31, 2015, the carrying value of the assets of 25 M Street was $20.5 million. DRA - PA Venture On December 19, 2007, the Company formed G&I Interchange Office LLC, a real estate venture (the “Interchange Venture”), with an unaffiliated third party, G&I VI Investment Interchange Office LLC (“G&I VI”), an investment vehicle advised by DRA Advisors LLC. The Interchange Venture owned 29 office properties containing an aggregate of 1,611,961 net rentable square feet located in Montgomery, Lehigh and Bucks counties, Pennsylvania. The Company contributed these 29 properties to the Interchange Venture upon the Interchange Venture's formation and in exchange for the contribution received a cash distribution from the Venture and a 20.0% ownership interest in the Interchange Venture. On February 27, 2015, the Interchange Venture entered into a forbearance agreement with an unaffiliated lender that held a nonrecourse mortgage on the Venture's assets. The loan matured on January 1, 2015. On August 12, 2015, the lender sold the properties to an unaffiliated third-party purchaser under the forbearance agreement and assumed the proceeds. Commensurate with the sale, the Interchange Venture was dissolved. 1919 Ventures On January 20, 2011, the Company acquired a one acre parcel of land in Philadelphia, Pennsylvania for $9.3 million. The Company thereafter contributed the acquired land into a then newly-formed general partnership, referred to below as “1919 Ventures” in return for a 50.0% general partner interest, with the remaining 50.0% interest owned by an unaffiliated third party, who contributed cash in exchange for its interest. On October 15, 2014, the Company acquired the interest of the unaffiliated third party at fair value, which approximates carrying value. No remeasurement gain or loss on our previous investment was recorded at that time. On October 21, 2014, the Company admitted an unaffiliated third party, LCOR/CalSTRS (“LCOR”) into 1919 Ventures, for $8.2 million, representing a 50% interest and, reflecting an agreed upon $16.4 million valuation of the land and improvements incurred by the Company on behalf of 1919 Ventures. After giving effect to settlement date contributions, distributions and credits, the Company and LCOR had each made, as of October 21, 2014, an additional $5.2 million capital contribution to 1919 Ventures for closing costs and development. See Item 1., “Developments – 1919 Ventures” for an overview of the development project currently in process. As of December 31, 2015, $19.4 million was outstanding on the construction loan and equity contributions of $29.6 million had been funded by each of the Company and LCOR. Based upon the facts and circumstances at formation of 1919 Ventures, the Company determined that 1919 Ventures is a VIE in accordance with the accounting standard for the consolidation of VIEs since the equity investment at risk is not sufficient to permit the entity to finance its activities without additional financial support. The initial equity contributed to this entity was not sufficient to fully finance the real estate construction as development costs are funded by the partners throughout the construction period. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has shared control of this entity along with the entity’s partner and therefore does not have controlling financial interests in this VIE. Austin Venture On October 16, 2013, the Company contributed a portfolio of seven office properties containing an aggregate of 1,398,826 rentable square feet located in Austin, Texas (the “Austin Properties”) to a newly-formed joint venture (the “Austin Venture”) with G&I VII Austin Office LLC (“DRA”). DRA and the Company, based on arm’s-length negotiation, agreed to an aggregate gross sales price of $330.0 million subject to an obligation on the Company’s part to fund the first $5.2 million of post-closing capital expenditures, of which $0.8 million was funded by the Company during 2013 and the remaining $4.4 million was funded by the Company during the twelve months ended December 31, 2014. DRA owns a 50% interest in the Austin Venture and the Company owns a 50% interest in the Austin Venture, subject to the Company’s right to receive up to an additional 10% of distributions. At the closing the Austin Venture incurred third party debt financing of approximately $230.6 million secured by mortgages on the Austin Properties and used proceeds of this financing together with $49.7 million of cash contributions by DRA (less $1.9 million of closing costs and $6.9 million of closing prorations and lender holdbacks) to fund a $271.5 million distribution to the Company. The Company agreed to fund the first $5.2 million of post-closing capital expenditures on behalf of the Austin Venture, resulting in net proceeds of $266.3 million after funding the Company’s capital expenditure obligation. As part of the transaction, the Company’s subsidiary management company executed an agreement with the Austin Venture to provide property management and leasing services to the Austin Venture in exchange for a market-based fee. The Company measured its equity interest at fair value based on the fair value of the Austin Properties and the distribution provisions of the real estate venture agreement. Since the Company retains a non-controlling interest in the Austin Properties and there are no other facts and circumstances that preclude the consummation of a sale, the contribution qualifies as a partial sale of real estate under the relevant guidance for sales of real estate. Accordingly, during the fourth quarter of 2013, the Company recorded a gain of approximately $25.9 million, which is reflected in “Net gain (loss) on real estate venture transactions” on the accompanying statement of operations. On April 3, 2014, the Company contributed two three-story, Class A office buildings, commonly known as “Four Points Centre,” containing an aggregate of 192,396 net rentable square feet in Austin, Texas to the Austin Venture. See Note 3, “Real Estate Investments,” for further information on the contribution. On July 31, 2014, the Austin Venture acquired the Crossings at Lakeline, comprised of two three-story buildings containing an aggregate of 232,274 rentable square feet located in Austin, TX for $48.2 million. The transaction was funded with $34.5 million of proceeds of a 3.87% fixed rate mortgage loan from a non-affiliated institutional lender and $12.8 million (net of $0.9 million in purchase adjustments) of cash capital contributions, with $6.4 million made by each of DRA and the Company. The Austin Venture expensed approximately $0.1 million of transaction costs to acquire the property, net of $0.6 million credit from the seller. On October 17, 2014, the Austin Venture acquired River Place, comprised of seven Class A office buildings containing 590,881 rentable square feet located in Austin, Texas for $128.1 million. The transaction was funded through a combination of an $88.0 million short-term loan, secured by a mortgage, made by the Company to the Austin Venture and cash capital contributions of $18.9 million made by each of DRA and the Company to the Austin Venture. The short-term financing was provided by the Company while the Austin Venture secured permanent financing. As of December 31, 2014. The Company accounted the short-term financing as a note receivable. See Note 2, “Summary of Significant Accounting Policies,” for the Company’s accounting treatment. On January 30, 2015, the Austin Venture closed on a mortgage loan with a non-affiliated institutional lender, and used the proceeds of the loan to repay in full an $88.0 million short-term secured loan made by the Company to fund costs of the Austin Venture's acquisition of River Place. The Austin Venture expensed approximately $0.2 million of transaction costs to acquire the property. On December 31, 2015, the Company contributed two newly constructed four-story, Class A office buildings, commonly known as “Encino Trace,” containing an aggregate of approximately 320,000 square feet in Austin, Texas to the Austin Venture. See Note 3, “Real Estate Investments,” for further information on the contribution. Based upon the facts and circumstances at formation of the Austin Venture, the Company determined that the Austin Venture is not a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the Austin Venture. Based upon each member’s substantive participating rights over the activities of the Austin Venture under the operating and related agreements of the Austin Venture, it is not consolidated by the Company, and is accounted for under the equity method of accounting. The reconsideration event caused by the Company’s contribution of Encino Trace to the Austin Venture did not change the conclusion reached at formation, as the Austin Venture is operating under the same operating and related agreements and the economics are unchanged. 4040 Wilson Venture On July 31, 2013, the Company formed 4040 Wilson LLC Venture (“4040 Wilson”), a joint venture between the Company and Ashton Park Associates LLC (“Ashton Park”), an unaffiliated third party. Each of the Company and Ashton Park owns a 50% interest in 4040 Wilson. 4040 Wilson expects to construct a 426,900 square foot office representing the final phase of the eight building, mixed-use, Liberty Center complex developed by the parent company of Ashton Park in the Ballston submarket of Arlington, Virginia. 4040 Wilson expects to develop the office building on a 1.3-acre land parcel contributed by Ashton Park to 4040 Wilson at an agreed upon value of $36.0 million. The total estimated project costs are $194.6 million, which the Company expects will be financed through approximately $72.0 million of partner capital contributions (consisting of $36.0 million in cash from the Company, of which $35.6 million has been funded to date, and land with a value of $36.0 million from Ashton Park), with the remaining balance funded by debt financing through a construction lender that has not yet been determined. During the second quarter of 2015, 4040 Wilson completed the construction of the garage structure. The Company expects groundbreaking on the building structure to commence upon achievement of certain pre-leasing levels, at which point 4040 Wilson expects to obtain debt financing for the remainder of the project costs. As of December 31, 2015, the Company had not provided any guarantees in respect of 4040 Wilson. Based upon the facts and circumstances at formation of 4040 Wilson, the Company determined that 4040 Wilson is a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the variable interest model under the accounting standard for consolidation in order to determine whether to consolidate 4040 Wilson. Based upon each member’s shared power over the activities of 4040 Wilson under the operating and related agreements of 4040 Wilson, and the Company’s lack of control over the development and construction phases of the project, 4040 Wilson is not consolidated by the Company, and is accounted for under the equity method of accounting. Two and Six Tower Bridge Exchange Transaction On June 19, 2013, the Company acquired, from an unaffiliated third party, the third party’s ownership interest in the Six Tower Bridge real estate venture through a nonmonetary exchange for the Company’s ownership interest in the Two Tower Bridge real estate venture. The Six Tower Bridge real estate venture owns an unencumbered office property in Conshohocken, PA. The Company previously accounted for its noncontrolling interest in Six Tower Bridge using the equity method. As a result of the exchange transaction, the Company obtained control of the Six Tower Bridge property and the Company’s existing equity interest was remeasured at fair value based on the fair value of the underlying property and the distribution provisions of the real estate venture agreement. Accordingly, during 2013, the Company recorded a gain of approximately $7.8 million, which is reflected in “Net gain from remeasurement of investments in a real estate ventures” on the accompanying statement of operations. Following the acquisition, the Class A office property in Conshohocken, PA is wholly owned by the Company with an unencumbered fair value of $24.5 million. The Company accounted for this transaction as a business combination and allocated the fair value as follows: $14.8 million to building, $6.9 million to land, $3.3 million to intangible assets and $0.5 million to below market lease liabilities assumed. As mentioned above, the Company exchanged its non-controlling interest in Two Tower Bridge real estate venture in a nonmonetary transaction with an unaffiliated third party for the third party’s interest in the Six Tower Bridge real estate venture. The investment in Two Tower Bridge had a fair value of $3.6 million on the date of the exchange transaction based on the fair value of the venture’s equity and the distribution provisions of the real estate venture agreement. Based on this fair value and the carrying value for the Company’s investment of $(0.1) million, during 2013 the Company recognized a gain on exchange of interests in real estate ventures of $3.7 million, which is reflected in “Net gain (loss) on real estate venture transactions” on the accompanying statement of operations. evo at Cira Centre South Venture On January 25, 2013, the Company formed HSRE-Campus Crest IX Real Estate Venture (“evo at Cira”), a joint venture among the Company and two unaffiliated third parties: Campus Crest Properties, LLC (“Campus Crest”) and HSRE-Campus Crest IXA, LLC (“HSRE”). evo at Cira constructed a 33-story, 850-bed student housing tower located in the University City submarket of Philadelphia, Pennsylvania. Each of the Company and Campus Crest owns a 30% interest in evo at Cira and HSRE owns a 40% interest. evo at Cira developed the project on a one-acre land parcel held under a long-term ground lease with a third party lessor. The Company contributed to evo at Cira its tenancy rights under a long-term ground lease, together with associated development rights, at an agreed-upon value of $8.5 million. In connection with the development of evo at Cira, each of the Company and Campus Crest provided, in addition to customary non-recourse carve-out guarantees, a completion and cost overrun guaranty, as well as a payment guaranty, on the construction financing (with the Company’s share of the payment guaranty being approximately $24.7 million). The Company’s historical cost basis in the development rights that it contributed to the evo at Cira was $4.0 million, thus creating a $4.5 million basis difference at December 31, 2013 between the Company’s initial outside investment basis and its $8.5 million initial equity basis. As this basis difference is not related to a physical land parcel, but rather to development rights to construct evo at Cira, the Company will accrete the basis difference as a reduction of depreciation expense over the life of evo at Cira’s assets. Based upon the facts and circumstances at evo at Cira formation, the Company determined that evo at Cira is a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company used the variable interest model under the accounting standard for consolidation in order to determine whether to consolidate the evo at Cira. Based upon each member’s shared power over the activities of evo at Cira under the operating and related agreements of evo at Cira, and the Company’s lack of exclusive control over the development and construction phases of the project, evo at Cira is not consolidated by the Company, and is accounted for under the equity method of accounting. Accordingly, the land parcel and associated development rights contributed by the Company to evo at Cira were deconsolidated by the Company upon formation of evo at Cira. During the third quarter of 2014, evo at Cira placed into service the student housing tower. BDN Beacon Venture On March 26, 2013, the Company sold its entire 20% ownership interest in an unconsolidated real estate venture known as BDN Beacon Venture LLC (the “Beacon Venture”). The carrying amount of the Company’s investment in the Beacon Venture amounted to $17.0 million at the sale date, with the Company’s proceeds effectively matching the carrying amount. Guarantees As of December 31, 2015, the Company had provided guarantees on behalf of certain real estate ventures, consisting of (i) a $24.7 million payment guarantee on the construction loan for evo at Cira; (ii) a $3.2 million payment guarantee on the construction loan for TB-BDN Plymouth Apartments; (iii) a several cost overrun guaranty on the $88.9 million construction loan for the development project being undertaken by 1919 Ventures; and (iv) a $0.5 million payment guarantee on a loan provided to PJP VII. In addition, during construction undertaken by real estate ventures, the Company has provided and expects to continue to provide cost overrun and completion guarantees, with rights of contribution among partners in the real estate ventures, as well as customary environmental indemnities and guarantees of customary exceptions to nonrecourse provisions in loan agreements.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6382943&loc=d3e33918-111571 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=49116238&loc=d3e32847-111569 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.12) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -SubTopic 10 -Section 35 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=49116238&loc=d3e32787-111569 + Details
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