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Investment in Unconsolidated Real Estate Ventures | 9 Months Ended
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Sep. 30, 2018
Equity Method Investments And Joint Ventures [Abstract] |
INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES | 4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES As of September 30, 2018, the Company held ownership interests in 10 unconsolidated Real Estate Ventures for an aggregate investment balance of $167.8 million. The Company formed or acquired interests in these Real Estate Ventures with unaffiliated third 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 September 30, 2018, six of the real estate ventures owned properties that contain an aggregate of approximately 6.6 million net rentable square feet of office space; two real estate ventures owned 1.4 acres of land held for development; one real estate venture owned 1.3 acres of land in active development; and one real estate venture owned a residential tower that contains 321 apartment units. The Company accounts for its unconsolidated interests in the Real Estate Ventures using the equity method. The Company’s unconsolidated interests range from 25% to 70%, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures. The Company earned management fees from its Real Estate Ventures of $1.4 million and $4.0 million for the three- and nine-month periods ended September 30, 2018, respectively, and $1.7 million and $4.9 million for the three- and nine-month periods ended September 30, 2017, respectively. The Company earned leasing commission income from its Real Estate Ventures of $1.5 million and $4.4 million for the three- and nine-month periods ended September 30, 2018, respectively, and $1.9 million and $5.5 million for the three- and nine-month periods ended September 30, 2017, respectively. The Company had outstanding accounts receivable balances from its Real Estate Ventures of $1.2 million and $0.9 million as of September 30, 2018 and December 31, 2017, respectively. The amounts reflected in the following tables (except for the Company’s share of equity and income) are based on the financial information of the individual Real Estate Ventures. The Company does not record operating losses of a Real Estate Venture 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 following is a summary of the financial position of the Real Estate Ventures in which the Company held interests as of September 30, 2018 and December 31, 2017 (in thousands):
| September 30, 2018 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) (a) |  |  | Other |  |  | Total |
Net property | $ | 258,424 |  |  | $ | 157,824 |  |  | $ | - |  |  | $ | 504,652 |  |  | $ | 920,900 |
Other assets |  | 39,398 |  |  |  | 23,133 |  |  |  | - |  |  |  | 83,835 |  |  |  | 146,366 |
Other liabilities |  | 18,705 |  |  |  | 4,347 |  |  |  | - |  |  |  | 68,042 |  |  |  | 91,094 |
Debt, net |  | 246,158 |  |  |  | 92,642 |  |  |  | - |  |  |  | 321,241 |  |  |  | 660,041 |
Equity (b) |  | 32,959 |  |  |  | 83,968 |  |  |  | - |  |  |  | 199,204 |  |  |  | 316,131 |
| December 31, 2017 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) |  |  | Other |  |  | Total |
Net property | $ | 263,557 |  |  | $ | 158,960 |  |  | $ | 143,990 |  |  | $ | 517,458 |  |  | $ | 1,083,965 |
Other assets |  | 42,272 |  |  |  | 24,181 |  |  |  | 8,563 |  |  |  | 86,916 |  |  |  | 161,932 |
Other liabilities |  | 24,131 |  |  |  | 4,493 |  |  |  | 1,648 |  |  |  | 67,435 |  |  |  | 97,707 |
Debt, net |  | 248,700 |  |  |  | 92,917 |  |  |  | 110,136 |  |  |  | 314,667 |  |  |  | 766,420 |
Equity (b) |  | 32,998 |  |  |  | 85,731 |  |  |  | 40,769 |  |  |  | 222,272 |  |  |  | 381,770 |
(a) | On January 10, 2018, HSRE-BDN I, LLC (evo at Cira Centre South) sold the 345-unit student housing tower, its sole operating asset. See ‘evo at Cira Disposition’ section below.
(b) | 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.
The following is a summary of results of operations of the Real Estate Ventures in which the Company held interests during the three- and nine-month periods ended September 30, 2018 and 2017 (in thousands):
| Three-month period ended September 30, 2018 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) |  |  | Other |  |  | Total |
Revenue | $ | 14,232 |  |  | $ | 5,962 |  |  | $ | - |  |  | $ | 21,823 |  |  | $ | 42,017 |
Operating expenses |  | (6,428 | ) |  |  | (2,589 | ) |  |  | - |  |  |  | (12,123 | ) |  |  | (21,140 | )
Interest expense, net |  | (2,549 | ) |  |  | (873 | ) |  |  | - |  |  |  | (4,122 | ) |  |  | (7,544 | )
Depreciation and amortization |  | (4,896 | ) |  |  | (2,232 | ) |  |  | - |  |  |  | (6,135 | ) |  |  | (13,263 | )
Loss on early extinguishment of debt |  | - |  |  |  | - |  |  |  | - |  |  |  | (334 | ) |  |  | (334 | )
Net income (loss) | $ | 359 |  |  | $ | 268 |  |  | $ | - |  |  | $ | (891 | ) |  | $ | (264 | )
Ownership interest % |  | 50 | % |  |  | 50 | % |  |  | 50 | % |  | (a) |  |  | (a) |
Company's share of net income (loss) | $ | 180 |  |  | $ | 134 |  |  | $ | - |  |  | $ | (550 | ) |  | $ | (236 | )
Basis adjustments and other |  | 243 |  |  |  | 31 |  |  |  | - |  |  |  | (37 | ) |  |  | 237 |
Equity in income (loss) of Real Estate Ventures | $ | 423 |  |  | $ | 165 |  |  | $ | - |  |  | $ | (587 | ) |  | $ | 1 |
| Three-month period ended September 30, 2017 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) |  |  | Other |  |  | Total |
Revenue | $ | 22,493 |  |  | $ | 8,438 |  |  | $ | 3,009 |  |  | $ | 22,571 |  |  | $ | 56,511 |
Operating expenses |  | (10,107 | ) |  |  | (4,359 | ) |  |  | (841 | ) |  |  | (12,111 | ) |  |  | (27,418 | )
Interest expense, net |  | (3,784 | ) |  |  | (1,384 | ) |  |  | (1,097 | ) |  |  | (5,406 | ) |  |  | (11,671 | )
Depreciation and amortization |  | (9,334 | ) |  |  | (3,251 | ) |  |  | (1,128 | ) |  |  | (6,970 | ) |  |  | (20,683 | )
Net loss | $ | (732 | ) |  | $ | (556 | ) |  | $ | (57 | ) |  | $ | (1,916 | ) |  | $ | (3,261 | )
Ownership interest % |  | 50 | % |  |  | 50 | % |  |  | 50 | % |  | (a) |  |  | (a) |
Company's share of net loss | $ | (366 | ) |  | $ | (278 | ) |  | $ | (29 | ) |  | $ | (1,002 | ) |  | $ | (1,675 | )
Other-than-temporary impairment |  | - |  |  |  | (4,844 | ) |  |  | - |  |  |  | - |  |  | $ | (4,844 | )
Basis adjustments and other |  | 351 |  |  |  | (8 | ) |  |  | 53 |  |  |  | 400 |  |  |  | 796 |
Equity in income (loss) of Real Estate Ventures | $ | (15 | ) |  | $ | (5,130 | ) |  | $ | 24 |  |  | $ | (602 | ) |  | $ | (5,723 | )
| Nine-month period ended September 30, 2018 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) |  |  | Other |  |  | Total |
Revenue | $ | 42,492 |  |  | $ | 17,768 |  |  | $ | 995 |  |  | $ | 64,684 |  |  | $ | 125,939 |
Operating expenses |  | (18,245 | ) |  |  | (8,010 | ) |  |  | (250 | ) |  |  | (35,492 | ) |  |  | (61,997 | )
Interest expense, net |  | (7,070 | ) |  |  | (2,606 | ) |  |  | (388 | ) |  |  | (13,558 | ) |  |  | (23,622 | )
Depreciation and amortization |  | (15,622 | ) |  |  | (6,915 | ) |  |  | (376 | ) |  |  | (18,526 | ) |  |  | (41,439 | )
Loss on early extinguishment of debt |  | - |  |  |  | - |  |  |  | (718 | ) |  |  | (334 | ) |  |  | (1,052 | )
Net income (loss) | $ | 1,555 |  |  | $ | 237 |  |  | $ | (737 | ) |  | $ | (3,226 | ) |  | $ | (2,171 | )
Ownership interest % |  | 50 | % |  |  | 50 | % |  |  | 50 | % |  | (a) |  |  | (a) |
Company's share of net income (loss) | $ | 778 |  |  | $ | 119 |  |  | $ | (369 | ) |  | $ | (1,946 | ) |  | $ | (1,418 | )
Basis adjustments and other |  | 378 |  |  |  | 33 |  |  |  | 11 |  |  |  | (186 | ) |  |  | 236 |
Equity in income (loss) of Real Estate Ventures | $ | 1,156 |  |  | $ | 152 |  |  | $ | (358 | ) |  | $ | (2,132 | ) |  | $ | (1,182 | )
| Nine-month period ended September 30, 2017 |
| DRA (G&I) Austin |  |  | Brandywine-AI Venture LLC |  |  | HSRE-BDN I, LLC (evo at Cira Centre South) |  |  | Other |  |  | Total |
Revenue | $ | 70,185 |  |  | $ | 23,751 |  |  | $ | 9,264 |  |  | $ | 66,409 |  |  | $ | 169,609 |
Operating expenses |  | (29,119 | ) |  |  | (10,547 | ) |  |  | (2,232 | ) |  |  | (35,858 | ) |  |  | (77,756 | )
Interest expense, net |  | (11,217 | ) |  |  | (3,830 | ) |  |  | (3,009 | ) |  |  | (15,716 | ) |  |  | (33,772 | )
Depreciation and amortization |  | (27,627 | ) |  |  | (9,193 | ) |  |  | (3,384 | ) |  |  | (21,612 | ) |  |  | (61,816 | )
Net income (loss) | $ | 2,222 |  |  | $ | 181 |  |  | $ | 639 |  |  | $ | (6,777 | ) |  | $ | (3,735 | )
Ownership interest % |  | 50 | % |  |  | 50 | % |  |  | 50 | % |  | (a) |  |  | (a) |
Company's share of net income (loss) | $ | 1,111 |  |  | $ | 91 |  |  | $ | 320 |  |  | $ | (2,909 | ) |  | $ | (1,387 | )
Other-than-temporary impairment |  | - |  |  |  | (4,844 | ) |  |  | - |  |  |  | - |  |  |  | (4,844 | )
Basis adjustments and other |  | 155 |  |  |  | 291 |  |  |  | 105 |  |  |  | 293 |  |  |  | 844 |
Equity in income (loss) of Real Estate Ventures | $ | 1,266 |  |  | $ | (4,462 | ) |  | $ | 425 |  |  | $ | (2,616 | ) |  | $ | (5,387 | )
(a) | The Company’s unconsolidated ownership interests ranged from 25% to 70% during the three- and nine-month periods ended September 30, 2018 and 20% to 70% during the three- and nine-month periods ended September 30, 2017, subject to specified priority allocations of distributable cash in certain of the Real Estate Ventures.
MAP Venture On August 1, 2018, MAP Ground Lease Venture LLC (“MAP Venture”), in which the Company holds a 50% ownership interest, refinanced its $180.8 million third party debt financing, secured by the buildings of MAP Venture and maturing February 9, 2019, with $185.0 million third party debt financing, also secured by the buildings, bearing interest at LIBOR + 2.45% capped at a total maximum interest of 6.00% and maturing on August 1, 2023. The Company accounts for its investment in MAP Venture under the equity method of accounting. Based upon the reconsideration event caused by the refinancing of the MAP Venture’s third party debt financing, the Company reassessed its consolidation conclusion. The Company determined that this Real Estate Venture is no longer a VIE in accordance with the accounting standard for the consolidation of VIEs because MAP Venture, through the refinancing of the construction facility and without further support from the Company or its partner in the venture, demonstrated that it has sufficient equity at risk to finance its activities. As a result, the Company is using the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate MAP Venture. Based upon each member's substantive participating rights over the activities that significantly impact the operations and revenues of MAP Venture under the operating agreement and related agreements, MAP Venture is not consolidated by the Company, and is accounted for under the equity method of accounting. As a result of this transaction, the Company did not gain a controlling financial interest over MAP Venture; therefore, it was not required to remeasure its previously held equity interest to fair value at the date that it acquired the additional equity interest. Brandywine 1919 Ventures On June 26, 2018, each of the Company and its partner, LCOR/Calstrs, provided a $44.4 million mortgage loan to Brandywine 1919 Ventures (“1919 Ventures”), an unconsolidated real estate venture in which each of the Company and LCOR/Calstrs holds a 50% ownership interest. As a result, the Company recorded a related-party note receivable of $44.4 million in the “Other assets” caption on its consolidated balance sheets. The loans bear interest at a fixed 4.0% per annum interest rate with a scheduled maturity on June 25, 2023. On June 26, 2018, Brandywine 1919 Ventures used the loan to repay the venture’s then outstanding $88.8 million construction loan, comprised of $88.6 million in principal and $0.2 million of accrued interest. On an ongoing basis, the Company will evaluate its loan for collectability. There are no collectabili ty concerns as of September 30, 2018. The Company accounts for its investment in 1919 Ventures under the equity method of accounting. Based upon the reconsideration event caused by the refinancing of 1919 Ventures’ construction facility, the Company reassessed its consolidation conclusion. The Company determined that this real estate venture is no longer a VIE in accordance with the accounting standard for the consolidation of VIEs. As a result, the Company is using the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate 1919 Ventures. The partner mortgage loans do not impact the controlling rights within the partnership agreements. Based upon each member's substantive participating rights over the activities that significantly impact the operations and revenues of 1919 Ventures under the operating agreement and related partnership agreements, 1919 Ventures is not consolidated by the Company, and is accounted for under the equity method of accounting. As a result of this transaction, the Company did not gain a controlling financial interest over 1919 Ventures; therefore, it was not required to remeasure its previously held equity interest to fair value at the date that it acquired the additional equity interest. Four Tower Bridge Acquisition On January 5, 2018, the Company acquired, from its then partner in each of the Four Tower Bridge real estate venture and the Seven Tower Bridge real estate venture, the partner’s remaining 35% ownership interest in the Four Tower Bridge real estate venture in exchange for the Company's 20% ownership interest in the Seven Tower Bridge real estate venture. The Four Tower Bridge real estate venture owned an office property containing 86,021 square feet in Conshohocken, Pennsylvania encumbered with $9.7 million in debt. The Company previously accounted for its noncontrolling interest in Four Tower Bridge using the equity method. As a result of the exchange transaction, the Company obtained control of the Four Tower Bridge property and recognized a gain of $11.6 million. For further information regarding the accounting of the transaction, see Note 3, “Real Estate Investments.” evo at Cira Disposition On January 10, 2018, evo at Cira, a real estate venture in which the Company held a 50% interest, sold its sole asset, a 345-unit student housing tower, at a gross sales value of $197.5 million. The student housing tower, located in Philadelphia, Pennsylvania, was encumbered by a secured loan with a principal balance of $110.9 million at the time of sale, which was repaid in full from the sale proceeds. The Company’s share of net cash proceeds from the sale, after debt repayment and closing costs, was $43.0 million. As the Company’s investment basis was $17.3 million, a gain of $25.7 million was recorded. Guarantees As of September 30, 2018, the Real Estate Ventures had aggregate indebtedness of $664.2 million. These loans are generally mortgage or construction loans, most of which are non-recourse to the Company, except for customary carve-outs. As of September 30, 2018, the loans for which there is recourse to the Company consist of the following: (i) a $0.4 million payment guarantee on a loan with a $4.2 million outstanding principal balance, provided to PJP VII and (ii) up to a $41.3 million payment guarantee on a $150.0 million construction loan provided to 4040 Wilson. In addition, during construction undertaken by real estate ventures, including 4040 Wilson, the Company has provided and expects to continue to provide cost overrun and completion guarantees, with rights of contribution among partners or members 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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