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INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES | 12 Months Ended
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Dec. 31, 2020
Equity Method Investments and Joint Ventures [Abstract] |
INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES | 4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES As of December 31, 2020, the Company held ownership interests in nine unconsolidated real estate ventures for an aggregate investment balance of $389.8 million, which includes a negative investment balance in one unconsolidated real estate venture of $11.5 million, reflected within 'Other liabilities' on the consolidated balance sheets. The Company formed or acquired interests in the 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 December 31, 2020, five of the real estate ventures owned properties that contained an aggregate of approximately 8.4 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 interests in the Real Estate Ventures, which range from 15% to 70%, using the equity method. Certain of the Real Estate Ventures are subject to specified priority allocations of distributable cash. The Company earned management fees from the Real Estate Ventures of $4.7 million, $4.3 million and $6.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company earned leasing commission income from the Real Estate Ventures of $1.1 million, $1.7 million and $2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has outstanding accounts receivable balances from the Real Estate Ventures of $1.2 million and $0.8 million as of December 31, 2020 and 2019, respectively. The amounts reflected in the following tables (except for the Company’s share of equity in income) are based on the historical financial information of the individual real estate ventures. The Company records operating losses of a real estate venture in excess of its investment balance if 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 the Real Estate Ventures as of December 31, 2020 and 2019, and the Company’s share of the Real Estate Ventures’ income (loss) for the years ended December 31, 2020 and 2019 was as follows (in thousands):
| Ownership Percentage |  | Carrying Amount |  | Company's Share of Real Estate Venture Income (Loss) |  | Real Estate Venture Debt at 100%, gross
|  |  | 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Office Properties |  |  |  |  |  |  |  |  |  |  |  |  |
Commerce Square Venture | 70% (a) |  | $ | 253,128 |  |  | $ | — |  |  | $ | (9,150) |  |  | $ | — |  |  | $ | 219,168 |  |  | $ | — |
Mid-Atlantic Office Venture | 40% (a) |  | 32,996 |  |  | — |  |  | 96 |  |  | — |  |  | 120,831 |  |  | — |
Brandywine - AI Venture LLC | 50% |  | 10,302 |  |  | 10,116 |  |  | 185 |  |  | (2,800) |  |  | — |  |  | — |
Herndon Innovation Center Metro Portfolio Venture, LLC | 15% |  | 16,019 |  |  | 16,446 |  |  | (358) |  |  | (498) |  |  | 207,302 |  |  | 207,302 |
MAP Venture | 50% |  | (11,516) |  |  | (70) |  |  | (6,570) |  |  | (6,102) |  |  | 185,000 |  |  | 185,000 |
PJP VII | 25% (b) |  | — |  |  | — |  |  | — |  |  | 190 |  |  | — |  |  | — |
PJP II | 30% (b) |  | — |  |  | — |  |  | — |  |  | 81 |  |  | — |  |  | — |
PJP VI | 25% (b) |  | — |  |  | — |  |  | — |  |  | (185) |  |  | — |  |  | — |
Other |  |  |  |  |  |  |  |  |  |  |  |  |
1919 Venture | 50% |  | 15,434 |  |  | 17,524 |  |  | 59 |  |  | 328 |  |  | 88,860 |  |  | 88,860 |
Development Properties |  |  |  |  |  |  |  |  |  |  |  |  |
4040 Wilson Venture (c) | 50% |  | 34,454 |  |  | 37,002 |  |  | (2,162) |  |  | (368) |  |  | 141,857 |  |  | 114,845 |
JBG - 51 N Street (c) | 70% |  | 21,237 |  |  | 21,531 |  |  | (457) |  |  | (313) |  |  | — |  |  | — |
JBG - 1250 First Street Office (c) | 70% |  | 17,757 |  |  | 17,745 |  |  | (227) |  |  | (255) |  |  | — |  |  | — |
|  |  | $ | 389,811 |  |  | $ | 120,294 |  |  | $ | (18,584) |  |  | $ | (9,922) |  |  | $ | 963,018 |  |  | $ | 596,007 |
(a)Ownership percentage represents the Company’s combined interest including preferred and common equity holdings. See "Commerce Square Venture" and "Mid-Atlantic Office JV" sections below for more information. (b)On October 29, 2019, the Company sold its interest in PJP II, PJP VI and PJP VII. See "PJP Ventures" section below for more information on the disposal. (c)This entity is a VIE. The following is a summary of the financial position of the Real Estate Ventures as of December 31, 2020 and December 31, 2019 (in thousands):
| December 31, 2020 |  | December 31, 2019
Net property | $ | 1,520,804 |  |  | $ | 834,367 |
Other assets | 488,805 |  |  | 342,002 |
Other liabilities | 333,049 |  |  | 290,071 |
Debt, net | 956,688 |  |  | 585,068 |
Equity (a) | 719,872 |  |  | 301,230 |
(a)This amount does not include 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 had interests during the twelve-month periods ended December 31, 2020, 2019 and 2018 (in thousands):
| Year Ended December 31,
| 2020 |  | 2019 |  | 2018
Revenue | $ | 150,276 |  |  | $ | 132,358 |  |  | $ | 165,326 |
Operating expenses | (85,812) |  |  | (71,784) |  |  | (82,035) |
Interest expense, net | (22,661) |  |  | (21,908) |  |  | (29,774) |
Depreciation and amortization | (70,805) |  |  | (53,331) |  |  | (53,826) |
Provision for impairment | — |  |  | (5,664) |  |  | (20,832) |
Loss on extinguishment of debt | — |  |  | (1,231) |  |  | (1,385) |
Net loss | $ | (29,002) |  |  | $ | (21,560) |  |  | $ | (22,526) |
Ownership interest % | Various |  | Various |  | Various
Company's share of net loss | $ | (18,540) |  |  | $ | (9,865) |  |  | $ | (11,924) |
Other-than-temporary impairment | — |  |  | — |  |  | (4,076) |
Basis adjustments and other | (44) |  |  | (57) |  |  | 769 |
Equity in loss of Real Estate Ventures | $ | (18,584) |  |  | $ | (9,922) |  |  | $ | (15,231) |
As of December 31, 2020, the aggregate principal payments of the Real Estate Ventures recourse and non-recourse debt payable to third-parties are as follows (in thousands):
2021 | $ | 148,693 |
2022 | 8,543 |
2023 | 477,649 |
2024 | 328,133 |
2025 | — |
Thereafter | — |
Total principal payments | 963,018 |
Net deferred financing costs | (8,224) |
Net original issue premium | 1,894 |
Outstanding indebtedness | $ | 956,688 |
Mid-Atlantic Office JV On December 21, 2020, the Company contributed a portfolio of twelve properties containing an aggregate of 1,128,645 square feet, nine of which are located in the Pennsylvania suburbs segment and three located in the Metropolitan Washington, D.C segment, to the Mid-Atlantic Office JV, for a gross sales price of $192.9 million. After the transaction, the Company owns approximately 25% of the equity interest in the Mid-Atlantic Office JV through a $20.0 million preferred equity holding and approximately 15% of the equity interest through a common equity interest (representing 20% of the total common equity), for a combined approximately 40% equity interest in the venture. On the closing date, Mid-Atlantic Office JV also obtained $147.4 million of third-party debt financing secured by the twelve properties within the venture, with an initial advance of $120.8 million. The loan bears interest at LIBOR + 3.15% capped at a total maximum interest rate of 5.6% and matures on January 9, 2024. Based on the facts and circumstances at the formation of the Mid-Atlantic Office JV, the Company determined that the 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 Mid-Atlantic Office JV. Based upon each member's substantive participating rights over the activities of the Mid-Atlantic Office JV under the operating and related agreements of the Mid-Atlantic Office JV, it is not consolidated by the Company, and is accounted for under the equity method of accounting. As a result, the Company measured its equity interest at fair value based on the fair value of the Mid-Atlantic Office JV properties and the distribution provisions of the real estate venture agreement. Since the Company retains a non-controlling interest in the Mid-Atlantic Office JV and there are no other facts and circumstances that preclude the consummation of a sale, the contribution qualifies as a sale of a nonfinancial asset under the relevant guidance. Commerce Square Venture On July 21, 2020, the Company sold a 30% preferred equity interest in the entities that own One Commerce Square and Two Commerce Square. After the transaction, the Company owns approximately 32% of the equity interest in Commerce Square Venture through preferred equity interest holdings and approximately 38% of the equity interest in Commerce Square Venture as the sole common equity holder, for a combined approximately 70% equity interest in the venture. The properties held by the venture remain encumbered by the existing mortgages, which had a $222.1 million principal balance outstanding on the transaction date. Based on the facts and circumstances at the formation of the Commerce Square Venture, the Company determined that the venture is not a VIE. As a result, the Company used the voting interest model under the accounting standard for consolidation in order to determine whether to consolidate the Commerce Square Venture. Based upon each member's substantive participating rights over the activities of the Commerce Square Venture under the operating and related agreements of the Commerce Square Venture, the Company does not have a controlling interest in the properties as the third party investor holds substantive participating rights in the properties. Therefore, the Company deconsolidated the properties and the venture is accounted for under the equity method of accounting. As a result, the Company measured its equity interest at fair value based on the fair value of the Commerce Square Venture properties and the distribution provisions of the real estate venture agreement. Since the Company retains a non-controlling interest in the Commerce Square Venture and there are no other facts and circumstances that preclude sale recognition, the contribution qualifies as the sale of a nonfinancial asset under the relevant guidance. Under the conventional approach of accounting for equity method investments, an investor applies its percentage ownership interest to the venture’s net income or loss to determine the investor’s share of the earnings or losses of the venture. This approach is inappropriate if the venture’s capital structure gives different rights and priorities to its investors. Therefore, the Company follows the hypothetical liquidation at book value (“HLBV”) method in determining its share of the Commerce Square Venture’s earnings or losses for the reporting period as this method better reflects the Company’s claim on the venture’s book value at the end of each reporting period. Earnings for this equity method investment are recognized in accordance with the real estate venture agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period. PJP Ventures On October 29, 2019, PJP II, PJP VII and PJP VI, three real estate ventures in which the Company owned a 25%-30% interest, each sold its sole operating office property, totaling 204,347 rentable square feet in Charlottesville, Virginia, at an aggregate sales price of $51.0 million. The Company received cash proceeds of $9.1 million after closing costs and related debt payoffs. The Company recorded an $8.0 million gain within the caption "Net gains on real estate venture transactions" within its consolidated statements of operations for the year ended December 31, 2019. Herndon Innovation Center Metro Portfolio Venture, LLC On December 20, 2018, the Company contributed a portfolio of eight properties containing an aggregate of 1,293,197 square feet, located in its Metropolitan Washington, D.C. segment, to a newly-formed joint venture, known as the Herndon Innovation Center Metro Portfolio Venture, LLC (“Herndon Innovation Center”), for a gross sales price of $312.0 million. The Company and its partner own 15% and 85% interests in the Herndon Innovation Center, respectively. The Herndon Innovation Center funded the acquisition with $265.2 million of cash, which was distributed to the Company at closing. After funding its share of closing costs and working capital contributions of $2.2 million and $0.6 million, respectively, the Company received $262.4 million of cash proceeds at settlement and was given a $47.7 million capital credit for its share of the fair value of the Herndon Innovation Center. The Company recorded an impairment charge of $56.9 million for the Herndon Innovation Center during the third quarter of 2018. The Company recorded a $0.4 million gain on sale, which represents an adjustment to estimated closing costs used to determine the impairment charge in the third quarter of 2018. As part of the transaction, the Company’s subsidiary management company executed an agreement with the Herndon Innovation Center to provide property management and leasing services to the Herndon Innovation Center. On March 29, 2019, Herndon Innovation Center obtained $134.1 million of third-party debt financing, secured by four properties within the venture, with an initial advance of $113.1 million. The remaining funds available under the loan have not yet been drawn. The Company received $16.7 million for its share of the cash proceeds on April 12, 2019. The loan bears interest at LIBOR + 1.95% capped at a total maximum interest rate of 5.45% - 6.45% over the term of the loan and matures on March 29, 2024. On April 11, 2019, the venture obtained an additional $115.3 million of third-party debt financing secured by the remaining four properties within the venture, with an initial advance of $94.2 million. The remaining funds available under the loan have not yet been drawn. The loan bears interest at LIBOR + 1.80% capped at a total maximum interest rate of 6.3% and matures on April 11, 2024. On April 12, 2019, the Company received $13.8 million for its share of the cash proceeds from the financing. Austin Venture The Austin Venture owned twelve office properties containing an aggregate 1,570,123 square feet located in Austin, Texas. 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 with G&I VII Austin Office LLC (“DRA”). DRA and the Company 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 owned a 50% interest in the Austin Venture and the Company owned a 50% interest in the Austin Venture, subject to the Company’s right to receive up to an additional 10% of distributions. 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 retained a noncontrolling interest in the Austin Properties and there were no other facts and circumstances that precluded the consummation of a sale, the contribution qualified as a partial sale of real estate under the relevant guidance for sales of real estate. On December 11, 2018, the Company acquired DRA’s 50% ownership interest in the Austin Venture for an aggregate purchase price of $535.1 million. On the sale date, the Austin Venture owned twelve office properties containing an aggregate 1,570,123 square feet, located in Austin, Texas. See Note 3, ''Real Estate Investments," for further information. Brandywine - AI Venture As of December 31, 2020 Brandywine - AI Venture (BDN - AI Venture) consists of one office property located in Metropolitan D.C. segment located at 3141 Fairview Park Drive. During 2019, BDN AI Venture recorded a $5.6 million held for use impairment charge related to 3141 Fairview Park Drive. The Company’s share of the impairment charge was $2.8 million which is reflected in “Equity in loss of Real Estate Ventures” in the consolidated statements of operations for the year ended December 31, 2019. During 2019, BDN - AI Venture transferred an office building located in Falls Church, Virginia containing 180,659 rentable square feet to the mortgage lender in full satisfaction of the lender’s outstanding $26.0 million mortgage loan. The mortgage loan was nonrecourse to the Company. The Company recognized its $2.2 million share of the gain on debt forgiveness in "Net gain on real estate venture transactions" in the consolidated statements of operations for the year ended December 31, 2019. During 2018, BDN - AI Venture sold three office properties containing 510,202 rentable square feet located in Silver Spring, MD (“Station Square”) for a gross sales price of $107.0 million. At the time of sale, the properties were encumbered by a mortgage of $66.5 million, which was repaid in full at closing, resulting in a debt prepayment penalty of $0.7 million. After mortgage payoff and closing costs, BDN - AI Venture received cash proceeds of $34.8 million, of which, the Company received $17.4 million and recognized a $1.5 million gain on the sale. Additionally, in 2018, BDN - AI Venture recorded a $20.8 million held for use impairment charge related to 3141 Fairview Park Drive and 3130 Fairview Park Drive, the two then-remaining properties held by the venture. The Company’s share of the impairment charge was $10.4 million which was recognized in “Equity in loss of Real Estate Ventures” in the consolidated statements of operations for the year ended December 31, 2018. Based on the Company’s evaluation of the fair value of its investment in BDN - AI Venture subsequent to the disposition of Station Square, the Company determined that a persistent weak demand for office space and intense competition for tenants at the two remaining properties had reduced the fair value of the investment below the carrying value. As a result, the Company recorded an other than temporary impairment of $4.1 million which was recognized in “Equity in Loss of Real Estate Ventures” in the consolidated statements of operations for the year ended December 31, 2018. The Company measured this impairment based on a discounted cash flow analysis, using a hold period of 10 years, a residual capitalization rate of 8.0% and discount rates ranging from 9.0% to 9.5%. MAP Venture The MAP Venture owns 58 office properties that contain an aggregate of 3,924,783 square feet located in the Pennsylvania Suburbs, New Jersey/Delaware, Metropolitan Washington, D.C. and Richmond, Virginia ("MAP Venture"). The MAP Venture was formed as a limited liability company in which the Company has been designated as the Managing Member. In addition, through an affiliate, the Company provides property management services at the Buildings on behalf of the MAP Venture for a market based management fee. The MAP Venture leases the land parcels under the 58 office properties through a ground lease that extends through February 2115. Annual payments by the MAP Venture, as tenant under the ground leases, initially total $11.9 million and increase 2.5% annually through November 2025. Thereafter, annual rental payments increase by 2.5% or CPI at the discretion of the lessor. Upon adoption of Topic 842, Leases, on January 1, 2019, the MAP Venture determined that the carrying amount of the right of use asset was greater than the fair value of the underlying right of use asset. The fair value of the underlying right of use asset was determined using the purchase price paid by a third-party to acquire the ground lease. As a result, MAP Venture recorded a $9.2 million cumulative effect of accounting change adjustment simultaneously with the recording of the right of use asset to reduce the value of the right of use asset to its estimated fair value. The Company recorded its $4.6 million proportionate share of the cumulative effect of accounting change adjustment through "Cumulative earnings” on its consolidated balance sheets. On August 1, 2018, MAP Venture 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% and maturing on August 1, 2023. The interest rate is swapped to a fixed rate of 2.66% through the maturity date. 1919 Venture 1919 Venture owns a 29-story, 455,000 square foot mixed-use tower consisting of 321 luxury apartments, 24,000 square feet of commercial space and a 215-car structured parking facility. See to Note 5, "Investment in Unconsolidated Real Estate Ventures" for additional information regarding the related-party note receivable with 1919 Venture. Four Tower Bridge Acquisition During 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 Centre South Venture 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 within the “Net gain on real estate venture transactions’ caption in the consolidated statements of operations. JBG Ventures JBG Ventures consists of 51 N 50 Patterson, Holdings, LLC Venture ("51 N Street") and 1250 First Street Office, LLC Venture ("1250 First Street"), with the Company owning a 70.0% equity interest and JBG/DC Manager, LLC ("JBG") owning a 30.0% equity interest in each of the two ventures. 51 N Street owns 0.9 acres of undeveloped land and 1250 First Street, owns 0.5 acres of undeveloped land. Based on the facts and circumstances at the 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. Both ventures are accounted for under the equity method of accounting. 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 is developing a 427,500 square foot mixed-use building representing the final phase of the eight building, mixed-use, Liberty Center complex located in the Ballston submarket of Arlington, Virginia. The project is being constructed on a 1.3-acre land parcel contributed by Ashton Park to 4040 Wilson at an agreed upon value of $36.0 million. During the fourth quarter of 2017, 4040 Wilson achieved pre-leasing levels that enabled the venture to obtain a secured construction loan with a total borrowing capacity of $150.0 million for the remainder of the project costs. As of December 31, 2020, $141.9 million had been advanced under the construction loan and development of the building is in progress. Based upon the facts and circumstances at the 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, and the Company’s lack of control over the development and construction phases of the project, 4040 Wilson is accounted for under the equity method of accounting.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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