INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

6 Months Ended

Jun. 30, 2024

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

4. INVESTMENT IN UNCONSOLIDATED REAL ESTATE VENTURES

As of June 30, 2024, the Company held ownership interests in thirteen unconsolidated real estate ventures, with a net aggregate investment balance of $680.1 million. As of June 30, 2024, six of the real estate ventures owned properties (directly or through leasehold interests) that contained an aggregate of approximately 9.1 million net rentable square feet of office space; two of the real estate ventures owned 1.4 acres of land held for development; four of the real estate ventures owned 7.5 acres of land in active development; and one of the real estate ventures owned a mixed-used tower comprised of 250 apartment units and 0.2 million net rentable square feet of office/retail space.

The Company accounts for its interests in the unconsolidated real estate ventures, which range from 5% to 78%, using the equity method. Certain of the unconsolidated real estate ventures are subject to specified priority allocations of distributable cash.

The Company earned management fees from the unconsolidated real estate ventures of $1.9 million and $2.1 million for the three months ended June 30, 2024 and 2023, respectively, and $3.7 million and $4.2 million for the six months ended June 30, 2024 and 2023, respectively.

The Company earned leasing commissions from the unconsolidated real estate ventures of $0.9 million and $0.8 million for the three months ended June 30, 2024 and 2023, respectively, and $1.5 million for both the six months ended June 30, 2024 and 2023.

The Company had outstanding accounts receivable balances from the unconsolidated real estate ventures of $3.6 million and $3.5 million as of June 30, 2024 and December 31, 2023, respectively.

The amounts reflected in the following tables (except for the Company’s share of equity in income) are based on the financial information of the individual unconsolidated real estate ventures.

The following is a summary of the financial position of the unconsolidated real estate ventures in which the Company held interests as of June 30, 2024 and December 31, 2023 (in thousands):


	June 30, 2024 (b)		December 31, 2023
Net property	$	1,878,241	$	2,339,921
Other assets	242,833		534,658
Other liabilities	163,059		443,536
Debt, net	808,893		1,407,858
Equity (a)	1,149,122		1,023,185

(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.

(b)Excludes amounts related to the Mid-Atlantic Office Venture, the Herndon Innovation Center Metro Portfolio Venture, LLC and the MAP Venture as the Company discontinued applying the equity method of accounting. The Company discontinued applying the equity method of accounting on the Mid-Atlantic Office Venture after December 31, 2023, the Herndon Innovation Center Metro Portfolio Venture, LLC after March 31, 2024 and the MAP Venture after June 30, 2024.

The following is a summary of results of operations of the unconsolidated real estate ventures in which the Company held interests during the three and six-month periods ended June 30, 2024 and 2023 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024 (a)		2023		2024 (a)		2023
Revenue	$	43,944	$	59,067	$	89,893	$	116,953
Operating expenses	(25,424)		(30,039)		(50,305)		(58,890)
Interest expense, net	(15,587)		(18,287)		(32,950)		(34,178)
Depreciation and amortization	(19,092)		(24,827)		(39,981)		(49,001)
Loss on property disposition	—		—		(490)		—


Net loss	$	(16,159)	$	(14,086)	$	(33,833)	$	(25,116)
Ownership interest %	Various		Various		Various		Various
Company's share of net loss	$	(14,073)	$	(7,528)	$	(27,881)	$	(13,652)

Basis adjustments and other	(434)		(70)		(214)		(113)
Equity in loss of unconsolidated real estate ventures	$	(14,507)	$	(7,598)	$	(28,095)	$	(13,765)

(a)Excludes amounts related to the Mid-Atlantic Office Venture, the Herndon Innovation Center Metro Portfolio Venture, LLC and the MAP Venture as the Company discontinued applying the equity method of accounting. The Company discontinued applying the equity method of accounting on the Mid-Atlantic Office Venture after December 31, 2023, the Herndon Innovation Center Metro Portfolio Venture, LLC after March 31, 2024 and the MAP Venture after June 30, 2024.

MAP Venture

On June 28, 2024, the Company recapitalized one of its unconsolidated real estate ventures, referred to as the “MAP Venture,” in which the Company had a negative investment balance of $52.2 million as of March 31, 2024 and a 50% ownership interest. Through the recapitalization, the MAP Venture transferred, for $26.0 million, 14 of the 57 properties in which it held ground lease interests to a newly-formed real estate venture, referred to below as the “KB JV,” owned equally between the Company and the ground lessor of the land on which all of the 57 properties are situated. The MAP Venture used substantially all of the

proceeds it received from the transfer of the 14 properties to pay down its non-recourse mortgage loan to $154.6 million. Through the recapitalization of the MAP Venture, the Company redeemed the entire interest of its former partner in the MAP Venture for a nominal amount and reversed the Company’s negative investment balance to zero, resulting in a one-time, non-cash gain of $53.8 million. The non-recourse mortgage loan was amended as part of the pay-down, and, as amended, has a scheduled maturity date of March 1, 2027 (subject to mandatory pay downs as properties that remain owned by the MAP Venture are sold), bears interest at SOFR plus 2.75% and provides the lender with a 95% entitlement to residual proceeds, if any, after the mortgage loan has been repaid and after all obligations to the ground lessor have been satisfied. As of June 30, 2024, the Company's investment in the new MAP Venture was zero, and the Company has discontinued applying the equity method of accounting on these assets as the Company has not guaranteed any of the obligations of the new MAP Venture or otherwise committed to funding any future losses.

KB JV

On June 28, 2024 as discussed above under “MAP Venture,” the Company formed a new joint venture, KB JV, LLC (the "KB JV") which acquired leasehold interests in 14 properties from the MAP Venture for $26.0 million. The 14 properties owned by the KB JV consist of an aggregate of 641,819 net rentable square feet and are located in Richmond, Virginia. The Company owns a 50% equity interest in the KB JV and the portfolio assets are unencumbered by third party debt. In connection with the formation of KB JV, KB JV loaned $13.0 million to the Company to fund the purchase of the 14 properties. The loan from KB JV is classified as “Unsecured term loan, net” on the consolidated balance sheet. If the properties are sold, Kawa, as fee owner, and KB JV as leasehold owner, have agreed to cause both the leasehold and fee interests in the portfolio to be sold.

Cira Square

On March 17, 2022, the Company formed a joint venture, Cira Square REIT, LLC (the “Cira Square Venture”), for the purpose of acquiring Cira Square, an office property located at 2970 Market Street in Philadelphia, Pennsylvania containing 862,692 net rentable square feet for a gross purchase price of $383.0 million. The Company owns a 20% equity interest in the Cira Square Venture and provided an initial capital contribution of $28.6 million on the closing date.

On the closing date, the Cira Square Venture obtained a $257.7 million non-recourse mortgage loan, which bore interest at 3.50% over one-month term SOFR per annum, and matured on April 1, 2024. On April 1, 2024, the Cira Square Venture received an extension on the loan to July 1, 2024. On May 6, 2024, the Cira Square Venture refinanced the loan through proceeds of a new $160.0 million non-recourse mortgage loan and a capital contribution by the Company and its partner in the aggregate amount of $96.9 million (of which the Company's share was $19.4 million). The new mortgage loan bears interest at 8.817% per annum and matures in June 2029. At June 30, 2024, the Company's investment balance in the Cira Square Venture was $44.1 million.