Assets and Liabilities of Disposal Group Held for Sale

9 Months Ended

Sep. 30, 2024

Discontinued Operations and Disposal Groups [Abstract]

Assets and Liabilities of Disposal Group Held for Sale

9. Assets and Liabilities of Disposal Group Held for Sale

In September 2022, the Company announced a repositioning of its business through the opportunistic disposition over time of the Company's joint venture equity investments in multi-family properties and reallocation of its capital away from such assets to its targeted assets. Accordingly, the Company determined that certain joint venture equity investments met the criteria to be classified as held for sale and transferred either the assets and liabilities of the respective Consolidated VIEs or its equity investment in the joint venture entity to assets and liabilities of disposal group held for sale. In December 2023, the Company suspended the marketing of nine joint venture equity investments that were reported in assets and liabilities of disposal group held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market. As such, the Company determined that these joint venture equity investments no longer met the criteria to be classified as held for sale and transferred either the assets and liabilities of the respective Consolidated VIEs or its equity investment in the joint venture entity to their respective categories or equity investments, at fair value, respectively, on the accompanying condensed consolidated balance sheets as of December 31, 2023.

In March 2024, the Company suspended the marketing of one additional joint venture equity investment, determined that it no longer met the criteria to be classified as held for sale and transferred the assets and liabilities of the Consolidated VIE to their respective categories on the accompanying condensed consolidated balance sheets as of March 31, 2024. As a result of this transfer, the Company adjusted the carrying value of the long-lived assets in the Consolidated VIE to the lower of the carrying amount before the assets were classified as held for sale adjusted for depreciation and amortization expense that would have been recognized had the assets been continuously classified as held and used and the fair value of the assets at the date of the transfer and recognized an approximately $14.6 million loss on reclassification of disposal group during the three months ended March 31, 2024.

In June 2024, in response to productive negotiations with operating partners and increased transactional activity, the Company determined that five joint venture equity investments met the criteria to be classified as held for sale and transferred the assets and liabilities of the respective Consolidated VIEs to assets and liabilities of disposal group held for sale. As a result, the Company recognized a loss of $1.8 million included in impairment of real estate in the accompanying condensed consolidated statements of operations during the three months ended June 30, 2024.

During the three and nine months ended September 30, 2024, the Company sold its joint venture equity investments in four and six multi-family properties, respectively, which resulted in the de-consolidation of the joint venture entities' assets and liabilities and a gain on de-consolidation of approximately $3.4 million and $3.7 million, respectively, which is included in other income in the accompanying condensed consolidated statements of operations.

During the three months ended September 30, 2024, one of the joint ventures in which the Company held a common equity investment that is in disposal group held for sale sold its multi-family apartment community for approximately $56.4 million, subject to certain prorations and adjustments typical in such real estate transactions, and repaid the related mortgage payable in the amount of approximately $31.8 million. The sale generated a net gain of approximately $11.4 million and a loss on extinguishment of debt of approximately $1.6 million, both of which are included in other income on the accompanying condensed consolidated statements of operations. The sale also generated net income attributable to non-controlling interest of approximately $1.1 million, resulting in net gain attributable to the Company's common stockholders of approximately $8.7 million.

In September 2024, in response to productive negotiations with operating partners and increased transactional activity, the Company determined that two joint venture equity investments met the criteria to be classified as held for sale and transferred the assets and liabilities of the respective Consolidated VIEs to assets and liabilities of disposal group held for sale on the accompanying condensed consolidated balance sheets as of September 30, 2024. As a result, the Company recognized a loss of $2.0 million included in impairment of real estate in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2024. Four joint venture equity investments are classified as disposal group held for sale as of September 30, 2024.

The following table presents the carrying values of the major classes of assets and liabilities of disposal group held for sale as of September 30, 2024 and December 31, 2023, respectively (dollar amounts in thousands):


	September 30, 2024		December 31, 2023
Cash and cash equivalents	$	3,044	$	5,676
Real estate, net	185,891		407,834
Other assets	8,730		12,507
Total assets of disposal group held for sale (1)	$	197,665	$	426,017

Mortgages payable on real estate, net (2)	$	170,318	$	378,386
Other liabilities	7,551		7,638
Total liabilities of disposal group held for sale (1)	$	177,869	$	386,024

(1)Assets and liabilities of the disposal group held for sale are in Consolidated VIEs because the Company is the primary beneficiary.

(2)During the nine months ended September 30, 2024, two entities in which the Company holds joint venture equity investments entered into debt restructuring agreements with the respective senior lender for their mortgage payables. As part of the agreements, a portion of interest payments will be deferred until the maturity date. The restructurings did not result in a change in the carrying amount of the mortgage payables and no gains were recorded.

Also included in the disposal group held for sale are non-controlling interests in Consolidated VIEs in the amount of $2.0 million and $3.2 million as of September 30, 2024 and December 31, 2023, respectively.

Real estate, net included in assets of disposal group held for sale is recorded at the lower of the net carrying amount of the assets or the estimated fair value, net of selling costs. Fair value for real estate, net was based upon a discounted cash flow analysis using property financial information and assumptions regarding market rent, revenue and expense growth, capitalization rates and equity return rates. For real estate, net of the disposal group held for sale as of September 30, 2024, the Company recognized impairment losses of $3.8 million and $25.8 million, inclusive of losses recognized upon transfer into disposal group held for sale, in the three and nine months ended September 30, 2024, respectively. As of September 30, 2023, the fair values, net of selling costs of multi-family properties owned by seven of the joint venture entities in which we hold equity investments were less than the properties' net carrying values. Accordingly, the Company recognized net impairment losses of $44.2 million and $71.3 million in the three and nine months ended September 30, 2023, respectively. Impairment on real estate, net of recovery of previously impaired real estate, is included in impairment of real estate on the accompanying condensed consolidated statements of operations. See Note 16 for descriptions of valuation methodologies utilized for other classes of assets and liabilities of disposal group held for sale.

The following table presents the pretax losses of the disposal group held for sale as of September 30, 2024 for the three and nine months ended September 30, 2024 and 2023, respectively (dollar amounts in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Pretax income (loss) of disposal group held for sale	$	2,655	$	(43,235)	$	(50,171)	$	(75,202)
Pretax (income) loss of disposal group attributable to non-controlling interest in Consolidated VIEs	(495)		4,605		4,907		5,794
Pretax income (loss) of disposal group attributable to Company's common stockholders	$	2,160	$	(38,630)	$	(45,264)	$	(69,408)