Investments in Unconsolidated Entities

12 Months Ended

Dec. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

Office Joint Venture

On August 26, 2022, the Company completed the sale of a majority interest in a 41-property office portfolio (the “Initial JV Office Portfolio”) for a sale price of approximately $1.1 billion. On December 27, 2022, the Company completed a companion sale of a majority interest in a five-property office portfolio (“Companion JV Office Portfolio”, and together with the Initial JV Office Portfolio, the “JV Office Portfolio”) for a sale price of approximately $170.4 million.

In connection with the sale of the JV Office Portfolio, the Company, through its subsidiary GRT VAO OP, LLC (“GRT VAO Sub”), invested a combined $184.2 million for a 49% interest in a joint venture (the “Office Joint Venture”), through which it owns indirectly an approximate 49% interest in the JV Office Portfolio.

The Office Joint Venture is managed and accounted for by RVMC Capital LLC, an affiliate of Workspace Property Trust (the “Managing Member”). The Managing Member of the Office Joint Venture has general authority to manage the operations of the Office Joint Venture. The Managing Member also has day-to-day management authority over the Office Joint Venture, subject to certain major decision rights held by another minority interest holder. The Managing Member may be removed from its management positions upon the occurrence of specified events.

GRT VAO Sub has approval rights over certain major decisions regarding actions by the Office Joint Venture, including certain fundamental decisions that the Office Joint Venture may approve. GRT VAO Sub’s obligation is generally limited to its initial contribution. GRT VAO Sub is not obligated to make any additional capital contributions beyond its initial capital contribution.

The Office Joint Venture, through various subsidiary borrowers, obtained acquisition financing for the Initial JV Office Portfolio comprised of (a) a $736.0 million mortgage loan (the “Initial JV Office Mortgage Loan”), and (b) a $194.8 million mezzanine loan (the “JV Office Mezzanine Loan”, and together with the JV Office Initial Mortgage Loan, the “Initial Office JV Loans”). The initial maturity date of the Initial Office JV Loans was September 9, 2023, subject to two, one-year extension options. The interest rates during the initial term of the Initial JV Office Mortgage Loan and the JV Office Mezzanine Loan were Term SOFR (1-month) (with a 3% interest rate cap on SOFR) + 3.635% (subject to a 0.25% increase during each extension term) and Term SOFR (1-month) with a 3% interest rate cap on SOFR + 6.574% (subject to a 0.25% increase during each extension term), respectively. The Office Joint Venture paid approximately $6.7 million for the interest rate caps.

During the quarter ended September 30, 2023, the Office Joint Venture exercised the first of two one-year extension options, extending the maturity date of the Initial Office JV Loans to September 9, 2024. The interest rates during the one-year extension terms of the Initial JV Office Mortgage Loan and the JV Office Mezzanine Loan are Term SOFR (1-month) (with a 4.4% interest rate cap on SOFR) + 3.885% and Term SOFR (1-month) + 6.824%, respectively. The Office Joint Venture paid approximately $9.6 million for the interest rate caps and funded a portion of the purchase by calling capital from its members (the “Capital Call”). GRT VAO Sub’s portion of the Capital Call was approximately $2.0 million. GRT VAO Sub is not obligated to and did not fund any amount of the Capital Call. In accordance with the Office Joint Venture’s governing documents, another member of the Office Joint Venture (the “Funding Member”) made an interest bearing loan to GRT VAO Sub in the principal amount of GRT VAO Sub’s portion of the Capital Call (the “Shortfall Loan”), the proceeds of which Shortfall Loan were used to fund GRT VAO Sub’s portion of the Capital Call. The Shortfall Loan is non-recourse to GRT VAO Sub and its affiliates and shall be repaid to the Funding Member solely out of (i) any distributions to which GRT VAO Sub is otherwise entitled under the Office Joint Venture’s governing documents and (ii) the proceeds from certain transfers which results in GRT VAO Sub and its affiliates no longer owning a direct or indirect equity interest in the Office Joint Venture.

The Office Joint Venture, through various subsidiary borrowers, also obtained acquisition financing for the Companion JV Office Portfolio, comprised of a $142.1 million mortgage loan, having a maturity date of January 6, 2025 (subject to a one-year extension option), and an interest rate during the initial term of Term SOFR (1-month with a 4% interest rate cap on SOFR) + 4.50% (subject to a 0.25% increase during each extension term) (the “Companion Office JV Loan”, and together with the Initial Office JV Loans, the “Office JV Loans”).

The Company has not guaranteed any debt obligations and has not otherwise committed to providing financial support in respect of the Office JV Loans. In addition, the Company does not anticipate receiving any near-term cash flow distributions from the assets that are part of the JV Office Portfolio. Considering the Company’s limited economic exposure to the Office Joint Venture, the Company excludes interests in the assets in the Office Joint Venture from operating data.

The interests discussed above are deemed to be variable interests in variable interest entities (“VIE”) and based on an evaluation of the variable interests against the criteria for consolidation, the Company determined that it is not the primary beneficiary of the investment, as the Company does not have power to direct the activities of the entities that most significantly affect their performance. As such, the interest in the VIE is recorded using the equity method of accounting in the accompanying consolidated financial statements. Under the equity method, the investments in the unconsolidated entities are stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the allocation of cash distributions upon liquidation of the investment at book value in accordance with the operating agreements. The Company records the net earnings or losses on investment on a one quarter lag. The Company's maximum exposure to losses associated with its unconsolidated investments is primarily limited to its initial contribution in the investments.

Impairment of Investment in Office Joint Venture

During the three months ended September 30, 2023, the Company recorded an OTTI of approximately $129.3 million for its investment in the Office Joint Venture, which represents a complete write-off of the Company’s remaining investment balance. The impairment resulted from a decline in the fair value of the investment primarily due to increased future loan extension risk impacting the Company’s expectations on the recoverability of the investment. The impairment was recorded to “Net loss from investment in unconsolidated entity” on the consolidated statement of operations. Subsequent to the write-off of the Company’s investment in the Office Joint Venture as of September 30, 2023, the Company no longer records any equity income or losses.

Summary of Investment in Office Joint Venture

The table below summarizes the Company’s investment in the unconsolidated Office Joint Venture, which the Company determined is related to corporate activities and is excluded from its segment reporting:


	Office Joint Venture
Investment in Office Joint Venture
Balance at December 31, 2022	$	178,647
Contributions(1)	1,960
Shortfall Loan(1)	(1,960)
Company’s share of net loss(3)	(48,659)
Company’s share of other comprehensive loss	(654)
Impairment provision (2)	(129,334)
Balance at December 31, 2023	$	—

(1)Amounts represent the deemed contribution and related Shortfall Loan between the Company’s subsidiary, GRT VAO Sub, and the Funding Member of the Office Joint Venture for the Capital Call. Refer to details above.

(2)Amount represents the impairment of the Company’s investment in the Office Joint Venture of $129.3 million. As of September 30, 2023, the Company also had a cumulative proportionate share of the Office Joint Venture’s accumulated other comprehensive income (“AOCI”) of $1.2 million, which was also written off in conjunction with the investment balance being impaired to zero. The write-off of the AOCI resulted in recognition of income, which was also recorded to “Net loss from investment in unconsolidated entity” for a total net loss of $128.1 million during the period.

(3)The Company’s share of net loss of $48.7 million relates to the Office Joint Ventures’s activity from September 1, 2022 through June 30, 2023 (reported as of September 30, 2023, due to the recording of the Office Joint Venture’s activity on a one quarter lag). Subsequent to the write-off of the Company’s investment in the Office Joint Venture as of September 30, 2023, the Company no longer records any equity income or losses.

The table below presents the condensed balance sheet for the unconsolidated Office Joint Venture:


	December 31, 2023(1)(3)		December 31, 2022 (2)
Assets
Real estate properties, net	$	1,092,312	$	981,354
Other assets	299,045		240,447
Total Assets	$	1,391,357	$	1,221,801

Liabilities
Mortgages payable, net	$	1,067,005	$	856,765
Other liabilities	92,919		52,018
Total Liabilities	$	1,159,924	$	908,783

(1)Amounts are as of September 30, 2023 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

(2)Amounts are as of September 30, 2022 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

(3)Subsequent to the write-off of the Company’s investment in the Office Joint Venture as of September 30, 2023, the Company no longer records any equity income or losses.

The table below presents condensed statements of operations of the unconsolidated Office Joint Venture:


	Year Ended December 31,
	2023 (1)		2022 (2)
Total revenues	$	195,193	$	16,500
Expenses:
Operating expenses	(67,438)		(5,550)
General and administrative	(7,210)		(500)
Depreciation and amortization	(68,829)		(9,476)
Interest expense	(190,350)		(15,735)
Other expenses, net	7,519		(387)
Total Expenses	(326,308)		(31,648)
Net Loss(3)	$	(131,115)	$	(15,148)

(1)Amounts represent the period of October 1, 2022 to September 30, 2023 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

(2)Amounts represent the period of ownership from August 26, 2022 to September 30, 2022 due to the recording of the Office Joint Venture’s activity on a one quarter lag.

(3)Subsequent to the write-off of the Company’s investment in the Office Joint Venture as of September 30, 2023, the Company no longer records any equity income or losses.