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Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures | 6 Months Ended
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Jun. 30, 2015
Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures Disclosure |
Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures | Note 6 - Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures Variable Interest Entities — Ground Leases In June 2014, the Company purchased land for $6,510,000 in Sandy Springs, Georgia improved with a 196 unit apartment complex and in March 2015, the Company purchased land for $9,300,000 in Lakemoor, Illinois improved with a 496 unit apartment complex. With each purchase, the Company simultaneously entered into a long-term triple net ground lease with the owner/operator of each complex. The Company determined that it has a variable interest through its ground leases and the owner/operators are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support. Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party ($16,230,000 for Sandy Springs and $43,824,000 for Lakemoor) which, together with the Company’s purchase of the land, provided substantially all of the aggregate funds to acquire the complex. The Company provided this land as collateral for the respective owner/operator’s mortgage loans; accordingly each land position is subordinated to the applicable mortgage. Other than as described above, no other financial support has been provided by the Company. The Company further determined that for each acquisition it is not the primary beneficiary because the Company does not have the power to direct the activities that most significantly impact the owner/operator’s economic performance such as management, operational budgets and other rights, including leasing of the units and therefore, does not consolidate the VIEs for financial statement purposes. Accordingly, the Company accounts for these investments as land and the revenues from the ground leases as Rental income, net. Such rental income amounted to $460,000 and $711,000 for the three and six months ended June 30, 2015, respectively, and $67,000 for each of the three and six months ended June 30, 2014. The following is a summary of the Company’s variable interests in identified VIEs, in which it is not the primary beneficiary, and the aggregate carrying amount and maximum exposure to loss as of June 30, 2015 (amounts in thousands):
Property |  | Type of Exposure |  | Carrying Amount |  | Maximum Exposure to Loss |
River Crossing Apartments, Sandy Springs, Georgia |  | Land |  | $ | 6,528 |  | $ | 6,528 |
|  | Unbilled rent receivable |  | 364 |  | 364 |
The Meadows Apartments, Lakemoor, Illinois |  | Land |  | 9,563 |  | 9,563 |
Total |  |  |  | $ | 16,455 |  | $ | 16,455 |
Pursuant to the terms of the ground lease for the property in Sandy Springs, Georgia, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves totaling $1,894,000 were received by the Company in conjunction with the purchase of the property in June 2014 to cover such renovation work and other reserve requirements. These cash reserves are held by the Company and disbursed once the renovations have been completed. For the six months ended June 30, 2015 and June 30, 2014, the Company disbursed approximately $397,000 and $0, respectively, for renovation costs to the owner/operator. The balance at June 30, 2015 and December 31, 2014 was $1,210,000 and $1,607,000, respectively, and is classified as Restricted cash on the consolidated balance sheets. Consolidated Variable Interest Entity In June 2014, the Company entered into a joint venture, in which the Company has a 95% equity interest, and acquired a property located in Joppa, Maryland. The Company also made a senior preferred equity investment in the joint venture. The Company determined that this joint venture is a VIE as the Company’s voting rights are not proportional to its economic interests and substantially all of the joint venture’s activities are conducted on behalf of the Company. The Company further determined that it is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact the joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits from the VIE. Accordingly, the Company consolidates the operations of this joint venture for financial statement purposes. The joint venture’s creditors do not have recourse to the assets of the Company other than those held by the joint venture. The following is a summary of the carrying amounts and classification in the Company’s consolidated balance sheets of the VIE’s accounts, none of which are restricted (amounts in thousands):
|  | June 30, |  | December 31, |
|  | 2015 |  | 2014 |
Land |  | $ | 3,815 |  | $ | 3,805 |
Building and improvements, net of depreciation of $221 and $17, respectively |  | 7,963 |  | 8,069 |
Cash |  | 741 |  | 527 |
Prepaid expenses and receivables |  | 12 |  | 42 |
Accrued expenses and other liabilities |  | 219 |  | 152 |
Non-controlling interest in joint venture |  | 318 |  | 312 |
Non-VIE Consolidated Joint Ventures With respect to six of the consolidated joint ventures in which the Company has between an 85% to 95% interest, the Company has determined that (i) such ventures are not VIE’s and (ii) the Company exercises substantial operating control and accordingly, such ventures are consolidated for financial statement purposes. MCB Real Estate, LLC and its affiliates (“MCB”) are the Company’s joint venture partner in five consolidated joint ventures (including the Joppa, Maryland joint venture described above). At June 30, 2015, the Company has aggregate equity investments of approximately $19,000,000 in such ventures. Distributions by Consolidated Joint Ventures The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro rata to the equity interest each partner has in the applicable venture.

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