NOTE 6—VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITIES AND CONSOLIDATED JOINT VENTURES

Variable Interest Entities—Ground Leases

The Company determined that with respect to the properties identified in the table below, it has a variable interest through its ground leases and the three owner/operators (which are affiliated with one another) are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of any of these VIEs because the Company has shared power over certain activities that most significantly impact the owner/operator's economic performance (i.e., shared rights on the sale of the property) and therefore, does not consolidate these 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 $2,361,000, $1,280,000 and $531,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Included in these amounts is rental income for a similarly structured transaction in Sandy Springs, Georgia, amounting to $308,000, $419,000 and $531,000 for the years ended December 31, 2016, 2015 and 2014, respectively, which the Company sold in June 2016 (see Note 5).

The following chart details the Company's VIEs through its ground leases and the aggregate carrying amount and maximum exposure to loss as of December 31, 2016 (dollars in thousands):

Description of Property(a)	Date Acquired	Land Contract Purchase Price		# Units in Apartment Complex		Owner/ Operator Mortgage from Third Party(b)		Type of Exposure	Carrying Amount and Maximum Exposure to Loss
The Meadows Apartments, Lakemoor, Illinois	March 24, 2015	$	9,300		496	$	43,824	Land	$	9,592
The Briarbrook Village Apartments, Wheaton, Illinois	August 2, 2016		10,530		342		39,411	Land		10,536
The Vue Apartments, Beachwood, Ohio	August 16, 2016		13,896		348		67,444	Land		13,901

Totals		$	33,726		1,186	$	150,679		$	34,029


(a)	Simultaneously with each purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operators of these properties.
(b)	Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party which, together with the Company's purchase of the land, provided substantially all of the aggregate funds to acquire the complex. The Company provided its 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 to the owner/operator.

Pursuant to the terms of the ground lease for the Wheaton, Illinois property, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves to cover such renovation work, received by the Company in conjunction with the purchase of the property, are disbursed when the unit renovations are completed. The related cash reserve balance for this property was $643,000 at December 31, 2016 and is classified as Restricted cash on the consolidated balance sheet. The terms of the ground lease for the Sandy Springs, Georgia property contained similar obligations for unit renovations and other reserves. The cash reserve balance for the Sandy Springs property was $1,074,000 at December 31, 2015 (classified as Restricted cash on the consolidated balance sheet) and such balance was disbursed to the owner/operator in connection with its sale.

Variable Interest Entities—Consolidated Joint Ventures

A joint venture in which the Company has a 95% equity interest acquired a property located in Joppa, Maryland. The Company also had a senior preferred equity interest in this venture until May 2016 when the joint venture obtained a mortgage on its property and a portion of such mortgage proceeds was used to repay the $6,280,000 preferred interest to the Company, including accrued interest of $455,000. The Company had historically determined that this joint venture was a VIE. As a result of the adoption of ASU 2015-02, the Company re-assessed its evaluation and determined this venture remains a VIE as the non-controlling interest does not hold substantive kick-out or participating rights.

With respect to the five other consolidated joint ventures in which the Company holds between an 85% to 95% interest, the Company had historically determined that such ventures were not VIEs. As a result of the adoption of ASU 2015-02, the Company re-assessed its evaluation of these investments and determined such ventures are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights.

In each of these six joint ventures, the Company has determined it is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact each joint venture's performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company has continued to consolidate the operations of these joint ventures for financial statement purposes. The joint ventures' creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

The following is a summary of the consolidated VIEs' carrying amounts and classification in the Company's consolidated balance sheets, none of which are restricted (amounts in thousands):

	December 31,
	2016			2015(a)
Land	$	17,844		$	18,400
Buildings and improvements, net of accumulated depreciation of $2,732 and $2,076, respectively		32,535			34,287
Cash		1,796			1,960
Unbilled rent receivable		775			330
Unamortized intangible lease assets, net		1,595			1,996
Escrow, deposits and other assets and receivables		1,355			752
Mortgages payable, net of deferred financing costs of $539 and $438, respectively		33,121			25,926
Accrued expenses and other liabilities		893			793
Unamortized intangible lease liabilities, net		2,200			2,392
Accumulated other comprehensive loss		(70	)		(126	)
Non-controlling interests in consolidated joint ventures		1,794			1,931


(a)	Includes a consolidated joint venture located in Deptford, New Jersey in which the Company purchased its partner's 5% interest and obtained 100% ownership in October 2016 (see Note 4).

At December 31, 2016, MCB Real Estate, LLC and its affiliates ("MCB") are the Company's joint venture partner in four consolidated joint ventures in which the Company has aggregate equity investments of approximately $10,522,000.

On October 31, 2016, the Company purchased MCB's 5% interest in a consolidated joint venture that owns a property in Deptford, New Jersey and obtained 100% ownership. The $436,000 difference between the purchase price paid of $446,000 and the non-controlling interest's share of the net assets of the property was accounted for as a reduction to paid-in capital.

A joint venture with MCB, in which the Company has a net equity investment of $3,079,000, owns a vacant property formerly operated as a Pathmark supermarket in Philadelphia, Pennsylvania. At December 31, 2016, the mortgage debt on, and the net book value of, such property is $4,397,000 and $7,164,000, respectively. In July 2015, this tenant filed for Chapter 11 bankruptcy protection, rejected the lease, and in late September 2015, vacated the property. As a result, the Company wrote off (i) $89,000 of straight-line rent and $124,000 of intangible lease liabilities, the net effect of which was an increase in Rental income of $35,000, and (ii) $380,000 of tenant origination costs, which is included in Depreciation and amortization expense for the year ended December 31, 2015. This tenant accounted for approximately 0.9% and 0.3% of the Company's rental income for the years ended December 31, 2015 and 2014, respectively. Real estate expenses and mortgage interest for this property were $299,000 and $175,000 for the year ended December 31, 2016, $93,000 and $182,000 for the year ended December 31, 2015, and $0 and $34,000 for the year ended December 31, 2014, respectively. The Company has determined that no impairment charge is required currently with respect to this property.

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.