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Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures | 9 Months Ended
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Sep. 30, 2019
Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures |
Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures | Note 7 – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures Variable Interest Entity – Ground Lease The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property and the owner/operator is a VIE because its 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 this VIE 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 this VIE for financial statement purposes. Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net. Ground lease rental income amounted to $383,000 and $1,354,000 for the three and nine months ended September 30, 2019, respectively, and $925,000 and $2,872,000 for the three and nine months ended September 30, 2018, respectively. Included in these amounts is rental income of $203,000 and $814,000 for the three and nine months ended September 30, 2019, respectively, and $512,000 and $1,659,000 for the three and nine months ended September 30, 2018, respectively, from previously held VIE properties in Lakemoor and Wheaton, Illinois, which the Company sold in September 2018 and August 2019, respectively (see Note 6). ​ Note 7 – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures (Continued) The following chart details the VIE through the Company’s ground lease and the aggregate carrying amount and maximum exposure to loss as of September 30, 2019 (dollars in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Owner/ | ​ |  | ​ | Carrying
​ | ​ | ​ | ​ | Land | ​ | ​ | ​ | Operator | ​ | ​ | ​ | Amount and
​ | ​ | ​ | ​ | Contract | ​ | # Units in | ​ | Mortgage | ​ | ​ | ​ | Maximum
​ | ​ | ​ | ​ | Purchase | ​ | Apartment | ​ | from | ​ | Type of | ​ | Exposure to
Description of Property(a) |  | Date Acquired |  | Price |  | Complex |  | Third Party(b) |  | Exposure |  | Loss
The Vue Apartments, | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Beachwood, Ohio | ​ | August 16, 2016 | ​ | $ | 13,896 | ​ | 348 | ​ | $ | 67,444 | ​ | Land | ​ | $ | 13,901
| (a) | Simultaneously with the purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operator of this property.
| (b) | Simultaneously with the closing of the 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 funds to acquire the complex. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. No other financial support has been provided by the Company to the owner/operator.
At December 31, 2018, Restricted cash on the consolidated balance sheet included (i) a cash reserve balance of $356,000 to cover renovation work at the Wheaton, Illinois property which was sold in August 2019 and (ii) an escrow deposit of $750,000 from the owner/operator of the Beachwood, Ohio property which was paid in January 2019. There was no restricted cash balance at September 30, 2019. Variable Interest Entities – Consolidated Joint Ventures The Company has determined that the four consolidated joint ventures in which it holds between a 90% to 95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs 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 consolidates the operations of these VIEs for financial statement purposes. The VIEs’ 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): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | September 30, | ​ | December 31,
​ |  | 2019 |  | 2018 (a)
Land | ​ | $ | 12,158 | ​ | $ | 14,722
Buildings and improvements, net of accumulated depreciation of $4,109 and $4,119, respectively | ​ | ​ | 24,426 | ​ | ​ | 27,642
Cash | ​ | ​ | 1,029 | ​ | ​ | 1,020
Unbilled rent receivable | ​ | ​ | 870 | ​ | ​ | 1,211
Unamortized intangible lease assets, net | ​ | ​ | 776 | ​ | ​ | 890
Escrow, deposits and other assets and receivables | ​ | ​ | 715 | ​ | ​ | 810
Mortgages payable, net of unamortized deferred financing costs of $328 and $391, respectively | ​ | ​ | 24,404 | ​ | ​ | 26,850
Accrued expenses and other liabilities | ​ | ​ | 708 | ​ | ​ | 761
Unamortized intangible lease liabilities, net | ​ | ​ | 613 | ​ | ​ | 1,694
Accumulated other comprehensive (loss) income | ​ | ​ | (85) | ​ | ​ | 31
Non-controlling interests in consolidated joint ventures | ​ | ​ | 1,172 | ​ | ​ | 1,449
| (a) | Includes a consolidated joint venture, in which the Company held a 90% interest located in Clemmons, North Carolina which was sold in June 2019 (see Note 6).
​ Note 7 – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures (Continued) MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in three and four consolidated joint ventures at September 30, 2019 and December 31, 2018, respectively, in which the Company has aggregate equity investments of approximately $7,503,000 and $9,891,000, respectively. 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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