Investment in Unconsolidated Joint Ventures

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

Investment in Unconsolidated Joint Ventures

On November 19, 2018, we formed the VAA joint venture with the Macquarie Group (“Macquarie”). In connection with the formation of VAA, we sold a 50% ownership interest in certain multifamily properties to Macquarie for a $236,800 cash payment, resulting in a gain on sale of assets of $154,100. In connection with the formation of VAA, ten out of the 51 properties were subject to an earn-out provision ("Earn Out") that provides for a remeasurement of value after a two-year period following the completion of construction. Upon the formation of VAA, we recorded a liability ("Earn Out Obligation") for the $10,000 advance on the Earn Out that we received from Macquarie.

Upon receipt of funds, both parties transferred their respective ownership interests in the multifamily properties to VAA in exchange for a 50% voting interest and a 49% profit participation interest ("Class A interest") in VAA and note payable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the Contribution, VAA owned and controlled 51 multifamily properties. VAA assumed all liabilities of those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”).

Concurrent with the formation of the joint venture, VAA issued a Class B interest with a 2% profits participation interest and no voting rights to Daniel J. Moos, our former President and Chief Executive Officer (“Class B Member”). The Class B Member serves as the manager of VAA.

Interest on the Mezzanine loan is limited to cash generated from the properties and matures concurrently with the termination of VAA. Accordingly, we account for our interest in the Mezzanine Loan as an addition to our equity interest in VAA and include interest income on the Mezzanine loan in income from unconsolidated joint ventures.

On March 30, 2021, we sold a 50% ownership interest in Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie for $2,551, resulting in gain on sale of $1,417. Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.

On July 13, 2021, we received the arbitration result of a dispute regarding the measurement of the Earn Out Obligation. Our position and claims were declined, and the position of Macquarie was fully accepted. As a result, we are required to pay approximately $39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $29,600 during the nine months ended September 30, 2021 (See Note 7 – Real Estate Activity).

In accordance with the the joint venture operating agreement, the Earn Out Obligation will be paid from our share of future distributions from VAA, which generally occur each six months. During the three months ended September 30, 2021, our $5,441 distribution from VAA was paid directly to Macquarie as a reduction of the Earn Out Obligation.

We also own a 20% ownership interest in a 20% interest in Gruppa Florentina, LLC ("Milano"), which operates several pizza parlors in Central and Northern California. Milano also has 23 franchised locations, including two operating, under the trade name Angelo & Vito’s Pizzerias.

The following is a summary of our investment in unconsolidated joint ventures:


	September 30, 2021		December 31, 2020
Assets (1)
Real estate	$	1,227,945	$	1,230,197
Other assets	114,626		113,537
Total assets	$	1,342,571	$	1,343,734
Liabilities and Partners' Capital (1)
Mortgage notes payable	$	870,000	$	843,522
Mezzanine notes payable	242,942		239,878
Other liabilities	37,992		45,619
Our share of partners' capital	81,676		93,334
Outside partner's capital	109,961		121,381
Total liabilities and partners' capital	$	1,342,571	$	1,343,734
Investment in unconsolidated joint ventures
Our share of partners' capital	$	81,676	$	93,334
Our share of Mezzanine note payable	121,471		119,939
Basis adjustment (2)	(144,709)		(152,848)
Total investment in unconsolidated joint ventures	$	58,438	$	60,425

(1) These amounts include the assets of VAA of $1,277,069 and $1,279,197 at September 30, 2021 and December 31, 2020, respectively, and liabilities of VAA of $1,128,268 and $1,106,231 at September 30, 2021 and December 31, 2020, respectively.

(2) We amortize the difference between the cost of our investments in unconsolidated joint ventures and the book value of our underlying equity into income on a straight-line basis consistent with the lives of the underlying assets.

The following is a summary of income (loss) from our investments in unconsolidated joint ventures:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue (1)
Rental revenue	$	33,563	$	29,999	$	96,670	$	86,841
Other revenue	17,080		15,182		50,131		44,018
Total revenue	50,643		45,181		146,801		130,859
Expenses (2)
Operating expenses	32,052		29,629		91,305		84,310
Depreciation and amortization	8,194		8,190		24,393		24,312
Other income	—		—		(2,356)		—
Interest	13,906		12,574		41,971		42,093
Total expenses	54,152		50,393		155,313		150,715
Net loss	$	(3,509)	$	(5,212)	$	(8,512)	$	(19,856)
Our equity in the income (loss) in unconsolidated joint ventures	$	3,543	$	337	$	11,451	$	(642)

(1) These amounts include revenue of VAA of $35,572 and $31,591 during the three months ended September 30, 2021 and 2020, respectively, and $102,403 and $90,875 during the nine months ended September 30, 2021 and 2020, respectively.

(2) These amounts include expenses of VAA of $39,880 and $37,287 during the three months ended September 30, 2021 and 2020, respectively, and $113,885 and $112,333 during the nine months ended September 30, 2021 and 2020, respectively.