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Related Party Transactions

12 Months Ended

Dec. 31, 2011

4. Related Party Transactions

Investment in Sponsored REITs

At December 31, 2011, the Company held an interest in 16 Sponsored REITs, all of which were fully syndicated. At December 31, 2010, the Company held an interest in 15 Sponsored REITs, of which 14 were fully syndicated and one was in process. At December 31, 2009, the Company held an interest in 14 Sponsored REITs, of which twelve were fully syndicated and two were in process. The Company holds a non-controlling preferred stock investment in three of these Sponsored REITs, FSP Phoenix Tower Corp. (“Phoenix Tower”), FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), from which it continues to derive economic benefits and risks.

The table below shows the Company’s income and expenses from Sponsored REITs. Management fees of $6,000, $14,000 and $2,000 for the years ended December 31, 2011, 2010 and 2009, respectively, and interest expense related to the Company’s mortgages on properties owned by these entities of $197,000, $38,000 and $6,000 for the years ended December 31, 2011, 2010 and 2009, respectively, are eliminated in consolidation.

	Year Ended December 31,
(in thousands)	2011		2010			2009
Operating Data:
Rental revenues	$	1,482	$	498		$	74
Operating and maintenance expenses	480		536			50
Depreciation and amortization	610		146			6
Interest expense	197		38			6
Interest income			1			—
	$	195	$	(221	)	$	12

Equity in earnings (losses) of investment in non-consolidated REITs:

The following table includes equity in earnings of investments in non-consolidated REITs:

	Year Ended December 31,
(in thousands)	2011			2010			2009

Equity in earnings of Sponsored REITs	$	1,696		$	71		$	153
Equity in earnings (losses) of Phoenix Tower	(14		)	(47		)	30
Equity in earnings of East Wacker	2,137			1,168			1,673
Equity in earnings of Grand Boulevard	(134		)	74			138
	$	3,685		$	1,266		$	1,994

Equity in earnings of investments in Sponsored REITs is derived from the Company’s share of income following the commencement of syndication of Sponsored REITs. Following the commencement of syndication the Company exercises influence over, but does not control these entities, and investments are accounted for using the equity method.

Equity in earnings (losses) of Phoenix Tower is derived from the Company’s preferred stock investment in the entity. In September 2006, the Company purchased 48 preferred shares or 4.6% of the outstanding preferred shares of Phoenix Tower for $4,116,000 (which represented $4,800,000 at the offering price net of commissions of $384,000 and acquisition fees of $300,000 that were excluded).

Equity in earnings of East Wacker is derived from the Company’s preferred stock investment in the entity. In December 2007, the Company purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares of East Wacker for $82,813,000 (which represented $96,575,000 at the offering price net of commissions of $7,726,000, loan fees of $5,553,000 and acquisition fees of $483,000 that were excluded).

Equity in earnings of Grand Boulevard is derived from the Company’s preferred stock investment in the entity. In May 2009, the Company purchased 175.5 preferred shares or 27.0% of the outstanding preferred shares of Grand Boulevard for $15,049,000 (which represented $17,550,000 at the offering price net of commissions of $1,404,000, loan fees of $1,009,000 and acquisition fees of $88,000 that were excluded).

The following table includes distributions received from non-consolidated REITs:

	Year Ended December 31,
(in thousands)	2011		2010		2009

Distributions from Sponsored REITs	$	1,337	$	391	$	442
Distributions from Phoenix Tower	130		179		125
Distributions from East Wacker	3,319		3,705		4,661
Distributions from Grand Boulevard	270		895		400
	$	5,056	$	5,170	$	5,628

Non-consolidated REITs

The Company has in the past acquired by merger entities similar to the Sponsored REITs. The Company’s business model for growth includes the potential acquisition by merger in the future of Sponsored REITs. However, the Company has no legal or any other enforceable obligation to acquire or to offer to acquire any Sponsored REIT. In addition, any offer (and the related terms and conditions) that might be made in the future to acquire any Sponsored REIT would require the approval of the boards of directors of the Company and the Sponsored REIT and the approval of the shareholders of the Sponsored REIT.

The operating data below for 2011 includes operations of the 16 Sponsored REITs the Company held an interest in as of December 31, 2011. The operating data below for 2010 includes operations of the 15 Sponsored REITs the Company held an interest in as of December 31, 2010. The operating data below for 2009 includes operations of the 14 Sponsored REITs the Company held an interest in as of December 31, 2009.

Summarized financial information for the Sponsored REITs is as follows:

	December 31,			December 31,
(in thousands)	2011			2010

Balance Sheet Data (unaudited):
Real estate, net	$	755,825		$	767,938
Other assets	135,658			105,218
Total liabilities	(293,326		)	(256,612		)
Shareholders’ equity	$	598,157		$	616,544

	For the Year Ended
	December 31,
(in thousands)	2011			2010			2009

Operating Data (unaudited):
Rental revenues	$	111,417		$	91,406		$	95,918
Other revenues	90			162			386
Operating and maintenance expenses	(55,672		)	(50,339		)	(50,080		)
Selling, general and administrative	(604		)	—			—
Depreciation and amortization	(33,909		)	(27,138		)	(24,359		)
Interest expense	(17,180		)	(11,160		)	(9,412		)
Net income	$	4,142		$	2,931		$	12,453

Management fees and interest income from loans:

Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancelable with 30 days’ notice. Asset management fee income from non-consolidated entities amounted to approximately $958,000, $830,000 and $902,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

From time-to-time the Company may make secured loans (“Sponsored REIT Loans”) to Sponsored REITs in the form of mortgage loans or revolving lines of credit to fund construction costs, capital expenditures, leasing costs and for other purposes. Since December 2007, the Company has provided Sponsored REIT Loans in the form of revolving lines of credit to five Sponsored REITs, or to wholly-owned subsidiaries of those Sponsored REITs, a construction loan to one wholly-owned subsidiary of another Sponsored REIT and a mortgage loan with a revolving line of credit component to one wholly-owned subsidiary of another Sponsored REIT. The Company anticipates that each Sponsored REIT Loan will be repaid at maturity or earlier from long term financings of the underlying properties, cash flows from the underlying properties or some other capital event. Each Sponsored REIT Loan is secured by a mortgage on the underlying property and has a term of approximately two to three years. Except for the mortgage loan with a revolving line of credit component which bears interest at a fixed rate, advances under each Sponsored REIT Loan bear interest at a rate equal to the 30-day LIBOR rate plus an agreed upon amount of basis points and most advances also require a 50 basis point draw fee. In December 2011 the Company received a loan fee of $762,000 at the time of the closing of the mortgage loan with a revolving line of credit component, and a 1% fee will be paid on draws related to the revolving line of credit component, and a 0.49% fee will be paid on all amounts repaid under the loan. In 2009, the Company received a $210,000 loan commitment fee at the time of the closing of the Sponsored REIT Loan that is structured as a construction loan.

Prior to terminating the activities of its investment banking segment in December 2011, the Company typically made an acquisition loan (“Acquisition Loans”) to each newly-formed Sponsored REIT which was secured by a mortgage on the borrower’s real estate. These loans enabled Sponsored REITs to acquire their respective properties prior to the consummation of the offerings of their equity interests. The Company anticipated that each Acquisition Loan would be repaid at maturity, or earlier, from the proceeds of the Sponsored REIT’s equity offering. Each Acquisition Loan had a term of two years and bore interest at approximately the same rate paid by FSP Corp. for borrowings under the Revolver. The Company made one Acquisition Loan for the syndication of FSP Union Centre Corp. during 2011, which was repaid on October 20, 2011. There were no Acquisition Loans outstanding at December 31, 2011. There was one Acquisition Loan outstanding for the syndication of FSP Monument Circle Corp., and one Acquisition Loan outstanding for the syndication of FSP Centre Pointe V Corp. as of December 31, 2010 and 2009, respectively. The Acquisition Loan for FPS Monument Circle Corp. was repaid on March 1, 2011 and the Acquisition Loan for FSP Centre Pointe V Corp. was repaid on June 29, 2010. Acquisition Loans are classified as assets held for syndication.

The following is a summary of the Sponsored REIT Loans outstanding as of December 31, 2011:

		Maximum		Amount						Interest
(dollars in 000’s)	Maturity	Amount		Drawn at		Interest		Draw		Rate at
Sponsored REIT	Date	of Loan		31-Dec-11		Rate (1)		Fee (2)		31-Dec-11

Revolving lines of credit
FSP Highland Place I Corp. (3)	31-Dec-12	$	5,500	$	1,125	L+4.4	%	0.5	%	4.67	%
FSP Satellite Place Corp. (4)	31-Mar-13	5,500		5,500		L+4.4	%	0.5	%	4.67	%
FSP 1441 Main Street Corp.(4) (a)	31-Mar-13	10,800		7,500		L+4.4	%	0.5	%	4.67	%
FSP 505 Waterford Corp. (4)	30-Nov-12	7,000		1,650		L+4.4	%	0.5	%	4.67	%
FSP Phoenix Tower Corp. (4) (b)	30-Nov-12	15,000		11,000		L+4.4	%	0.5	%	4.67	%

Construction loan
FSP 385 Interlocken Development Corp. (4) (c) (d)	30-Apr-13	42,000		37,541		L+4.4	%	n/a		4.67	%

Mortgage loan
FSP 50 South Tenth Street Corp. (5)	31-Dec-13	106,200		76,200		6.51	%	1.0	%	6.51	%

		$	192,000	$	140,516

(1) The interest rate is 30-Day LIBOR rate plus the additional rate indicated, otherwise a fixed rate.

(2) The draw fee is a percentage of each new advance, and is paid at the time of each new draw.

(3) Effective January 1, 2011 and February 1, 2011, the interest rate was 30-day LIBOR plus 3% and effective March 1, 2011 became LIBOR plus 4.4% until maturity. Effective January 31, 2011, any future draws will require a draw fee in an amount equal to 0.5%.

(4) Effective January 1, 2011 through March 30, 2011, the interest rate was 30-day LIBOR plus 3%.

(a) The Borrower is FSP 1441 Main Street LLC, a wholly-owned subsidiary.

(b) The Borrower is FSP Phoenix Tower Limited Partnership, a wholly-owned subsidiary.

(d) The Borrower paid a commitment fee of $210,000 at loan origination in March 2009.

(5) The loan has a fixed mortgage amount of $76,200,000 and a $30,000,000 revolving line of credit component. A loan fee of $762,000 was paid related to the fixed mortgage component and a 1% fee will be paid on draws related to the line of credit component. A 0.49% fee will be paid on all amounts repaid under the loan. As of December 31, 2011, no amounts have been drawn under the revolving line of credit component.

The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $3,087,000, $1,609,000 and $838,000 for the years ended December 31, 2011, 2010 and 2009, respectively.