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Related Party Transactions and Investments in Non-Consolidated Entities | 12 Months Ended
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Dec. 31, 2014
Related Party Transactions and Investments in Non-Consolidated Entities |
Related Party Transactions and Investments in Non-Consolidated Entities | 3.Related Party Transactions and Investments in Non-Consolidated Entities Investment in Sponsored REITs The Company held an interest in 10, 14 and 15 Sponsored REITs at December 31, 2014, 2013 and 2012, respectively. The Company holds a non-controlling preferred stock investment in two of these Sponsored REITs, 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. During the year ended December 31, 2014, properties owned by four Sponsored REITs were sold and, thereafter, liquidating distributions for their preferred shareholders were declared and issued. The Company held a mortgage loan with two of these entities secured by the property owned by FSP Galleria North Corp. (Galleria) and the property owned by FSP Highland Place I Corp. (Highland). The loan with Galleria in the principal amount of $13,880,000 was repaid by the proceeds of the sale and the loan with Highland in the principal amount of $3,395,000 was repaid by the proceeds of the sale. In December 2013, the property owned by FSP 505 Waterford Corp. (“505 Waterford”), a Sponsored REIT, was sold and, thereafter, 505 Waterford declared and issued a liquidating distribution for its preferred shareholders. The Company held a mortgage loan secured by the property owned by 505 Waterford in the principal amount of $2,350,000, which was repaid from the proceeds of the sale. In September 2006, the Company purchased 48 preferred shares or 4.6% of the outstanding preferred shares of one of its Sponsored REITs, FSP Phoenix Tower Corp (“Phoenix Tower”). On December 20, 2012, the property owned by Phoenix Tower was sold and, thereafter, Phoenix Tower declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $4,866,000. The Company received $4,752,000 on January 4, 2013 and $96,000 on September 30, 2013. As of December 31, 2014, the Company held a beneficial interest in the Phoenix Tower liquidating trust in the amount of approximately $18,000 in connection with its preferred shares ownership, which is included in other assets in the accompanying consolidated balance sheet. Equity in earnings (losses) of investment in non-consolidated REITs: The following table includes equity in earnings (losses) of investments in non-consolidated REITs:
|  | Year Ended December 31, |
(in thousands) |  | 2014 |  | 2013 |  | 2012 |
Equity in earnings of Phoenix Tower |  | $ | — |  | $ | — |  | $ | 1,618 |
Equity in earnings (losses) of East Wacker |  | (1,568 | ) | (1,021 | ) | 670 |
Equity in losses of Grand Boulevard |  | (192 | ) | (337 | ) | (255 | )
|  | $ | (1,760 | ) | $ | (1,358 | ) | $ | 2,033 |
Equity in earnings of Phoenix Tower were 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). On December 20, 2012, the property owned by Phoenix Tower was sold at a gain, which is included in equity in earnings of non-consolidated REITs on the consolidated statements of income. Equity in earnings (losses) 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 losses 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) |  | 2014 |  | 2013 |  | 2012 |
Distributions from Phoenix Tower |  | $ | — |  | $ | — |  | $ | 173 |
Distributions from East Wacker |  | — |  | — |  | 2,489 |
Distributions from Grand Boulevard |  | 107 |  | 107 |  | 148 |
|  | $ | 107 |  | $ | 107 |  | $ | 2,810 |
Non-consolidated REITs The operating data below for 2014 includes the operations of the 14 Sponsored REITs the Company held an interest in during the year and the 10 Sponsored REITs the Company held an interest in as of December 31, 2014. The operating data below for 2013 includes the operations of the 15 Sponsored REITs the Company held an interest in during the year and the 14 Sponsored REITs the Company held an interest in as of December 31, 2013. The operating data below for 2012 includes operations of the 15 Sponsored REITs the Company held an interest in as of December 31, 2012. Summarized financial information for the Sponsored REITs is as follows:
|  | December 31, |  | December 31, |
(in thousands) |  | 2014 |  | 2013 |
Balance Sheet Data (unaudited): |  |  |  |  |
Real estate, net |  | $ | 451,822 |  | $ | 642,105 |
Other assets |  | 127,259 |  | 187,494 |
Total liabilities |  | (203,239 | ) | (321,099 | )
Shareholders’ equity |  | $ | 375,842 |  | $ | 508,500 |
|  | For the Year Ended |
|  | December 31, |
(in thousands) |  | 2014 |  | 2013 |  | 2012 |
Operating Data (unaudited): |  |  |  |  |  |  |
Rental revenues |  | $ | 66,457 |  | $ | 93,608 |  | $ | 109,676 |
Other revenues |  | 43 |  | 68 |  | 115 |
Operating and maintenance expenses |  | (34,318 | ) | (48,718 | ) | (56,621 | )
Depreciation and amortization |  | (23,417 | ) | (31,450 | ) | (35,143 | )
Interest expense |  | (9,627 | ) | (13,752 | ) | (17,357 | )
Gain on sale, less applicable income tax |  | — |  | 5,851 |  | 36,610 |
Net income (loss) |  | $ | (862 | ) | $ | 5,607 |  | $ | 37,280 |
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 $945,000, $1,078,000 and $1,149,000 for the years ended December 31, 2014, 2013 and 2012, 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. The Company reviews Sponsored REIT loans for impairment each reporting period. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts recorded as assets on the balance sheet. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. None of the Sponsored REIT loans have been impaired. 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 one to three years. Except for the mortgage loan with a revolving line of credit component which bore interest at a fixed rate and was repaid in July 2012 and a mortgage loan 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. The following is a summary of the Sponsored REIT Loans outstanding as of December 31, 2014:
|  |  |  |  |  | Maximum |  | Amount |  |  |  |  |  | Interest |
(dollars in thousands) |  |  |  | Maturity |  | Amount |  | Drawn at |  | Interest |  | Draw |  | Rate at |
Sponsored REIT |  | Location |  | Date |  | of Loan |  | 31-Dec-14 |  | Rate (1) |  | Fee (2) |  | 31-Dec-14 |
Secured revolving lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Satellite Place Corp. |  | Duluth, GA |  | 31-Mar-15 |  | $ | 5,500 |  | $ | 5,500 |  | L+4.4 | % | 0.5 | % | 4.55 | %
FSP 1441 Main Street Corp. |  | Columbia, SC |  | 31-Mar-15 |  | 10,800 |  | 9,000 |  | L+4.4 | % | 0.5 | % | 4.55 | %
FSP Energy Tower I Corp. |  | Houston, TX |  | 3-Jul-15 |  | 20,000 |  | 8,600 |  | L+5.0 | % | 0.5 | % | 5.15 | %
Secured construction loan |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP 385 Interlocken |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Development Corp. |  | Broomfield, CO |  | 30-Apr-15 |  | 42,000 |  | 37,541 |  | L+4.4 | % | n/a |  | 4.55 | %
Mortgage loan secured by property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Energy Tower I Corp. (3) |  | Houston, TX |  | 3-Jul-15 |  | 33,000 |  | 33,000 |  | 6.41 | % | n/a |  | 6.41 | %
|  |  |  |  |  | $ | 111,300 |  | $ | 93,641 |  |  |  |  |  |  |
| (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) |  | The loan has a secured fixed mortgage amount of $33,000,000, which was extended for one year from July 5, 2014 to July 3, 2015 and an extension fee of $108,900 was paid by the borrower to the Company.
The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $5,296,000, $5,568,000 and $9,798,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

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