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Related Party Transactions and Investments in Non-Consolidated Entities | 12 Months Ended
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Dec. 31, 2018
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 a common stock interest in 3, 6, and 7 Sponsored REITs at December 31, 2018, 2017 and 2016, respectively. The Company held a non-controlling preferred stock investment in two Sponsored REITs, FSP 303 East Wacker Drive Corp. (“East Wacker”) and FSP Grand Boulevard Corp. (“Grand Boulevard”), which were liquidated during the three months ended September 30, 2018. In December 2007, the Company purchased 965.75 preferred shares or 43.7% of the outstanding preferred shares of East Wacker. On September 24, 2018, the property owned by East Wacker was sold and, thereafter, East Wacker declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $70.0 million. On September 27, 2018, the Company received $69.0 million in an initial cash distribution. As a result of the sale, the Company recognized a gain on liquidation of $7.1 million. As of December 31, 2018, the Company held a beneficial interest in the East Wacker liquidating trust in the amount of $1.0 million, which is included in other assets in the accompanying consolidated balance sheet. In May 2009, the Company purchased 175.5 preferred shares or 27.0% of the outstanding preferred shares of Grand Boulevard. On July 19, 2018, the property owned by Grand Boulevard was sold and, thereafter, Grand Boulevard declared and issued a liquidating distribution for its preferred shareholders, from which the Company was entitled to $6.2 million. On August 17, 2018, the Company received $5.9 million in an initial cash distribution. As a result of the sale, the Company recognized a loss on liquidation of $0.1 million. As of December 31, 2018, the Company held a beneficial interest in the Grand Boulevard liquidating trust in the amount of $0.3 million, which is included in other assets in the accompanying consolidated balance sheet. Equity in income (loss) of investments in non-consolidated REITs is derived from the Company’s share of income or loss in the operations of those entities and includes gain or loss on liquidation. The Company exercised influence over, but did not control these entities, and investments are accounted for using the equity method. During the year ended December 31, 2018 a property owned by a Sponsored REIT, FSP Centre Pointe V Corp. was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued. During the year ended December 31, 2017, a property owned by one Sponsored REIT was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued. The Company held a mortgage loan with this entity, which was secured by the property owned by FSP 1441 Main Street Corp. (“1441 Main”). The loan with 1441 Main in the principal amount of $9,000,000 was repaid by the proceeds of the sale. During the year ended December 31, 2016, properties owned by two Sponsored REITs were sold and, thereafter, liquidating distributions for their preferred shareholders were declared and issued. The Company held a mortgage loan with one of these entities, which was secured by the property owned by FSP 385 Interlocken Development Corp. (“385 Interlocken”). The loan with 385 Interlocken in the principal amount of $37,500,000 was repaid by the proceeds of the sale. Equity in income (loss) of investment in non-consolidated REITs: The following table includes equity in losses of investments in non-consolidated REITs:
|  | Year Ended December 31, |
(in thousands) |  | 2018 |  | 2017 |  | 2016 |
Equity in income (loss) of East Wacker |  | $ | 7,209 |  | $ | (428) |  | $ | (563) |
Equity in (loss) of Grand Boulevard |  |  | (107) |  |  | (657) |  |  | (268) |
Impairment charge |  |  | (309) |  |  | (2,519) |  |  | — |
|  | $ | 6,793 |  | $ | (3,604) |  | $ | (831) |
Equity in income (loss) of East Wacker was 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. On September 24, 2018, the property owned by East Wacker was sold at a gain, which is included in equity in income (loss) of non-consolidated REITs on the consolidated statements of income. Equity in loss 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. On July 19, 2018, the property owned by Grand Boulevard was sold at a loss, which is included in equity in income (loss) of non-consolidated REITs on the consolidated statements of income. At June 30, 2018 and December 31, 2017, the Company recognized impairment charges of $309,000 and $2,519,000, respectively, which represented the other-than-temporary decline in the fair value below the carrying value of one of the Company’s investments in non-consolidated REITs. The Company estimated the fair value of its equity investment by estimating the fair value of the property, less estimated costs to sell using a purchase and sale agreement to purchase the property made by third parties (Level 3 inputs, as there is no active market). The following table includes distributions received from non-consolidated REITs:
|  | Year Ended December 31, |
(in thousands) |  | 2018 |  | 2017 |  | 2016 |
Distributions from East Wacker |  | $ | 657 |  | $ | 1,289 |  | $ | 916 |
Distributions from Grand Boulevard |  |  | 53 |  |  | 107 |  |  | 107 |
|  | $ | 710 |  | $ | 1,396 |  | $ | 1,023 |
Non-consolidated REITs The operating data below for 2018 includes the operations of the 6 Sponsored REITs the company held an interest in during the year and the 3 Sponsored REITs the Company held an interest in as of December 31, 2018. The operating data below for 2017 includes the operations of the 7 Sponsored REITs the company held an interest in during the year and the 6 Sponsored REITs the Company held an interest in as of December 31, 2017. The operating data below for 2016 includes the operations of the 9 Sponsored REITs the Company held an interest in during the year and the 7 Sponsored REITs the Company held an interest in as of December 31, 2016. Summarized financial information for the Sponsored REITs is as follows:
|  | December 31, |  | December 31, |
(in thousands) |  | 2018 |  | 2017 |
Balance Sheet Data (unaudited): |  |  |  |  |  |  |
Real estate, net |  | $ | 97,034 |  | $ | 312,861 |
Other assets |  |  | 18,532 |  |  | 74,076 |
Total liabilities |  |  | (75,382) |  |  | (151,092) |
Shareholders’ equity |  | $ | 40,184 |  | $ | 235,845 |
|  | For the Year Ended |
|  | December 31, |
(in thousands) |  | 2018 |  | 2017 |  | 2016 |
Operating Data (unaudited): |  |  |  |  |  |  |  |  |  |
Rental revenues |  | $ | 40,382 |  | $ | 53,249 |  | $ | 54,257 |
Other revenues |  |  | 1 |  |  | 7 |  |  | 39 |
Operating and maintenance expenses |  |  | (20,584) |  |  | (27,495) |  |  | (29,186) |
Depreciation and amortization |  |  | (13,077) |  |  | (18,395) |  |  | (18,274) |
Interest expense |  |  | (6,869) |  |  | (8,281) |  |  | (8,481) |
Gain (loss) on sale |  |  | 17,095 |  |  | (702) |  |  | 26,397 |
Net income (loss) |  | $ | 16,948 |  | $ | (1,617) |  | $ | 24,752 |
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 day notice. Asset management fee income from non-consolidated entities amounted to approximately $450,000, $598,000 and $631,000 for the years ended December 31, 2018, 2017 and 2016, 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 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 refinancing, 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 two mortgage loans which bear 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 require a 50 basis point draw fee. The following is a summary of the Sponsored REIT Loans outstanding as of December 31, 2018:
|  |  |  |  |  | Maximum |  | Amount |  |  |  |  |  |  | Interest |
(dollars in thousands, except footnotes) |  |  |  | Maturity |  | Amount |  | Drawn at |  | Interest |  | Draw |  | Rate at |
Sponsored REIT |  | Location |  | Date |  | of Loan |  | 31-Dec-18 |  | Rate (1) |  | Fee (2) |  | 31-Dec-18 |
Secured revolving lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Satellite Place Corp. |  | Duluth, GA |  | 31-Dec-19 |  | $ | 5,500 |  | $ | 1,060 |  | L+ | 4.4 | % | 0.5 | % | 6.78 | %
FSP Energy Tower I Corp. |  | Houston, TX |  | 30-Jun-19 |  |  | 20,000 |  |  | 15,600 |  | L+ | 5.0 | % | 0.5 | % | 7.38 | %
Mortgage loan secured by property |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FSP Monument Circle LLC (3) (4) |  | Indianapolis, IN |  | 6-Dec-20 |  |  | 21,000 |  |  | 21,000 |  |  | 7.19 | % | n/a |  | 7.19 | %
FSP Energy Tower I Corp. (5) |  | Houston, TX |  | 30-Jun-19 |  |  | 33,000 |  |  | 33,000 |  |  | 6.41 | % | n/a |  | 6.41 | %
|  |  |  |  |  | $ | 79,500 |  | $ | 70,660 |  |  |  |  |  |  |  |
| (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) |  | This loan was extended on December 6, 2018.
| (4) |  | This mortgage loan includes an origination fee of $164,000 and an exit fee of $38,000 when repaid by the borrower.
| (5) |  | This mortgage loan includes an annual extension fee of $108,900 paid by the borrower.
The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $4,610,000, $4,687,000 and $4,834,000 for the years ended December 31, 2018, 2017 and 2016, respectively.

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