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Related Party Transactions and Investments in Non-Consolidated Entities | 12 Months Ended
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Dec. 31, 2020
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 2, 2, and 3 Sponsored REITs at December 31, 2020, 2019 and 2018, 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”), each of 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, and on April 3, 2019, the Company received a $1 million distribution. As a result of the sale, the Company recognized a gain on liquidation of $7.1 million. ​ 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, and on February 2, 2019, the Company received a $0.2 million distribution. As a result of the sale, the Company recognized a loss on liquidation of $0.1 million. As of December 31, 2020 and 2019, the Company held a beneficial interest in the Grand Boulevard liquidating trust in the amount of $0.1 million, which is included in other assets in the accompanying consolidated balance sheet as of such date. ​ Equity in income (loss) of investments in non-consolidated REITs were 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 were accounted for using the equity method. ​ During the year ended December 31, 2019, a property owned by a Sponsored REIT, FSP Energy Tower I Corp. (“Energy Tower”), was sold and, thereafter, liquidating distributions for its preferred shareholders were declared and issued. The Company held a mortgage loan and secured revolving line of credit with this entity, which were secured by the property owned by Energy Tower. The loans with Energy Tower in the aggregate principal amount of $51.0 million were repaid by the proceeds of the sale. ​ 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. ​ Equity in income (loss) of investment in non-consolidated REITs: ​ The following table includes equity in income (loss) of investments in non-consolidated REITs: ​
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Year Ended | ​
​ | ​ | ​ | December 31, | ​
(in thousands) |  | 2018 |
​ | ​ | ​ | ​ |
Equity in income of East Wacker | ​ | $ | 7,209 | ​
Equity in loss of Grand Boulevard | ​ | ​ | (107) | ​
Impairment charge | ​ |  | (309) | ​
Total | ​ | $ | 6,793 | ​
​ Equity in income 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, the Company recognized an impairment charge of $0.3 million, 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 |
​ | ​ | ​ | ​ | ​
Distributions from East Wacker | ​ | $ | 657 | ​
Distributions from Grand Boulevard | ​ |  | 53 | ​
​ | ​ | $ | 710 | ​
​ Non-consolidated REITs ​ As of December 31, 2020, the Company has a non-controlling common stock interest in two Sponsored REITs in which the Company no longer shares in economic benefit or risk. The balance sheet data below for 2018 includes the three Sponsored REITs the Company held an interest in as of December 31, 2018. The operating data below for 2018 includes the operations of the six Sponsored REITs the Company held an interest in during the year ended December 31, 2018. ​ Summarized financial information for the Sponsored REITs is as follows: ​
​ | ​ | ​ | ​ | ​
​ |  | December 31, |
(in thousands) | ​ | 2018 |
​ | ​ | ​ | ​ |
Balance Sheet Data (unaudited): | ​ | ​ | ​ | ​
Real estate, net | ​ | $ | 97,034 | ​
Other assets | ​ |  | 18,532 | ​
Total liabilities | ​ |  | (75,382) | ​
Shareholders’ equity | ​ | $ | 40,184 | ​
​
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Year Ended | ​
​ | ​ | ​ | December 31, | ​
(in thousands) |  | 2018 |
​ | ​ | ​ | ​ |
Operating Data (unaudited): | ​ | ​ | ​ | ​
Rental revenues | ​ | $ | 40,382 | ​
Other revenues | ​ |  | 1 | ​
Operating and maintenance expenses | ​ |  | (20,584) | ​
Depreciation and amortization | ​ |  | (13,077) | ​
Interest expense | ​ |  | (6,869) | ​
Gain on sale | ​ |  | 17,095 | ​
Net income | ​ | $ | 16,948 | ​
​ 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 $0.1 million, $0.2 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018, 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 the need for an allowance under CECL for Sponsored REIT loans each reporting period. The Company regularly evaluates the extent and impact of any credit deterioration that could affect performance and the value of the secured property, as well as the financial and operating capability of the borrower. A property’s operating results and existing cash balances are considered and used to assess whether cash flows from operations are sufficient to cover the current and future operating and debt service requirements. The Company also evaluates the borrower’s competency in managing and operating the secured property and considers the overall economic environment, real estate sector and geographic sub-market in which the secured property is located. 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. ​ The following is a summary of the Sponsored REIT Loan outstanding as of December 31, 2020: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  |  |  |  |  | Maximum |  | Amount | Interest |
(dollars in thousands, except footnotes) |  | ​ | ​ | Maturity | ​ | Amount | ​ | Outstanding | Rate at |
Sponsored REIT |  | Location | ​ | Date | ​ | of Loan | ​ | 31-Dec-20 | 31-Dec-20 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
Mortgage loan secured by property | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
FSP Monument Circle LLC (1) | ​ | Indianapolis, IN | ​ | 6-Dec-22 | ​ | $ | 21,000 | ​ | $ | 21,000 | 7.51 | %
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | $ | 21,000 | ​ | $ | 21,000 | ​ | ​
(1)This mortgage loan includes an origination fee of $164,000 and an exit fee of $38,000 when repaid by the borrower. ​ The Company recognized interest income and fees from the Sponsored REIT Loans of approximately $1.5 million, $3.3 million and $4.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The financial instrument was classified within Level 3 of the fair value hierarchy and had a fair value of approximately $20.4 million as of December 31, 2020. ​ On December 6, 2020, the Company entered into a second amendment to the Sponsored REIT Loan which qualified as a troubled debt restructuring. The amendment extended the maturity date of the loan for two years and increased the interest rate from 7.19% to 7.51%. There were no commitments to lend additional funds to the Sponsored REIT and the loan is fully collateralized by the mortgage held on the Sponsored REIT's property.

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