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Related Party Transactions and Investments in Non-Consolidated Entities | 9 Months Ended
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Sep. 30, 2022
Related Party Transactions and Investments in Non-Consolidated Entities |
Related Party Transactions and Investments in Non-Consolidated Entities | 2.  Related Party Transactions and Investments in Non-Consolidated Entities ​ Investment in Sponsored REITs: ​ At September 30, 2022 and December 31, 2021, the Company held a non-controlling common stock interest in one and two Sponsored REITs, respectively, in which the Company no longer shares in economic benefit or risk. ​ Management fees and interest income from loans: ​ Asset management fees range from 1% to 5% of collected rents and the applicable contracts are cancellable with 30 days notice. Asset management fee income from non-consolidated entities amounted to approximately $26,000 and $50,000 for the nine months ended September 30, 2022 and 2021, respectively. ​ From time to time the Company may make secured loans (“Sponsored REIT Loans”) to the Sponsored REIT 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 the current expected credit loss model (“CECL”) for Sponsored REIT Loans each reporting period. The measurement of expected credit losses is based upon historical experiences, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company has elected to apply the practical expedient for financial assets secured by collateral in instances where the borrower is experiencing financial difficulty and repayment of the Sponsored REIT Loan is expected to be provided substantially through operation or sale of the collateral. The Company uses the fair value of the collateral at the reporting date and an adjustment to the allowance for expected credit losses is recorded when the amortized cost basis of the financial asset exceeds the fair value of the collateral, less costs to sell. ​ 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 fair value, 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. ​ The Company anticipates the sole Sponsored REIT Loan outstanding will be repaid through operation or sale of the property. The outstanding Sponsored REIT Loan is secured by a mortgage on the underlying property and the balances within the borrower’s cash accounts. The Sponsored REIT Loan matures on June 30, 2023. ​ The following is a summary of the sole Sponsored REIT Loan outstanding as of September 30, 2022: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  |  |  |  |  | Maximum |  | Amount | Interest |
(dollars in thousands, except footnotes) |  | ​ | ​ | Maturity | ​ | Amount | ​ | Outstanding | Rate at |
Sponsored REIT |  | Location | ​ | Date | ​ | of Loan | ​ | 30-Sep-22 | 30-Sep-22 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
Mortgage loan secured by property | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
FSP Monument Circle LLC (1) | ​ | Indianapolis, IN | ​ | 30-Jun-23 | ​ | $ | 24,000 | ​ | $ | 24,000 | 7.51 | %
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | $ | 24,000 | ​ | $ | 24,000 | ​ | ​
​
(1) | The interest rate is a fixed rate and 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 Loan of approximately $1,367,000 and $1,196,000 for the nine months ended September 30, 2022 and 2021, respectively. ​ On October 29, 2021, the Company agreed to amend and restate its existing Sponsored REIT Loan to FSP Monument Circle LLC to extend the maturity date from December 6, 2022 to June 30, 2023 and to advance an additional $3.0 million tranche of indebtedness to FSP Monument Circle LLC with the same June 30, 2023 maturity date, effectively increasing the aggregate principal amount of the Sponsored REIT Loan from $21 million to $24 million. In addition, the Company agreed to defer all principal and interest payments due under the Sponsored REIT Loan until the maturity date on June 30, 2023. As part of its consideration for agreeing to amend and restate the Sponsored REIT Loan, the Company obtained from the stockholders of the parent of FSP Monument Circle LLC the right to vote their shares in favor of any sale of the property owned by FSP Monument Circle LLC any time on or after January 1, 2023. There were no commitments to lend additional funds to the Sponsored REIT and the loan is collateralized by the mortgage held on the Sponsored REIT’s property and by cash accounts, as of September 30, 2022. ​ As of December 31, 2021, we did not have an allowance for credit losses recorded on our consolidated balance sheets. We recorded a $1.9 million increase in our provision for credit losses during the nine months ended September 30, 2022. The change in the allowance for credit losses during the nine months ended September 30, 2022 is primarily due to the deterioration within the current real estate market, changes to key assumptions applied within our financial model to reflect these market changes, such as the exit cap and the discount rate, and due to an increase in the accrued interest receivable balance. The following table presents a roll-forward of our allowance for credit losses. ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Nine Months Ended September 30,
(Dollars in thousands) |  | ​ | 2022 |  | ​ | 2021
​ | ​ | ​ | ​ | ​ | ​ | ​
Beginning allowance for credit losses | ​ | $ | — | ​ | $ | —
Additional increases to the allowance for credit losses | ​ | ​ | 1,857 | ​ | ​ | —
Ending allowance for credit losses | ​ | $ | 1,857 | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​
​ ​ The following is quantitative information about significant unobservable inputs in our Level 3 measurement of the Sponsored REIT Loan measured at fair value on a nonrecurring basis: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Fair Value (1) at |  | ​ |  | Significant |  | Range | ​ | Weighted
Description | ​ | September 30, 2022 | ​ | Valuation Technique | ​ | Unobservable Input | ​ | Min | ​ | Max |  | Average (2)
​ | ​ | ​ | (in thousands) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sponsored REIT Loan | ​ | $ | 22,143 |  | Discounted Cash Flows | ​ | Exit Cap Rate |  | 7.50 | % | ​ | 7.50 | % | ​ | 7.50 | %
​ | ​ | ​ | ​ | ​ | ​ | ​ | Discount Rate | ​ | 8.75 | % | ​ | 8.75 | % | ​ | 8.75 | %
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(1) Classified within Level 3 of the fair value hierarchy. | ​
(2) Unobservable inputs were weighted based on the fair value of the related instrument. | ​
​

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