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v3.21.2

Real Estate Owned, Net (Tables) | 9 Months Ended
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Sep. 30, 2021
Real Estate [Abstract] |
Components of real estate owned, net | The following table presents the components of real estate owned, net:
| September 30, 2021 |  | December 31, 2020
| Cost |  | Accumulated Depreciation/Amortization |  | Net |  | Cost |  | Accumulated Depreciation/Amortization |  | Net
Real estate: |  |  |  |  |  |  |  |  |  |  |
Land | $ | 13,395,430 |  |  | $ | — |  |  | $ | 13,395,430 |  |  | $ | 13,395,430 |  |  | $ | — |  |  | $ | 13,395,430 |
Building and building improvements | 51,725,969 |  |  | (4,095,015) |  |  | 47,630,954 |  |  | 51,725,969 |  |  | (3,125,143) |  |  | 48,600,826 |
Tenant improvements | 1,854,640 |  |  | (885,916) |  |  | 968,724 |  |  | 1,854,640 |  |  | (670,090) |  |  | 1,184,550 |
Furniture and fixtures | 236,000 |  |  | (94,400) |  |  | 141,600 |  |  | 236,000 |  |  | (31,467) |  |  | 204,533 |
Total real estate | 67,212,039 |  |  | (5,075,331) |  |  | 62,136,708 |  |  | 67,212,039 |  |  | (3,826,700) |  |  | 63,385,339 |
Lease intangible assets: |  |  |  |  |  |  |  |  |  |  |
In-place lease | 14,982,538 |  |  | (6,849,595) |  |  | 8,132,943 |  |  | 15,852,232 |  |  | (6,172,747) |  |  | 9,679,485 |
Above-market rent | 156,542 |  |  | (55,594) |  |  | 100,948 |  |  | 156,542 |  |  | (42,427) |  |  | 114,115 |
Total intangible assets | 15,139,080 |  |  | (6,905,189) |  |  | 8,233,891 |  |  | 16,008,774 |  |  | (6,215,174) |  |  | 9,793,600 |
Lease intangible liabilities: |  |  |  |  |  |  |  |  |  |
Below-market rent | (2,754,922) |  |  | 1,353,240 |  |  | (1,401,682) |  |  | (3,371,314) |  |  | 1,702,800 |  |  | (1,668,514) |
Above-market ground lease | (8,896,270) |  |  | 412,770 |  |  | (8,483,500) |  |  | (8,896,270) |  |  | 315,008 |  |  | (8,581,262) |
Total intangible liabilities | (11,651,192) |  |  | 1,766,010 |  |  | (9,885,182) |  |  | (12,267,584) |  |  | 2,017,808 |  |  | (10,249,776) |
Total real estate | $ | 70,699,927 |  |  | $ | (10,214,510) |  |  | $ | 60,485,417 |  |  | $ | 70,953,229 |  |  | $ | (8,024,066) |  |  | $ | 62,929,163 |
The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Real estate operating revenues: |  |  |  |  |  |  |  |
Lease revenue |  | $ | 1,805,647 |  |  | $ | 2,515,678 |  |  | $ | 5,417,341 |  |  | $ | 6,359,883 |
Other operating income |  | 385,531 |  | 475,241 |  | 1,051,178 |  |  | 1,195,182 |
Total |  | $ | 2,191,178 |  |  | $ | 2,990,919 |  |  | $ | 6,468,519 |  |  | $ | 7,555,065 |
Real estate operating expenses: |  |  |  |  |  |  |  |
Utilities |  | 82,672 |  | 58,468 |  | $ | 153,140 |  |  | $ | 131,498 |
Real estate taxes |  | 356,350 |  | 234,375 |  | 1,046,823 |  |  | 700,125 |
Repairs and maintenances |  | 184,173 |  | 119,512 |  | 453,391 |  |  | 516,073 |
Management fees |  | 55,609 |  | 50,392 |  | 205,915 |  |  | 165,169 |
Lease expense, including amortization of above-market ground lease (1) |  | 487,163 |  | 283,538 |  | 1,597,239 |  |  | 850,614 |
Other operating expenses |  | 98,534 |  | 95,423 |  | 295,413 |  |  | 293,954 |
Total |  | $ | 1,264,501 |  |  | $ | 841,708 |  |  | $ | 3,751,921 |  |  | $ | 2,657,433 |
_______________ (1)As discussed in “Leases” below, the multi-tenant office building is subject to a ground lease, for which the rent resets every five years. The last rent reset was on November 1, 2020. Based on information available to the Company as of November 1, 2020, including the fact that there was a global pandemic with a potentially significant negative impact on real estate values, the Company estimated the value of the land was no greater than the value on the date of foreclosure and continued to accrue and pay rent at the then-existing rate. On June 2, 2021, the third-party appraisal process was completed, resulting in an increase of the annual base rent to $2.1 million from $1.3 million. The increase in base rent was retroactive back to November 1, 2020. The Company accounted for the change in base rent as a change in accounting estimate; as a result, the increase in rent from November 2020 through March 2021 was recorded in the period in which the change occurred, which is June 2021. Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $1.3 million for the nine months ended September 30, 2021 and total real estate operating expenses would have been $3.4 million for the nine months ended September 30, 2021.
Future minimum rents, exclusive of renewals and expenses paid by tenants | Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at September 30, 2021 are as follows:
Years Ending December 31, |  | Total
2021 (October 1 through December 31) |  | $ | 2,341,470 |
2022 |  | 7,504,551 |
2023 |  | 7,746,538 |
2024 |  | 7,995,237 |
2025 |  | 4,517,455 |
Thereafter |  | 3,864,450 |
Total |  | $ | 33,969,701 |
Scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter | Based on the intangible assets and liabilities recorded at September 30, 2021, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:
Years Ending December 31, |  | Net Decrease in Real Estate Operating Revenue (1) |  | Increase in Depreciation and Amortization (1) |  | Decrease in Rent Expense (1) |  | Total
2021 (October 1 through December 31) |  | $ | (84,555) |  |  | $ | 515,515 |  |  | $ | (32,587) |  |  | $ | 398,373 |
2022 |  | (338,220) |  |  | 2,062,060 |  |  | (130,348) |  |  | 1,593,492 |
2023 |  | (338,220) |  |  | 2,062,060 |  |  | (130,348) |  |  | 1,593,492 |
2024 |  | (338,220) |  |  | 2,062,060 |  |  | (130,348) |  |  | 1,593,492 |
2025 |  | (181,608) |  |  | 1,431,248 |  |  | (130,348) |  |  | 1,119,292 |
Thereafter |  | (19,911) |  |  | — |  |  | (7,929,521) |  |  | (7,949,432) |
Total |  | $ | (1,300,734) |  |  | $ | 8,132,943 |  |  | $ | (8,483,500) |  |  | $ | (1,651,291) |
_______________ (1)Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues; amortization of in-place lease intangibles is included in depreciation and amortization; and amortization of above-market ground lease is recorded as a reduction to rent expense.
Supplemental balance sheet information related to the ground lease | Supplemental balance sheet information related to the ground lease was as follows:
| September 30, 2021 |  | December 31, 2020
Operating lease |  |  |
Operating lease right-of-use assets (1) | $ | 27,398,786 |  |  | $ | 16,105,888 |
Operating lease liabilities | $ | 27,398,786 |  |  | $ | 16,105,888 |
Weighted average remaining lease term — operating lease (years) | 65.1 |  | 65.8
Weighted average discount rate — operating lease | 7.6 | % |  | 7.9 | %
_______________(1)The operating lease ROU assets and liabilities were remeasured at June 30, 2021 based on the new base rent resulting from the ground rent reset.
Component of lease expense for the ground lease | The component of lease expense for the ground lease was as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Operating lease cost (1) |  | $ | 519,750 |  |  | $ | 316,125 |  |  | $ | 1,695,000 |  |  | $ | 948,375 |
_______________(1)The increase in operating lease cost was a result of the ground rent reset described above.
Supplemental non-cash information related to the ground lease | Supplemental non-cash information related to the ground lease was as follows:
|  | Nine Months Ended September 30,
|  | 2021 |  | 2020
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 1,695,000 |  |  | $ | 948,375 |
Right-of-use assets obtained in exchange for lease obligations |  |  |  |
Operating leases |  | $ | 1,695,000 |  |  | $ | 948,375 |
Maturities of operating lease liabilities | Maturities of operating lease liabilities are as follows:
Years Ending December 31, |  | Operating Lease
2021 (October 1 through December 31) |  | $ | 519,750 |
2022 |  | 2,079,000 |
2023 |  | 2,079,000 |
2024 |  | 2,079,000 |
2025 |  | 2,079,000 |
Thereafter |  | 126,385,875 |
Total lease payments |  | 135,221,625 |
Less: Imputed interest |  | (107,822,839) |
Total |  | $ | 27,398,786 |

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