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Real Estate Owned, Net
 12 Months Ended
Dec. 31, 2022
Real Estate [Abstract]  
Real Estate Owned, Net
Note 6. Real Estate Owned, Net

Real Estate Activities

2022 — In June 2022, the Company sold 4.9 acres of land it owned in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.1 million excluding impairment charges of $1.6 million and $3.4 million recognized in March 2022 and December 2021, respectively.

2021 — In September 2021, the Company signed a new lease for the vacant space in an office building. The lease commenced on December 1, 2021 and has term of 10 years with an option to extend the lease for 5 years. Additionally, the lease provides for a fixed rental payment plus a percentage rent that is based on 6% of the gross sales of the tenant’s business. The lease also provides a 3% increase in rental payment every year.

In November 2021, the Company received notice from a tenant of their intention to terminate its lease effective November 30, 2022. In connection with the lease termination, the Company received a termination fee of $3.1 million, to be amortized to income over the remaining life of the lease.

In December 2021, the Company recorded an impairment charge of $3.4 million on the 4.9 acres of land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

Real Estate Owned, Net

    Real estate owned was comprised of 4.9 acres of land located in Pennsylvania and a multi-tenant office building, with lease intangible assets and liabilities, located in California. The following table presents the components of real estate owned, net as of:
 December 31, 2022December 31, 2021
CostAccumulated Depreciation/AmortizationNetCostAccumulated Depreciation/AmortizationNet
Real estate:
Land (1)
$— $— $— $10,000,000 $— $10,000,000 
Building and building
   improvements		51,725,969 (5,711,468)46,014,501 51,725,969 (4,418,305)47,307,664 
Tenant improvements1,854,640 (1,224,648)629,992 1,854,640 (947,369)907,271 
Furniture and fixtures236,000 (220,267)15,733 236,000 (125,867)110,133 
Total real estate53,816,609 (7,156,383)46,660,226 63,816,609 (5,491,541)58,325,068 
Lease intangible assets:
In-place lease14,982,538 (12,493,079)2,489,459 14,982,538 (7,627,326)7,355,212 
Above-market rent156,542 (77,540)79,002 156,542 (59,983)96,559 
Total intangible assets15,139,080 (12,570,619)2,568,461 15,139,080 (7,687,309)7,451,771 
Lease intangible liabilities:
Below-market rent(2,754,922)2,428,647 (326,275)(2,754,922)1,496,125 (1,258,797)
Above-market ground lease(8,896,270)575,705 (8,320,565)(8,896,270)445,357 (8,450,913)
Total intangible liabilities(11,651,192)3,004,352 (8,646,840)(11,651,192)1,941,482 (9,709,710)
Total real estate$57,304,497 $(16,722,650)$40,581,847 $67,304,497 $(11,237,368)$56,067,129 
_______________
(1)The 4.9 acres of land in Pennsylvania was sold by the Company in the second quarter of 2022.
Real Estate Operating Revenues and Expenses

    The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:
Years Ended December 31,
20222021
Real estate operating revenues:
Lease revenue$6,782,778 $7,167,049 
Other operating income4,669,136 1,727,942 
Total$11,451,914 $8,894,991 
Real estate operating expenses:
Utilities$235,403 $208,098 
Real estate taxes1,400,519 1,401,279 
Repairs and maintenances728,944 645,316 
Management fees267,188 271,303 
Lease expense, including amortization of above-market ground lease1,948,652 2,084,402 
Other operating expenses424,845 393,495 
Total$5,005,551 $5,003,893 

Leases

    As of December 31, 2022, the Company owned a multi-tenant office building that was leased to four tenants. In addition, the office building is subject to a ground lease whereby the Company is the lessee (or a tenant) to the ground lease. The ground lease had a remaining lease term of 64.6 years as of December 31, 2022, and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9% of the fair market value of the land. The next rent reset on the ground lease is scheduled for November 1, 2025. The Company is currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Since future rent reset determinations under the ground lease cannot be known at this time, the Company did not include any potential future rent increases in calculating the present value of future rent payments. The Company intends vigorously to pursue the litigation. While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building.

Scheduled Future Minimum Rent Income 

    Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at December 31, 2022 are as follows: 
Years Ending December 31,Total
2023$4,235,538 
20244,380,043 
2025792,925 
2026816,724 
2027598,943 
Thereafter1,815,497 
Total$12,639,670 
Scheduled Annual Net Amortization of Intangibles 

    Based on the intangible assets and liabilities recorded at December 31, 2022, 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
2023$(139,056)$1,093,878 $(130,348)$824,474 
2024(152,107)1,177,775 (130,348)895,320 
202517,556 87,121 (130,348)(25,671)
202617,556 87,121 (130,348)(25,671)
20278,778 43,564 (130,348)(78,006)
Thereafter— — (7,668,825)(7,668,825)
Total$(247,273)$2,489,459 $(8,320,565)$(6,078,379)
_______________
(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 Ground Lease Disclosures
    
    Supplemental balance sheet information related to the ground lease was as follows as of:    
December 31,
20222021
Operating lease
Operating lease right-of-use asset $27,378,786 $27,394,936 
Operating lease liability$27,378,786 $27,394,936 
Weighted average remaining lease term — operating lease (years)63.864.8
Weighted average discount rate — operating lease7.6 %7.6 %

    The component of lease expense for the ground lease was as follows:
Years Ended December 31,
20222021
Operating lease cost $2,079,000 $2,214,750 
    
Supplemental non-cash information related to the ground lease was as follows:
Years Ended December 31,
20222021
Amounts included in the measurement of lease liability:
Operating cash flows from an operating lease$2,079,000 $2,214,750 
Right-of-use asset obtained in exchange for lease obligations:
Operating lease$2,079,000 $2,214,750 
    Maturities of operating lease liability as of December 31, 2022 was as follows:
Years Ending December 31,Operating Lease
2023$2,079,000 
20242,079,000 
20252,079,000 
20262,079,000 
20272,079,000 
Thereafter122,227,875 
Total lease payments132,622,875 
Less: Imputed interest(105,244,089)
Total$27,378,786