Real Estate Joint Ventures
Consolidated Real Estate Joint Ventures
The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of December 31, 2015 (dollars in thousands):
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Nominal |
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Ownership |
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December 31, 2015 |
(1) |
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Date |
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% as of |
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Total |
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Encumbered |
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Total |
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Acquired |
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12/31/2015 |
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Nature of Activity |
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Assets |
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Assets |
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Liabilities |
LW Redstone Company, LLC |
3/23/2010 |
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85% |
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Development and operation of real estate (2) |
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$ |
147,612 |
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$ |
82,721 |
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$ |
54,022 |
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M Square Associates, LLC |
6/26/2007 |
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50% |
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Development and operation of real estate (3) |
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56,455 |
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48,245 |
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37,568 |
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Stevens Investors, LLC |
8/11/2015 |
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95% |
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Development of real estate (4) |
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5,284 |
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— |
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393 |
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$ |
209,351 |
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$ |
130,966 |
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$ |
91,983 |
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(1) Excludes amounts eliminated in consolidation.
(2) This joint venture’s property is in Huntsville, Alabama.
(3) This joint venture’s properties are in College Park, Maryland.
(4) This joint venture’s property is in Washington, DC.
With regard to our consolidated joint ventures:
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For LW Redstone, LLC, we anticipate funding certain infrastructure costs (up to a maximum of $76.0 million excluding accrued interest thereon) due to be reimbursed by the City of Huntsville as discussed further in Note 8; as of December 31, 2015, we had advanced $37.2 million to the City to fund such costs (excluding accrued interest; the aggregate amount outstanding under these notes, including accrued interest, was $44.9 million as of December 31, 2015 and is included in investing receivables on our consolidated balance sheets). We also expect to fund additional development and construction costs through equity contributions to the extent that third party financing is not obtained. Our partner was credited with a $9.0 million capital account upon formation and is not required to make any future equity contributions. While net cash flow distributions to the partners vary depending on the source of the funds distributed, cash flows are generally distributed as follows:
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cumulative preferred returns on capital invested to fund the project’s infrastructure costs on a pro rata basis to us and our partner; |
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cumulative preferred returns on our capital invested to fund the project’s vertical construction; |
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return of our invested capital; |
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return of our partner’s capital; |
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any remaining residual 85% to us and 15% to our partner.
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Our partner has the right to require us to acquire its interest for fair value beginning in March 2020; accordingly, we classify the fair value of our partner’s interest as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. We have the right to purchase our partner’s interest at fair value upon the earlier of five years following the project’s achievement of a construction commencement threshold of 4.4 million square feet or March 2040; the project had achieved 594,000 square feet of construction commencement through December 31, 2015;
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For M Square Associates, LLC, net cash flows of this entity will be distributed to the partners as follows: (1) member loans and accrued interest; (2) our preferred return and capital contributions used to fund infrastructure costs; (3) the partners’ preferred returns and capital contributions used to fund all other costs, including the base land value credit, in proportion to the accrued returns and capital accounts; and (4) residual amounts distributed 50% to each member.
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For Stevens Investors, LLC, net cash flows of this entity will be distributed to the partners as follows: (1) member loans and accrued interest; (2) pro rata return of the partners’ capital; (3) pro rata return of the partners’ respective unpaid preferred returns; and (4) varying splits of 85% to 60% to us and the balance to our partners as we reach specified return hurdles. Our partners have the right to require us to acquire some or all of their interests for fair value for a defined period of time following the construction completion and stabilization (as defined in the operating agreement) of the joint venture’s office property; accordingly, we classify the fair value of our partners’ interest as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. Our partners have the right to receive some or all of the consideration for the acquisition of their interests in the form of common units in COPLP.
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We disclose the activity of our redeemable noncontrolling interests in Note 12.
The ventures discussed above include only ones in which parties other than COPLP and COPT own interests.
During the periods included herein, we also owned investments in the following consolidated real estate joint ventures:
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Arundel Preserve #5, LLC, a joint venture owning property in Hanover, Maryland (in the Baltimore/Washington Corridor) and in which we had a 50% nominal ownership interest. On September 17, 2013, we acquired our partner’s noncontrolling interest, along with incremental additional land value in the venture, in exchange for 221,501 common units in COPLP valued at $5.2 million;
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MOR Forbes 2 LLC, a joint venture owning property in Lanham, Maryland (in the Baltimore/Washington Corridor) and in which we had a 50% nominal ownership interest. On December 11, 2013, the joint venture sold the property, after which the proceeds were distributed to the partners and there was substantially no remaining business operations or property; and
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COPT-FD Indian Head, LLC, a joint venture owning property in Charles County, Maryland (in our “Other” region). On August 7, 2014, the joint venture’s property was repurchased by Charles County under the terms of a development agreement for $6.4 million, after which the proceeds were distributed to the partners and there was no remaining business operations or assets.
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We consolidate the real estate joint ventures described above because we have: (1) the power to direct the matters that most significantly impact the activities of the joint ventures, including development, leasing and management of the properties constructed by the VIEs; and (2) the right to receive returns on our fundings and, in many cases, the obligation to fund the activities of the ventures to the extent that third-party financing is not obtained, both of which could be potentially significant to the VIEs.
Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 20.
Unconsolidated Real Estate Joint Venture
We had a 20% ownership interest in an unconsolidated real estate joint venture that operated 16 operating properties, and in which we had a negative investment balance of $6.4 million as of December 31, 2012. We accounted for the investment in the joint venture using the equity method of accounting. On December 6, 2013, the holder of mortgage debt encumbering all of the joint venture’s properties foreclosed on the properties. As a result, title to the properties was transferred to the mortgage lender and the joint venture was relieved of the debt obligation. We recognized a gain on the substantive disposition of our investment in the joint venture in 2013 of $6.3 million, which is included in the line entitled “gain on sales of real estate, net of income taxes” on our consolidated statements of operations.