3.    RECENT TRANSACTIONS



Management Changes

In March 2018, the Company announced the appointment of Michael J. DeMarco, Chief Executive Officer of the General Partner, to its Board of Directors effective immediately.  Mr. DeMarco’s addition to the Board expanded the total number of members from nine to ten.



In January 2018, the Company announced the appointment of David J. Smetana as chief financial officer and Nicholas Hilton as executive vice president of leasing of the General Partner.  Mr. Smetana began to perform his duties as chief financial officer and Anthony Krug ceased to serve as chief financial officer immediately following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  Mr. Krug remained an employee of the Company and provided transition services through March 31, 2018.  Mr. Hilton’s employment commenced on February 12, 2018 following the departure of Christopher DeLorenzo. 



In June 2018, the Company announced that the employment of Mitchell E. Rudin as Vice Chairman of the General Partner was terminated effective as of June 5, 2018.  In addition, the Company also restructured certain other corporate and property management personnel during the nine month period ended September 30, 2018. 



As a result of the executive management changes as well as other personnel changes during the period, the Company incurred total net severance and related expenses in the nine months ended September 30, 2018 of $7.5 million, $6.2 million of which was included in general and administrative expense (including $1.1 million of stock compensation expense due to accelerated vesting and a net reversal of $1.7 million of amortization of stock compensation expense due to the forfeiture of unvested securities) and  $1.3 million of which was included in operating services expense for the period.  Included in the three month period ended September 30, 2018 was $0.6 million of these expenses, which was primarily recorded in operating services expense.





Properties Commencing Initial Operations

The following property commenced initial operations during the nine months ended September 30, 2018 (dollars in thousands):





 

Consolidation

On August 2, 2018, the Company, which held a 24.27 percent subordinated interest in the unconsolidated joint venture, Marbella Tower Urban Renewal Associates LLC, a 412-unit multi-family operating property located in Jersey City, New Jersey, acquired its equity partner’s 50 percent interest for $65.6 million in cash.  The property was subject to a mortgage loan that had a principal balance of $95 million.  The cash portion of the acquisition was funded primarily through borrowings under the Company's unsecured revolving credit facility.  Concurrently with the closing, the joint venture repaid the $95 million mortgage loan in full and obtained a new loan collateralized by the property in the amount of $131 million, which bears interest at 4.07 percent and matures in August 2026.  The venture distributed $37.4 million of the loan proceeds, of which the Company’s share was $30.4 million.  As a result of the acquisition, the Company increased its ownership of the property from a 24.27 percent subordinated interest to a 74.27 percent controlling interest.  In accordance with ASC 810, Consolidation, the Company evaluated the acquisition and determined that the entity meets the criteria of a VIE.  As such, the Company consolidated the asset upon acquisition and accordingly, remeasured its equity interests, as required by the FASB's consolidation guidance, at fair value (based upon the income approach using current rates and market cap rates and discount rates).  As a result, the Company recorded a gain on change of control of interests of $14.2 million (a non-cash item) in the three and nine months ended September 30, 2018, in which the Company accounted the transaction as a VIE that is not a business in accordance with ASC 810-10-30-4.  Additional non-cash items included in the acquisition were the Company’s carrying value of its interest in the joint venture of $14 million and the noncontrolling interest’s fair value of $29.8 million.  See Note 9: Mortgages, Loans Payable and Other Obligations.







Dispositions/Rental Property Held for Sale

The Company disposed of the following office properties during the nine months ended September 30, 2018 (dollars in thousands):





Rental Property Held for Sale, Net

The Company identified as held for sale four office properties, totaling approximately 680,000 square feet, and a 159-unit multi-family rental property as of September 30, 2018.  The properties are located in Paramus, Bridgewater, Rochelle Park, Morris Plains and Rahway, New Jersey.  The total estimated sales proceeds, net of expected selling costs, from the sales are expected to be approximately $85.5 million.    The Company determined that the carrying value of four of the properties was not expected to be recovered from estimated net sales proceeds and accordingly recognized an unrealized loss allowance of $20.1 million for the nine months ended September 30, 2018, of which $19.6 million was recognized during the three months ended September 30, 2018.    



The following table summarizes the rental property held for sale, net, as of September 30, 2018:  (dollars in thousands)    





Other assets and liabilities related to the rental properties held for sale, as of September 30, 2018, include $2.7 million in Deferred charges and other assets, $1.0 million in Unbilled rents receivable and $2.4 million in Accounts payable, accrued expenses and other liabilities.  Approximately $3.0 million of these assets and $1.6 million of these liabilities are expected to be removed with the completion of the sales.