LITIGATION

The Company is a defendant in litigation arising in the normal course of its business activities. Management does not believe that the ultimate resolution of these matters will have a materially adverse effect upon the Company’s financial condition taken as whole.

GROUND LEASE AGREEMENTS

Future minimum rental payments under the terms of all non-cancelable ground leases under which the Company is the lessee, as of September 30, 2021 and December 31, 2020, are as follows (dollars in thousands):

Ground lease expense incurred by the Company amounted to $533,000 and $473,000 for the three months ended September 30, 2021 and 2020, respectively, and $1.9 million and $1.8 million for the nine months ended September 30, 2021 and 2020, respectively.

In conjunction with the adoption of ASU 2016-02 (Topic 842), starting on January 1, 2019, the Company capitalized operating leases, which had a balance of $22.3 million at September 30, 2021 for three ground leases. Such amount represents the net present value (“NPV”) of future payments detailed above. The incremental borrowing rates used to arrive at the NPV ranged from 7.576 percent to 7.618 percent for the remaining ground lease terms ranging from 80.83 years to 82.58 years. These rates were arrived at by adjusting the fixed rates of the Company’s mortgage debt with debt having terms approximating the remaining lease term of the Company’s ground leases and calculating notional rates for fully-collateralized loans.

CONSTRUCTION PROJECTS

The Company is developing a 750-unit multi-family project at 25 Christopher Columbus, also known as Haus 25, in Jersey City, New Jersey, which began construction in first quarter 2019. The construction project, which is estimated to cost $469.5 million, of which $406.8 million has been incurred through September 30, 2021, is expected to be ready for occupancy in first quarter 2022. The Company has funded $169.5 million of the construction costs, and the remaining construction costs are expected to be funded from a $300 million construction loan (of which $237.3 million was drawn as of September 30, 2021).

MANAGEMENT CHANGES

On March 3, 2021, the Company announced that its Board of Directors had appointed Mahbod Nia as Chief Executive Officer of the Company. The appointment was effective as of March 8, 2021 (the “CEO Effective Date”).

The Company’s Board approved and the Company entered into an employment agreement dated March 2, 2021 with Mr. Nia (the “CEO Employment Agreement”) that provides as follows: ·

An initial term of three years, commencing on the Effective Date, subject to automatic annual renewals thereafter unless earlier terminated; An annual base salary of $800,000, subject to potential merit increases (but not decreases) each year; a target annual bonus opportunity of 150% of base salary (the “Target Bonus”), with a threshold bonus of 50% of the Target Bonus, and a maximum bonus of 200% of the Target Bonus, based on performance goals to be established annually by the Compensation Committee. On March 10, 2021 Mr. Nia was granted a one-time sign-on “inducement” award of 950,000 stock options to purchase the Company’s common stock, at an exercise price equal to the closing price of the common stock on the date of grant, which will vest and become exercisable in three substantially equal installments on each of the first 3 anniversaries following the date of grant (the “Sign-On Award”). Each calendar year while Mr. Nia is employed (including 2021), Mr. Nia will be eligible for an annual equity award under the Company’s then-current equity incentive plan with an aggregate grant date fair value of $4,000,000. One-half of each annual equity award will vest subject to time-based vesting conditions, and one-half of each annual equity award will vest subject to performance-based vesting conditions.· In addition to standard employee benefits (including health coverage for Mr. Nia and his dependents in the U.S. and the U.K, not to exceed a cost to the Company of $25,000 per year), Mr. Nia will receive up to $30,000 per year in tax compliance assistance, reimbursement of attorneys’ fees in connection with negotiating the Employment Agreement up to $100,000, and, in the event that Mr. Nia relocates his principal residence to the Jersey City, New Jersey metropolitan area, reimbursement for relocation costs up to $50,000 in the aggregate.

Under the CEO Employment Agreement, Mr. Nia will be subject to certain restrictive covenants, including non-competition and non-solicitation covenants during his employment and for one year following termination of employment, and perpetual confidentiality and non-disparagement covenants. Concurrent with the appointment of Mr. Nia as Chief Executive Officer, MaryAnne Gilmartin’s tenure as interim Chief Executive Officer of the Company ended as of the CEO Effective Date.

In connection with Ms. Gilmartin’s appointment, as interim Chief Executive Officer effective as of July 25, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with MAG Partners 2.0 LLC (“MAG Partners”), an entity wholly owned by Ms. Gilmartin. Pursuant to the Letter Agreement, MAG Partners agreed to make Ms. Gilmartin’s services available to the Company to serve as its interim Chief Executive Officer. The term of this arrangement and Ms. Gilmartin’s appointment as interim Chief Executive Officer (the “Term”) was to continue until the earliest to occur of (i) the commencement of employment of a permanent Chief Executive Officer of the Company, (ii) a period of six months has elapsed, or an earlier or later date selected by the Board, and (iii) Ms. Gilmartin’s death or disability, or the termination of the arrangement by MAG Partners (including a resignation by Ms. Gilmartin of her appointment as interim Chief Executive Officer). On January 22, 2021, the Company entered into a six -month extension (the “Extension Letter”) of the Letter Agreement with MAG Partners, pursuant to which MAG Partners made Ms. Gilmartin’s services available to the Company to serve as its interim Chief Executive Officer. Pursuant to the Extension Letter, the term of the Letter Agreement was extended until July 25, 2021 (the “Extended Term”). However, Ms. Gilmartin’s appointment as interim Chief Executive Officer was to end upon the earlier to occur of (x) the commencement of employment of a permanent Chief Executive Officer of the Company or (y) a date selected by the Board of Directors of the Company, and during any remaining portion of the Extended Term, MAG Partners would continue to make Ms. Gilmartin reasonably available to assist with the transition of Ms. Gilmartin’s duties to her successor and with any other matters that the Company may reasonably request. In addition, if the Extended Term ended at any time prior to July 25, 2021 (other than a termination by the Company for cause), then the Company would continue to pay MAG Partners its monthly $150,000 cash retainer fee through July 25, 2021.

Pursuant to the Letter Agreement, during the Term the Company would pay to MAG Partners a monthly fee of $150,000, subject to proration for any partial month (but continuing for a minimum of three months following commencement of the Term if the Term is ended by the Board for any reason other than for “cause”). MAG Partners was also eligible to receive a one-time cash sign-on bonus of $300,000 and, unless the Term is ended by the Board for “cause,” a one-time completion bonus of $200,000 at the end of the Term (but no later than March 12, 2021, when it was paid). In addition, the Company granted to MAG Partners fully vested stock options to purchase up to 230,000 shares of common stock with an exercise price of $14.39 per share, and up to 100,000 shares of common stock with an exercise price of $20.00 per share, pursuant to a Stock Option Agreement by and between MAG Partners and the Company (the “Option Agreement”), of which 157,505 of the options were issued after shareholder approval at the Company’s 2021 Annual Meeting of Stockholders.

On June 9, 2021, the Company, appointed Anna Malhari as Executive Vice President and Chief Operating Officer of the Company. The appointment was effective as of June 9, 2021 (the “Effective Date”).

The Company entered into, an amended and restated employment agreement dated as of June 9, 2021 with Ms. Malhari (the “Malhari Employment Agreement”) that provided as follows:

An initial term ending December 31, 2023, commencing on the Effective Date, subject to automatic annual renewals thereafter unless earlier terminated;

An annual base salary of $300,000, subject to potential merit increases (but not decreases) each year;

A target annual bonus opportunity of 100% of base salary (the “Target Bonus”), with a threshold bonus of 50% of the Target Bonus, and a maximum bonus of 150% of the Target Bonus, based on performance goals to be established annually by the Compensation Committee;

Promptly following the Effective Date, Ms. Malhari will be granted a one-time long-term incentive compensation award with a grant date fair value of $100,000, with 50% of such award subject to time-based vesting conditions and 50% of such award subject to performance-based vesting conditions;

Upon a termination without “cause” (as defined in the Employment Agreement) or by Ms. Malhari for “good reason” (as defined in the Employment Agreement), subject to execution of a release of claims, Ms. Malhari will be entitled to (i) cash severance equal to 1.5 times (the “Multiplier”) the sum of her base salary and Target Bonus, paid in a lump sum as soon as practicable following the date of termination, but, if such termination occurs within the period commencing 3 months prior to a “change in control” (as defined in the Malhari Employment Agreement) and ending one year following a “change in control,” the Multiplier will increase to 2.0 times; (ii) up to 18 months of continued medical coverage for Ms. Malhari and her dependents; (iii) accelerated vesting of time-based equity awards; and (iv) eligibility to vest in a prorated amount of outstanding performance-based equity awards, based on the amount of time Ms. Malhari remained employed during the applicable performance period and actual performance over the applicable performance period.

Under the Malhari Employment Agreement, Ms. Malhari will be subject to certain restrictive covenants, including non-competition and non-solicitation covenants during her employment and for one year following termination of employment, and perpetual confidentiality and non-disparagement covenants.

On May 13, 2021, the Company determined that effective May 13, 2021, Marshall Tycher would step down as an executive officer and employee of the Company. Mr. Tycher will serve in a consulting role as a senior advisor to the Company from May 14, 2021 through November 14, 2022 (the “Consulting Term”). The transitioning of Mr. Tycher to a senior advisor role is in furtherance of the Company’s strategic transformation with a focus on further simplification of the Company and realization of operational efficiencies that the Company believes will result in a streamlined organizational architecture that management anticipates will result in financial and operational benefits to the Company.

In connection with Mr. Tycher’s separation from the Company, Mr. Tycher entered into a separation and release agreement with the Company dated May 19, 2021 (the “Release”) and a separate Consulting and Cooperation Agreement dated as of May 13, 2021 between the Company and Mr. Tycher (the “Consulting Agreement”). Mr. Tycher’s separation from the Company has been deemed a termination without cause under the terms and conditions of Mr. Tycher’s existing employment agreement dated April 26, 2017 (the “Employment Agreement”).

Under the terms of the Release Agreement, and consistent with the terms of the Employment Agreement and the relevant award agreements, Mr. Tycher will:

immediately vest in 29,230 previously earned but unvested performance-based long-term incentive plan units (“LTIP Units”);

immediately vest in 31,963 unvested time-based LTIP Units and 1,162 time-vesting restricted stock units (“RSUs”) previously granted to Mr. Tycher;

be eligible to vest in a maximum of 162,290 performance-based LTIP Units and 2,153 performance-vesting RSUs previously granted to Mr. Tycher, subject to the achievement of applicable performance criteria over the performance period applicable under the award agreements governing such LTIP Units and RSUs; and

immediately forfeit 101,625 performance-based LTIPs and 48,960 PRSUs previously granted to Mr. Tycher.

Mr. Tycher otherwise is eligible to receive the severance payments and benefits upon a termination without cause (outside of a change in control) under his Employment Agreement described under the heading “Employment Contracts; Potential Payments Upon Termination or Change in Control—Marshall B. Tycher Employment Agreement,” as set forth in the Company’s definitive proxy statement filed with the Securities and Exchange Commission on April 28, 2021, which descriptions are incorporated by reference herein.