REAL ESTATE HELD FOR INVESTMENT | REAL ESTATE HELD FOR INVESTMENT As of September 30, 2016 , the Company’s portfolio of real estate held for investment, including the GKK Properties, was composed of approximately 4.0 million rentable square feet and was 88% occupied. These properties are located in 23 states and include office properties, industrial properties, bank branch properties and a retail property. Included in the Company’s portfolio of real estate held for investment was 1.7 million rentable square feet related to the GKK Properties held for investment, which were 86% occupied as of September 30, 2016 . The following table summarizes the Company’s real estate held for investment as of September 30, 2016 and December 31, 2015 (in thousands): Land Buildings and Improvements Tenant Origination and Absorption Costs Total Real Estate Held for Investment As of September 30, 2016: Office $ 55,335 $ 292,005 $ 525 $ 347,865 Industrial 10,975 57,416 1,835 70,226 Retail (1) 1,607 2,930 753 5,290 GKK Properties 49,757 92,567 14,135 156,459 Real estate held for investment, at cost and net of impairment charges 117,674 444,918 17,248 579,840 Accumulated depreciation/amortization — (77,176 ) (9,685 ) (86,861 ) Real estate held for investment, net $ 117,674 $ 367,742 $ 7,563 $ 492,979 As of December 31, 2015: Office $ 56,745 $ 294,979 $ 525 $ 352,249 Industrial 10,974 56,451 1,835 69,260 GKK Properties 55,138 116,139 19,602 190,879 Real estate held for investment, at cost and net of impairment charges 122,857 467,569 21,962 612,388 Accumulated depreciation/amortization — (82,877 ) (12,443 ) (95,320 ) Real estate held for investment, net $ 122,857 $ 384,692 $ 9,519 $ 517,068 _____________________ (1) On May 13, 2016, the Company received a deed-in-lieu of foreclosure in satisfaction of all amounts due to it under its investment in the Lawrence Village Plaza Loan Origination and received title to the collateral that secured the loan. See Note 5, “Real Estate Loans Receivable.” Operating Leases The Company’s real estate assets are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2016 , the Company’s leases, including those related to the GKK Properties, held for investment and excluding options to extend, had remaining terms of up to 13.8 years with a weighted-average remaining term of 3.9 years. As of September 30, 2016 , leases related to the GKK Properties, excluding options to extend, had remaining terms of up to 9.8 years with a weighted-average remaining term of 3.1 years. Some of the Company’s leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $2.7 million and $3.2 million as of September 30, 2016 and December 31, 2015 , respectively. During the nine months ended September 30, 2016 and 2015 , the Company recognized deferred rent from tenants of $1.2 million and $1.8 million , respectively. These amounts for the nine months ended September 30, 2016 and 2015 were net of $0.9 million and $1.0 million of lease incentive amortization, respectively. As of September 30, 2016 and December 31, 2015 , the cumulative deferred rent balance was $21.3 million and $19.4 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $4.8 million and $4.7 million of unamortized lease incentives as of September 30, 2016 and December 31, 2015 , respectively. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred. The future minimum rental income from the Company’s properties held for investment under non-cancelable operating leases, including leases subject to shedding rights and excluding options to extend, as of September 30, 2016 for the years ending December 31 is as follows (in thousands): October 1, 2016 through December 31, 2016 $ 14,045 2017 55,444 2018 45,897 2019 42,090 2020 37,123 Thereafter 132,090 $ 326,689 Under certain of the Company’s leases, tenants reimburse the Company for their proportionate share of the costs the Company incurs to manage, operate and maintain the buildings and properties where they rent space. These leases often limit the types and amounts of expenses the Company can pass through to its tenants and allow the tenants to audit and contest the determination of the operating expenses they are required to pay. As of September 30, 2016 , the Company had recorded liabilities of approximately $3.2 million related to potential loss contingencies associated with certain claimed amounts relating to tenant reimbursement audits. As of September 30, 2016 , the Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows: Industry Number of Annualized Base Rent (1) (in thousands) Percentage of Finance 36 $ 22,082 30.2 % Legal 19 8,662 11.8 % _____________________ (1) Annualized base rent represents annualized contractual base rental income as of September 30, 2016 , adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease's inception through the balance of the lease term. As of September 30, 2016 , no other tenant industries accounted for more than 10% of the Company’s annualized base rent. The Company currently has over 200 tenants over a diverse range of industries and geographical regions. As of September 30, 2016 and December 31, 2015 , the Company had a bad debt expense reserve of $0.5 million and $0.5 million , respectively. During the nine months ended September 30, 2016 and 2015 , the Company recorded bad debt expense related to its tenant receivables of $0.1 million and $38,000 , respectively. As of September 30, 2016 , the Company had a concentration of credit risk related to leases with the following tenant that represented more than 10% of the Company’s annualized base rent: Annualized Base Rent Statistics Tenant Property Tenant Industry Rentable Square Feet % of Portfolio Rentable Square Feet Annualized Base Rent (1) (in thousands) % of Portfolio Annualized Base Rent Annualized Base Rent per Square Foot Lease Expirations Bank of America, N.A. Various Finance 773,524 19.5 % $ 7,944 10.9 % $ 10.27 (2) _____________________ (1) Annualized base rent represents annualized contractual base rental income as of September 30, 2016 , adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term. (2) As of September 30, 2016 , lease expiration dates ranged from 2019 through 2023 with a weighted-average remaining term of 4.6 years. No other tenant represented more than 10% of the Company’s annualized base rent. Geographic Concentration Risk As of September 30, 2016 , the Company’s net investments in real estate in Virginia represented 14.6% of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in Virginia’s real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office or bank branch space resulting from the local business climate, could adversely affect the Company’s operating results. Impairment of Real Estate During the three months ended September 30, 2016 , the Company recorded non-cash impairment charges of $4.1 million , of which $3.7 million relates to 15 GKK properties classified as real estate held for investment, to write-down the carrying values of these real estate investments to their estimated fair values and $0.4 million with respect to three GKK Properties that were held for sale to write-down the carrying values of these real estate investments to their estimated sales price less estimated costs to sell. During the nine months ended September 30, 2016 , the Company recorded non-cash impairment charges of $29.6 million , of which $25.4 million related to 47 properties classified as real estate held for investment (including 44 GKK Properties), to write-down the carrying values of these real estate investments to their estimated fair values and $4.2 million with respect to 13 GKK Properties that were held for sale or sold to write-down the carrying values of these real estate investments to their estimated sales price less estimated costs to sell. See Note 6, “Real Estate Held for Sale and Discontinued Operations,” for information regarding impairments of assets related to real estate held for sale or sold. The facts and circumstances leading to the impairments on the Company’s real estate held for investment are as follows: City Gate Plaza The Company recognized an impairment charge during the nine months ended September 30, 2016 of $3.3 million to reduce the carrying value of the Company’s investment in City Gate Plaza, an office property located in Sacramento, California, to its estimated fair value. The Company revised its cash flow projections to account for higher projected leasing costs to stabilize the property. The continued lack of demand in the Sacramento office rental market also resulted in higher capitalization rates. University Park Buildings The Company recognized an impairment charge during the nine months ended September 30, 2016 of $3.2 million to reduce the carrying value of the Company’s investment in the University Park Buildings, an office property located in Sacramento, California, to its estimated fair value. The Company revised its cash flow projections primarily to account for higher projected capital costs for general building upgrades and to address certain maintenance issues. The continued lack of demand in the Sacramento office rental market also resulted in higher capitalization rates. ADP Plaza The Company recognized an impairment charge during the nine months ended September 30, 2016 of $1.7 million to reduce the carrying value of the Company’s investment in ADP Plaza, an office property located in Portland, Oregon, to its estimated fair value. The Company revised its cash flow projections due to an increase in projected vacancy as a tenant occupying 48.6% of the building’s rentable square feet notified the Company that it will exercise its contraction option as early as January 2017, resulting in a decrease in projected cash flows. GKK Properties Citizens Bank Portfolio The Company recognized an impairment charge during the nine months ended September 30, 2016 of $10.8 million relating to 20 properties in the Citizens Bank Portfolio due to a decrease in cash flow projections primarily due to an increase in projected vacancy, thus decreasing the projected cash flows the properties would generate. Pitney Bowes - Bank of America Portfolio The Company recognized an impairment charge during the nine months ended September 30, 2016 of $3.0 million relating to 13 properties in the Pitney Bowes - Bank of America Portfolio due to a decrease in cash flow projections primarily due to an increase in projected vacancy, thus decreasing the projected cash flows the properties would generate. Other Properties The Company recognized an impairment charge during the nine months ended September 30, 2016 of $3.4 million relating to 11 other GKK Properties classified as held for investment. No impairment charge related to any individual property was greater than $800,000 . These impairments generally resulted from changes in lease projections, including longer estimated lease-up periods and lower projected rental rates, thus decreasing the projected cash flows the properties would generate. |