SL Green Realty Corp.
RECKSON OPERATING PARTNERSHIP LP (Form: 10-Q, Received: 11/14/2017 17:21:54)
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________  
FORM 10-Q
_________________________________________________________ 
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the quarterly period ended September 30, 2017
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the transition period from                to              
 
Commission File Number: 033-84580  
_________________________________________________________ 
RECKSON OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)
_________________________________________________________  
Delaware
11-3233647
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
420 Lexington Avenue, New York, New York 10170
(Address of principal executive offices) (Zip Code)

(212) 594-2700
(Registrant’s telephone number, including area code)
 _________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ý      NO o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý     NO o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
x
 (Do not check if a smaller reporting company)
 
Smaller Reporting Company
o
 
Emerging Growth Company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o   NO ý
 
As of November 14, 2017 , no common units of limited partnership interest of the Registrant were held by non-affiliates of the Registrant.  There is no established trading market for such units.
 



Reckson Operating Partnership, L.P.
TABLE OF CONTENTS

 
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016 (unaudited)
 
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)
 
Consolidated Statement of Capital for the nine months ended September 30, 2017 (unaudited)
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)
 
 
 


1

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)
 
September 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Commercial real estate properties, at cost:
 
 
 
Land and land interests
$
1,735,463

 
$
1,805,198

Building and improvements
4,385,489

 
4,629,994

Building leasehold and improvements
1,073,703

 
1,073,678

 
7,194,655

 
7,508,870

Less: accumulated depreciation
(1,499,878
)
 
(1,437,222
)
 
5,694,777

 
6,071,648

Assets held for sale
127,663

 

Cash and cash equivalents
36,014

 
59,930

Restricted cash
79,751

 
43,489

Tenant and other receivables, net of allowance of $7,051 and $4,879 in 2017 and 2016, respectively
28,824

 
30,999

Deferred rents receivable, net of allowance of $14,290 and $17,798 in 2017 and 2016, respectively
237,634

 
238,447

Debt and preferred equity investments, net of discounts and deferred origination fees of $24,782 and $16,705 in 2017 and 2016, respectively
2,020,739

 
1,640,412

Investments in unconsolidated joint ventures
128,794

 
174,127

Deferred costs, net of accumulated amortization of $76,081 and $73,673 in 2017 and 2016, respectively
109,523

 
121,470

Other assets
289,841

 
374,091

Total assets
$
8,753,560

 
$
8,754,613

Liabilities
 
 
 
Mortgages and other loans payable, net
$
922,049

 
$
676,068

Revolving credit facility, net
275,832

 

Unsecured term loan, net
1,180,506

 
1,179,521

Unsecured notes, net
796,284

 
795,260

Accrued interest payable
13,418

 
15,781

Other liabilities
94,426

 
160,982

Accounts payable and accrued expenses
53,989

 
60,855

Related party payables
23,808

 
23,808

Deferred revenue
156,757

 
161,772

Deferred land leases payable
1,865

 
1,795

Dividends payable
807

 
754

Security deposits
40,333

 
40,033

Liabilities related to assets held for sale
1,141

 

Total liabilities
3,561,215

 
3,116,629

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Balance Sheets
(in thousands)


 
September 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Commitments and contingencies

 

Preferred units
109,161

 
109,161

 
 
 
 
Capital
 
 
 
General partner capital
4,757,415

 
5,139,842

Accumulated other comprehensive loss
(1,349
)
 
(1,618
)
Total ROP partner's capital
4,756,066

 
5,138,224

Noncontrolling interests in other partnerships
327,118

 
390,599

Total capital
5,083,184

 
5,528,823

Total liabilities and capital
$
8,753,560

 
$
8,754,613

 
 
 
 
1)  The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2. The consolidated balance sheets include the following amounts related to our consolidated VIEs: $268.6 million and $297.3 million of land, $1.3 billion and $1.4 billion of building and improvements, $312.5 million and $318.4 million of accumulated depreciation, $140.6 million and $160.5 million of other assets included in other line items, $494.7 million and $494.0 million of real estate debt, net, $2.1 million and $2.1 million of accrued interest payable, and $51.0 million and $61.4 million of other liabilities included in other line items as of September 30, 2017 and December 31, 2016, respectively.


The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Operations
(unaudited, in thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
 
Rental revenue, net
 
$
167,346

 
$
166,456

 
$
502,376

 
$
486,350

Escalation and reimbursement
 
25,721

 
28,158

 
73,163

 
78,173

Investment income
 
47,946

 
75,715

 
148,924

 
175,481

Other income
 
895

 
1,007

 
1,612

 
2,754

Total revenues
 
241,908

 
271,336


726,075

 
742,758

Expenses
 
 
 
 
 
 
 
 
Operating expenses, including related party expenses of $6,922 and $20,099 in 2017, and $5,417 and $18,391 in 2016
 
43,448

 
43,549

 
123,938

 
124,319

Real estate taxes
 
40,610

 
38,900

 
118,232

 
113,426

Ground rent
 
5,236

 
5,266

 
15,706

 
15,736

Interest expense, net of interest income
 
34,627

 
24,723

 
96,202

 
83,367

Amortization of deferred financing costs
 
2,580

 
2,081

 
6,706

 
5,953

Depreciation and amortization
 
53,549

 
57,916

 
156,106

 
159,365

Transaction related costs
 

 
98

 
2

 
343

Marketing, general and administrative
 
92

 
156

 
321

 
605

Total expenses
 
180,142

 
172,689

 
517,213

 
503,114

Income before equity in net income from unconsolidated joint ventures, equity in net gain on sale of interest in unconsolidated joint venture/real estate, gain (loss) on sale of real estate, and depreciable real estate reserves
 
61,766

 
98,647

 
208,862

 
239,644

Equity in net income from unconsolidated joint ventures
 
2,927

 
4,276

 
10,362

 
10,399

Equity in net gain on sale of interest in unconsolidated joint venture/real estate
 
282

 

 
285

 

Gain (loss) on sale of real estate
 
114

 

 
5,047

 
(6,899
)
Depreciable real estate reserves
 
(379
)
 

 
(85,707
)
 

Net income
 
64,710

 
102,923

 
138,849

 
243,144

Net loss (income) attributable to noncontrolling interests in other partnerships
 
1,467

 
(1,279
)
 
19,587

 
(3,353
)
Preferred units dividend
 
(955
)
 
(955
)
 
(2,863
)
 
(2,865
)
Net income attributable to ROP common unitholder
 
$
65,222

 
$
100,689

 
$
155,573

 
$
236,926



The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to ROP common unitholder
$
65,222

 
$
100,689

 
$
155,573

 
$
236,926

Other comprehensive income:
 
 
 
 
 
 
 
Change in net unrealized loss/gain on derivative instruments
89

 
90

 
269

 
508

Comprehensive income attributable to ROP common unitholder
$
65,311

 
$
100,779


$
155,842


$
237,434



The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

Reckson Operating Partnership, L.P.
Consolidated Statement of Capital
(unaudited, in thousands)
  
General
Partner's
Capital
Class A
Common
Units
 
Limited Partner's Capital
 
Noncontrolling
Interests
In Other
Partnerships
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Capital
Balance at December 31, 2016
$
5,139,842

 
$

 
$
390,599

 
$
(1,618
)
 
$
5,528,823

Contributions
2,460,274

 

 

 

 
2,460,274

Distributions
(2,998,274
)
 

 
(43,894
)
 

 
(3,042,168
)
Net income
155,573

 

 
(19,587
)
 

 
135,986

Other comprehensive income

 

 

 
269

 
269

Balance at September 30, 2017
$
4,757,415

 
$

 
$
327,118

 
$
(1,349
)
 
$
5,083,184



The accompanying notes are an integral part of these consolidated financial statements.


6

Table of Contents
Reckson Operating Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited, in thousands)

 
Nine Months Ended September 30,
 
2017
 
2016
Operating Activities
 
 
 
Net income
$
138,849

 
$
243,144

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
162,812

 
165,318

Equity in net income from unconsolidated joint ventures
(10,362
)
 
(10,399
)
Distributions of cumulative earnings from unconsolidated joint ventures
12,032

 
7,286

Equity in net gain on sale of interest in unconsolidated joint venture interest/real estate
(285
)
 

(Gain) loss on sale of real estate
(5,047
)
 
6,899

Depreciable real estate reserves
85,707

 

Deferred rents receivable
(9,063
)
 
(15,992
)
Other non-cash adjustments
(33,917
)
 
(38,249
)
Changes in operating assets and liabilities:
 
 
 
Restricted cash—operations
1,156

 
(10,365
)
Tenant and other receivables
(625
)
 
2

Deferred lease costs
(9,589
)
 
(22,447
)
Other assets
(51,792
)
 
(26,934
)
Accounts payable, accrued expenses and other liabilities
(2,460
)
 
(4,736
)
Deferred revenue and land leases payable
9,356

 
9,956

Net cash provided by operating activities
286,772

 
303,483

Investing Activities
 
 
 
Additions to land, buildings and improvements
(97,712
)
 
(82,895
)
Escrowed cash—capital improvements/acquisition deposits/deferred purchase price
5,500

 
368

Investments in unconsolidated joint ventures
(84
)
 
(24,961
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
49,038

 
1,028

Net proceeds from disposition of real estate/joint venture interest
113,585

 
42,316

Other investments
57,785

 
16,066

Origination of debt and preferred equity investments
(935,724
)
 
(555,089
)
Repayments or redemption of debt and preferred equity investments
677,676

 
667,251

Net cash (used in) provided by investing activities
(129,936
)
 
64,084

Financing Activities
 
 
 
Proceeds from mortgages and other loans payable
$
250,000

 
$
383

Repayments of mortgages and other loans payable

 
(119,165
)
Proceeds from revolving credit facility and senior unsecured notes
1,447,800

 
1,260,300

Repayments of revolving credit facility and senior unsecured notes
(1,167,800
)
 
(2,259,608
)
Distributions to noncontrolling interests in other partnerships
(43,894
)
 
(643
)
Contributions from common unitholder
2,321,970

 
4,137,727

Distributions to common and preferred unitholders
(3,001,084
)
 
(3,425,243
)
Other obligations related to loan participations
16,737

 
59,150

Deferred loan costs and capitalized lease obligation
(4,481
)
 
(4,298
)
Net cash used in financing activities
(180,752
)
 
(351,397
)
Net (decrease) increase in cash and cash equivalents
(23,916
)
 
16,170

Cash and cash equivalents at beginning of period
59,930

 
50,026

Cash and cash equivalents at end of period
$
36,014

 
$
66,196

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Tenant improvements and capital expenditures payable
$
6,447

 
$
8,973

Deferred leasing payable
477

 
2,949

Change in fair value of hedge
2

 
208

Transfer to assets held for sale
273,455

 

Transfer to liabilities related to assets held for sale
1,290

 

Exchange of debt investment for equity in joint venture

 
68,581

Removal of fully depreciated commercial real estate properties
3,955

 
8,516

Contributions from Common Unitholder
138,304

 

Deconsolidation of a subsidiary
3,520

 

Proceeds from sale held in restricted cash
38,166

 

Settlement of Related Party Receivable with SL Green common stock

 
90,000

Issuance of related party payable for SL Green common stock

 
23,808



The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents

Reckson Operating Partnership, L.P.
Notes to Consolidated Financial Statements
September 30, 2017
(unaudited)
1. Organization and Basis of Presentation
Reckson Operating Partnership, L.P., or ROP, commenced operations on June 2, 1995. The sole general partner of ROP is Wyoming Acquisition GP LLC., or WAGP, a wholly-owned subsidiary of SL Green Operating Partnership, L.P., or the Operating Partnership. The sole limited partner of ROP is the Operating Partnership. The Operating Partnership is 95.55%  owned by SL Green Realty Corp., or SL Green, as of September 30, 2017 . SL Green is a self-administered and self-managed real estate investment trust, and is the sole managing general partner of the Operating Partnership. Unless the context requires otherwise, all references to "we," "our," "us" and the "Company" means ROP and all entities owned or controlled by ROP.
ROP is engaged in the acquisition, ownership, management and operation of commercial and residential real estate properties, principally office properties, and also owns land for future development, located in New York City, Westchester County, Connecticut and New Jersey, which collectively is also known as the New York Metropolitan area.
As of September 30, 2017 , we owned the following interests in properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban properties:
Location
 
Type
 
Number of
Properties
 
Approximate Square Feet (unaudited)
 
Weighted Average
Occupancy
(1)  (unaudited)
Commercial:
 
 
 
 
 
 
 
 
Manhattan
 
Office
 
16

 
8,463,245

 
95.7
%
 
 
Retail (2)(3)
 
5

 
364,816

 
98.0
%
 
 
Fee Interest
 
1

 
176,530

 
100.0
%
 
 
 
 
22

 
9,004,591

 
95.9
%
Suburban
 
Office (4)
 
15

 
2,746,000

 
84.6
%
 
 
Retail
 
1

 
52,000

 
100.0
%
 
 
 
 
16

 
2,798,000

 
84.9
%
Total commercial properties
 
 
 
38

 
11,802,591

 
93.2
%
Residential:
 
 
 
 
 
 
 
 
Manhattan
 
Residential (2)
 

 
222,855

 
88.0
%
Total portfolio
 
 
 
38

 
12,025,446

 
93.2
%
(1)
The weighted average occupancy for commercial properties represents the total occupied square feet divided by total square footage at acquisition. The weighted average occupancy for residential properties represents the total occupied units divided by total available units.
(2)
As of September 30, 2017 , we owned a building at 315 West 33rd Street, also known as The Olivia, that was comprised of approximately 270,132 square feet (unaudited) of retail space and approximately 222,855 square feet (unaudited) of residential space. For the purpose of this report, we have included this building in the number of retail properties we own. However, we have included only the retail square footage in the retail approximate square footage, and have listed the balance of the square footage as residential square footage.
(3)
Includes two unconsolidated joint venture retail properties at 131-137 Spring Street comprised of approximately 68,342 square feet.
(4)
Includes the properties at 16 Court Street in Brooklyn, New York, and 125 Chubb Avenue in Lyndhurst, New Jersey which are classified as held for sale at September 30, 2017. The sales closed in October 2017.

As of September 30, 2017 , we held debt and preferred equity investments with a book value of $2.2 billion , including $0.1 billion of debt and preferred equity investments and other financing receivables that are included in other balance sheet line items other than the Debt and Preferred Equity Investments line item.

8

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Basis of Quarterly Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the financial position of the Company at September 30, 2017 and the results of operations for the periods presented have been included. The operating results for the period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . These financial statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2016 .
The consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements as of that date but do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control through our voting interest and entities which are variable interest entities, but where we are not the primary beneficiary, are accounted for under the equity method. See Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures." All significant intercompany balances and transactions have been eliminated.
We consolidate a variable interest entity, or VIE, in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.
Investment in Commercial Real Estate Properties
On a periodic basis, we assess whether there are any indications that the value of our real estate properties may be other than temporarily impaired or that their carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property. We also evaluate our real estate properties for potential impairment when a real estate property has been classified as held for sale. Real estate assets held for sale are valued at the lower of either their carrying value or fair value less costs to sell. We do not believe that there were any indicators of impairment at any of our consolidated properties at September 30, 2017 . We recorded $0.4 million depreciable real estate reserves for the three months ended September 30, 2017 , and aggregate depreciable real estate reserves of $85.7 million for the nine months ended September 30, 2017 . See Note 4, "Property Dispositions".
We allocate the purchase price of real estate to land and building (inclusive of tenant improvements) and, if determined to be material, intangibles, such as the value of above- and below-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building (inclusive of tenant improvements) over their estimated useful lives, which generally range from three to 40 years . We amortize the amount allocated to the above- and below-market leases over the remaining term of the associated lease, which generally range from one to 14 years , and record it as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally ranges from one to 14 years . If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property. To the extent acquired leases contain fixed rate renewal options that are below-market and determined to be material, we amortize such below-market lease value into rental income over the renewal period.

9

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

We recognized $4.3 million and $12.7 million of rental revenue for the three and nine months ended September 30, 2017 , and $8.1 million and $15.9 million of rental revenue for the three and nine months ended September 30, 2016 , for the amortization of aggregate below-market leases in excess of above-market leases and a reduction in lease origination costs, resulting from the allocation of the purchase price of the applicable properties.
The following summarizes our identified intangible assets (acquired above-market leases and in-place leases) and intangible liabilities (acquired below-market leases) as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Identified intangible assets (included in other assets):
 
 
 
Gross amount
$
285,271

 
$
311,830

Accumulated amortization
(241,949
)
 
(253,064
)
Net (1)
$
43,322

 
$
58,766

Identified intangible liabilities (included in deferred revenue):
 
 
 
Gross amount
$
508,373

 
$
524,793

Accumulated amortization
(372,190
)
 
(368,738
)
Net (1)
$
136,183

 
$
156,055

(1)
As of September 30, 2017 and December 31, 2016, $3.9 million and none , respectively and $1.1 million and none , respectively, of net intangible assets and net intangible liabilities, were reclassified to assets held for sale and liabilities related to assets held for sale.
Fair Value Measurements
See Note 12, "Fair Value Measurements."
Investments in Unconsolidated Joint Ventures
We assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint ventures' projected discounted cash flows. We do not believe that the values of any of our equity investments were impaired at September 30, 2017 .
Reserve for Possible Credit Losses
The expense for possible credit losses in connection with debt and preferred equity investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. Other factors considered include geographic trends, product diversification, the size of the portfolio and current economic conditions. Based upon these factors, we establish a provision for possible credit loss on each individual investment. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired.
Where impairment is indicated on an investment that is held to maturity, a valuation allowance is measured based upon the excess of the recorded investment amount over the net fair value of the collateral. Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense. We continue to assess or adjust our estimates based on circumstances of a loan and the underlying collateral. If additional information reflects increased recovery of our investment, we will adjust our reserves accordingly. There were no loan reserves recorded during the three and nine months ended September 30, 2017 and 2016 .
Income Taxes
ROP is a disregarded entity of SL Green Operating Partnership, L.P. for federal income tax purposes, and, as a result, all income and losses of ROP are considered income and losses of SL Green Operating Partnership, L. P. No provision has been made for income taxes in the consolidated financial statements since such taxes, if any, are the responsibility of the individual partners of SL Green Operating Partnership, L.P.

10

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Shares Contributed by Parent Company
We present shares of SL Green common stock as a contra-equity account in our financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments, debt and preferred equity investments and accounts receivable. We place our cash investments with high quality financial institutions. The collateral securing our debt and preferred equity investments is located in New York City. See Note 5, "Debt and Preferred Equity Investments." We perform ongoing credit evaluations of our tenants and require most tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the total value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost revenue and the costs associated with re-tenanting a space.
The properties in our real estate portfolio are primarily located in Manhattan. We also have properties located in Brooklyn, Westchester County, Connecticut and New Jersey. The tenants located in our buildings operate in various industries. No tenant in our portfolio accounted for more than 5.0% of our share of annualized cash rent, including our share of joint venture annualized rent, at September 30, 2017 . For the three months ended September 30, 2017 , 13.8% , 9.1% , 7.4% , 7.2% , 7.1% , 6.3% , 6.1% , and 5.9% of our share of cash rent, including our share of joint venture annualized rent was attributable to 1185 Avenue of the Americas, 625 Madison Avenue, 919 Third Avenue, 750 Third Avenue, 810 Seventh Avenue, 555 West 57th Street, 125 Park Avenue. and 1350 Avenue of the Americas, respectively. Our share of annualized cash rent for all other properties was below 5.0% .
Reclassification
Certain prior year balances have been reclassified to conform to our current year presentation.
Accounting Standards Updates
In August 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The amendments in the new standard will permit more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments. The standard will also enhance the presentation of hedge results in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company has not yet adopted the guidance, and does not expect a material impact on the Company’s consolidated financial statements when the new standard is implemented.
In February 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-05 to clarify the scope of Subtopic 610-20 as well as provide guidance on accounting for partial sales of nonfinancial assets. Subtopic 610-20 was issued in May 2014 as part of ASU 2014-09. The Company anticipates adopting this guidance January 1, 2018, and applying the modified retrospective approach. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In January, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The guidance clarifies the definition of a business and provides guidance to assist with determining whether transactions should be accounted for as acquisitions of assets or businesses. The main provision is that an acquiree is not a business if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or group of assets. The Company adopted the guidance on the issuance date effective January 5, 2017. The Company expects that most of our real estate acquisitions will be considered asset acquisitions under the new guidance and that transaction costs will be capitalized to the investment basis which is then subject to a purchase price allocation based on relative fair value.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance will require entities to show the changes on the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between these items on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.

11

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides final guidance on eight cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees, separately identifiable cash flows and application of the predominance principle, and others. The amendments in the ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the guidance effective January 1, 2017 and there was no impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted after December 2018. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic 323). The guidance eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The Company adopted the guidance effective January 1, 2017 and there was no impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. The guidance requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the previous standard. Depending on the lease classification, lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by a lessor is largely unchanged from that applied under the previous standard. One of the impacts on the Company will be the presentation and disclosure in the financial statements of non-lease components such as charges to tenants for a building’s operating expenses. The non-lease components will be presented separately from the lease components in both the Consolidated Statements of Operations and Consolidated Balance Sheets. Another impact is the measurement and presentation of ground leases under which the Company is lessee. The Company is required to record a liability for the obligation to make payments under the lease and an asset for the right to use the underlying asset during the lease term and will also apply the new expense recognition requirements given the lease classification. The Company is currently quantifying these impacts. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company anticipates adopting this guidance January 1, 2019 and will apply the modified retrospective approach.
In January 2016, the FASB issued ASU 2016-01 (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to record changes in instruments-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. The guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods therein. The Company has not yet adopted this new guidance and is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements.
In May 2014, the FASB issued a new comprehensive revenue recognition guidance which requires us to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services (ASU 2014-09). The FASB also issued implementation guidance in March 2016, April 2016 and May 2016 - ASU’s 2016-08, 2016-10 and 2016-12, respectively.
These ASUs are effective for annual and interim periods beginning after December 15, 2017. The Company will adopt this guidance January 1, 2018. Since the Company’s revenue is related to leasing activities, the adoption of this guidance will not have a material impact on the consolidated financial statements. The new guidance is applicable to service contracts with joint ventures for which the Company earns property management fees, leasing commissions and development and construction fees. The adoption of this new guidance does not change the accounting for these fees as the pattern of recognition of revenue does not change with the new guidance. We will continue to recognize revenue over time on these contracts because the customer simultaneously receives and consumes the benefits provided by our performance. Thus, the analysis of our contracts under the new revenue recognition standard is consistent with our current revenue recognition model.
3. Property Acquisitions
During the nine months ended September 30, 2017 , we did not acquire any properties from a third party.
4. Properties Held for Sale and Property Dispositions
Properties Held for Sale
During the three months ended September 30, 2017 , we entered into an agreement to sell the property at 16 Court Street in Brooklyn, New York, for a gross sales price of $171.0 million .
As of September 30, 2017, 16 Court Street in Brooklyn, New York and 125 Chubb in Lyndhurst, New Jersey were held for sale. We closed on the sale of both properties in October 2017.
Property Dispositions
The following table summarizes the properties sold during the nine months ended September 30, 2017 :
Property
 
Disposition Date
 
Property Type
 
Approximate Square Feet
 
Sales Price (1)
(in millions)
 
Gain (loss) (2)
(in millions)
520 White Plains Road
 
April 2017
 
Office
 
180,000

 
$
21.0

 
$
(14.6
)
102 Greene Street (3)
 
April 2017
 
Retail
 
9,200

 
43.5

 
4.9

680-750 Washington Boulevard
 
July 2017
 
Office
 
325,000

 
97.0

 
(44.2
)
(1)
Sales price represents the gross sales price for a property or the gross asset valuation for interests in a property.
(2)
The gain on sale for 102 Greene Street is net of $0.9 million in employee compensation awards accrued in connection with the realization of the investment gain as a bonus to certain employees that were instrumental in realizing the gain on sale. Additionally, gain on sale amounts do not include adjustments for expenses recorded in subsequent periods.
(3)
In April 2017, we closed on the sale of a 90% interest in 102 Greene Street and had subsequently accounted for our interest in the property as an investment in unconsolidated joint ventures. We sold the remaining 10% interest in September 2017. See Note 6, "Investments in Unconsolidated Joint Ventures".

12

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

5. Debt and Preferred Equity Investments
Below is the rollforward analysis of the activity relating to our debt and preferred equity investments as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
Balance at beginning of period (1)
$
1,640,412

 
$
1,670,020

Debt Investment Originations/Accretion (2)
944,494

 
1,009,176

Preferred Equity Investment Originations/Accretion (2)
144,013

 
5,698

Redemptions/Sales/Syndications/Amortization (3)
(708,180
)
 
(1,044,482
)
Balance at end of period (1)
$
2,020,739

 
$
1,640,412

(1)
Net of unamortized fees, discounts, and premiums.
(2)
Accretion includes amortization of fees and discounts and paid-in-kind investment income.
(3)
Certain participations in debt investments that were sold or syndicated did not meet the conditions for sale accounting are included in other assets and other liabilities on the consolidated balance sheets.
Debt Investments
As of September 30, 2017 and December 31, 2016 , we held the following debt investments with an aggregate weighted average current yield of 9.49% , excluding our investment in Two Herald Square, at September 30, 2017 (in thousands):
Loan Type
 
September 30, 2017
Future Funding
Obligations
 
September 30, 2017 Senior
Financing
 
September 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value (1)
 
Maturity
Date (2)
Fixed Rate Investments:
 
 
 
 
 
 
 
 
 
 
Mortgage/Jr. Mortgage Loan (3)
 
$

 
$

 
$
250,164

 
$

 
April 2017
Mortgage Loan (4)
 

 

 
26,352

 
26,311

 
February 2019
Mortgage Loan
 

 

 
275

 
380

 
August 2019
Mezzanine Loan (5a)
 

 
1,160,000

 
201,757

 

 
March 2020
Mezzanine Loan
 

 
15,000

 
3,500

 
3,500

 
September 2021
Mezzanine Loan
 

 
147,000

 
24,909

 

 
April 2022
Mezzanine Loan
 

 
87,595

 
12,697

 
12,692

 
November 2023
Mezzanine Loan (5b)
 

 
115,000

 
12,930

 
12,925

 
June 2024
Mezzanine Loan
 

 
95,000

 
30,000

 
30,000

 
January 2025
Mezzanine Loan
 

 
340,000

 
15,000

 
15,000

 
November 2026
Mezzanine Loan
 

 
1,657,500

 
55,250

 

 
June 2027
Mezzanine Loan (6)
 

 

 

 
66,129

 
 
Jr. Mortgage Participation/Mezzanine Loan (7)
 

 

 

 
193,422

 
 
Total fixed rate
 
$

 
$
3,617,095

 
$
632,834

 
$
360,359

 
 
Floating Rate Investments:
 


 

 

 

 
 
Mortgage/Mezzanine Loan (8)
 
622

 

 
23,372

 
20,423

 
October 2017
Mezzanine Loan (5c)
 

 
85,000

 
15,340

 
15,141

 
December 2017
Mezzanine Loan (5d)
 

 
65,000

 
14,832

 
14,656

 
December 2017
Mezzanine Loan (5e)
 
795

 

 
15,132

 
15,051

 
December 2017
Mortgage/Mezzanine Loan (9)
 

 
125,000

 
29,966

 
29,998

 
January 2018
Mezzanine Loan
 

 
40,000

 
19,964

 
19,913

 
April 2018
Jr. Mortgage Participation
 

 
117,808

 
34,899

 
34,844

 
April 2018
Mezzanine Loan
 
523

 
20,523

 
10,916

 
10,863

 
August 2018
Mortgage/Mezzanine Loan
 

 

 
19,914

 
19,840

 
August 2018
Mortgage Loan
 

 
65,000

 
14,935

 
14,880

 
August 2018

13

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Loan Type
 
September 30, 2017
Future Funding
Obligations
 
September 30, 2017 Senior
Financing
 
September 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value (1)
 
Maturity
Date (2)
Mortgage/Mezzanine Loan (10)
 

 

 
16,957

 
16,960

 
September 2018
Mezzanine Loan
 

 
37,500

 
14,801

 
14,648

 
September 2018
Mezzanine Loan
 
2,325

 
45,025

 
34,782

 
34,502

 
October 2018
Mezzanine Loan
 

 
335,000

 
74,683

 
74,476

 
November 2018
Mezzanine Loan
 

 
33,000

 
26,907

 
26,850

 
December 2018
Mezzanine Loan
 
1,050

 
171,939

 
58,598

 
56,114

 
December 2018
Mezzanine Loan
 
8,267

 
289,621

 
71,067

 
63,137

 
December 2018
Mezzanine Loan
 
5,197

 
229,084

 
74,314

 
64,505

 
December 2018
Mezzanine Loan
 

 
45,000

 
12,156

 
12,104

 
January 2019
Mortgage/Mezzanine Loan (5f)
 
30,101

 

 
158,757

 

 
January 2019
Mezzanine Loan
 
6,081

 
24,086

 
7,812

 
5,410

 
January 2019
Mezzanine Loan
 

 
38,000

 
21,927

 
21,891

 
March 2019
Mezzanine Loan
 
279

 
173,700

 
36,936

 

 
April 2019
Mezzanine Loan
 

 
265,000

 
24,798

 
24,707

 
April 2019
Mortgage/Jr. Mortgage Participation Loan
 
29,661

 
194,094

 
69,705

 
65,554

 
August 2019
Mezzanine Loan
 
2,034

 
187,500

 
37,835

 
37,322

 
September 2019
Mortgage/Mezzanine Loan
 
49,933

 

 
130,350

 
111,819

 
September 2019
Mortgage/Mezzanine Loan
 
30,494

 

 
38,934

 
33,682

 
January 2020
Mezzanine Loan (11)
 
6,794

 
537,748

 
72,597

 
125,911

 
January 2020
Mezzanine Loan
 
7,164

 
33,587

 
10,988

 

 
July 2020
Jr. Mortgage Participation/Mezzanine Loan
 

 
60,000

 
15,627

 
15,606

 
July 2021
Mezzanine Loan
 

 
280,000

 
34,124

 

 
August 2022
Mezzanine Loan (12)
 

 

 

 
15,369

 
 
Mortgage/ Mezzanine Loan (6)
 

 

 

 
32,847

 
 
Mortgage/Mezzanine Loan (6)
 

 

 

 
22,959

 
 
Mezzanine Loan (13)
 

 

 

 
14,957

 
 
Mortgage/Mezzanine Loan (14)
 

 

 

 
145,239

 
 
Total floating rate
 
$
181,320

 
$
3,498,215

 
$
1,243,925

 
$
1,232,178

 
 
Total
 
$
181,320

 
$
7,115,310

 
$
1,876,759

 
$
1,592,537

 
 
(1)
Carrying value is net of discounts, premiums, original issue discounts and deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
(3)
These loans were purchased at par in April and May 2017 and were in maturity default at the time of acquisition. At the time the loans were purchased, the Company expected to collect all contractually required payments, including interest. In August 2017, the Company determined that it was probable that the loans would not be repaid in full and therefore, the loans were put on non-accrual status. No impairment was recorded as the Company believes that the fair value of the property exceeds the carrying amount of the loans. The loans had an outstanding balance including accrued interest of $259.3 million at the time that they were put on non-accrual status.
(4)
In September 2014, we acquired a $26.4 million mortgage loan at a $0.2 million discount and a $5.7 million junior mortgage participation at a $5.7 million discount. The junior mortgage participation was a nonperforming loan at acquisition, is currently on non-accrual status and has no carrying value.
(5)
Carrying value is net of the following amounts that were sold or syndicated, which are included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting: (a) $1.2 million , (b) $12.0 million , (c) $14.6 million , (d) $14.1 million , (e) $5.1 million , and (f) $21.2 million
(6)
This loan was repaid in June 2017.
(7)
This loan was repaid in March 2017.
(8)
This loan was extended in October 2017.
(9)
This loan was extended in January 2017.
(10)
This loan was extended in September 2017.
(11)
$66.1 million of outstanding principal was syndicated in February 2017.
(12)
This loan was repaid in September 2017.
(13)
This loan was contributed to a joint venture in May 2017.

14

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

(14)
This loan was repaid in January 2017.
Preferred Equity Investments
As of September 30, 2017 and December 31, 2016 , we held the following preferred equity investments with an aggregate weighted average current yield of 6.98% at September 30, 2017 (in thousands):
Type
 
September 30, 2017
Future Funding
Obligations
 
September 30, 2017
Senior
Financing
 
September 30, 2017
Carrying Value
(1)
 
December 31, 2016
Carrying Value
(1)
 
Mandatory
Redemption (2)
Preferred Equity (3)
 
$

 
$
272,000

 
$
143,980

 
$

 
April 2021
Preferred Equity (4)
 

 

 

 
9,982

 
 
Preferred Equity (5)
 

 

 

 
37,893

 
 
Total
 
$

 
$
272,000

 
$
143,980

 
$
47,875

 
 
(1)
Carrying value is net of deferred origination fees.
(2)
Represents contractual maturity, excluding any unexercised extension options.
(3)
In February 2016, we closed on the sale of 885 Third Avenue and retained a preferred equity position in the property. The sale did not meet the criteria for sale accounting under the full accrual method in ASC 360-20, Property, Plant and Equipment - Real Estate Sales. As a result the property remained on our consolidated balance sheet until the criteria was met in April 2017 at which time the property was deconsolidated and the preferred equity investment was recognized.
(4)
This investment was redeemed in May 2017.
(5)
This investment was redeemed in April 2017.
At September 30, 2017 and December 31, 2016 , all debt and preferred equity investments were performing in accordance with the terms of the relevant investments, with the exception of a mortgage and junior mortgage participation purchased in maturity default in May 2017 and April 2017 discussed in subnote 3 of the Debt Investments table above and a junior mortgage participation acquired in September 2014, which was acquired for zero and has a carrying value of zero , as further discussed in subnote 4 of the Debt Investments table above.
We have determined that we have one portfolio segment of financing receivables at September 30, 2017 and 2016 comprising commercial real estate which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling $94.8 million and $144.5 million at September 30, 2017 and December 31, 2016 , respectively. No financing receivables were 90 days past due at September 30, 2017 .
6. Investments in Unconsolidated Joint Ventures
We have investments in several real estate joint ventures with various partners. As of September 30, 2017 , none of our investments in unconsolidated joint ventures are VIEs. The table below provides general information on each of our joint ventures as of September 30, 2017 :
Property
Partner
Ownership
Interest (1)
Economic
Interest (1)
Unaudited Approximate Square Feet
Acquisition Date (2)
Acquisition
Price (2)
(in thousands)
131-137 Spring Street
Invesco Real Estate
20.00%
20.00%
68,342

August 2015
$
277,750

Mezzanine Loan (3)
Private Investors
33.33%
33.33%

May 2017
15,000

(1)
Ownership interest and economic interest represent the Company's interests in the joint venture as of September 30, 2017 . Changes in ownership or economic interests, if any, within the current year are disclosed in the notes below.
(2)
Acquisition date and price represent the date on which the Company initially acquired an interest in the joint venture and the actual or implied gross purchase price for the joint venture on that date. Acquisition date and price are not adjusted for subsequent acquisitions or dispositions of interest.
(3)
In May 2017, the Company contributed a mezzanine loan secured by a commercial property in midtown Manhattan to a joint venture and retained a 33.33% interest in the venture. The carrying value is net of $10.0 million that was sold, which is included in other assets and other liabilities on the consolidated balance sheets as a result of the transfers not meeting the conditions for sale accounting. In October 2017, the initial maturity date of November 2017 was extended to November 2018.
Acquisition, Development and Construction Arrangements
Based on the characteristics of the following arrangements, which are similar to those of an investment, combined with the expected residual profit of not greater than 50% , we have accounted for these debt and preferred equity investments under the equity method. As of September 30, 2017 and December 31, 2016 , the carrying value for acquisition, development and construction arrangements were as follows (in thousands):

15

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Loan Type
 
September 30, 2017
 
December 31, 2016
 
Maturity Date
Mezzanine Loan and Preferred Equity (1)
 
$
100,000

 
$
100,000

 
March 2018
Mezzanine Loan (2)
 
25,854

 
24,542

 
July 2036
 
 
$
125,854

 
$
124,542

 
 
(1)
These loans were extended in February 2017.
(2)
The Company has the ability to convert this loan into an equity position starting in 2021 and the borrower is able to force this conversion in 2024.
Sale of Joint Venture Interests or Properties
The following table summarizes the investments in unconsolidated joint ventures sold during the nine months ended September 30, 2017 :
Property
 
Ownership Interest
 
Disposition Date
 
Type of Sale
 
Gross Asset Valuation
(in thousands) (1)
 
Gain
on Sale
(in thousands) (2)
102 Greene Street
 
10.00%
 
September 2017
 
Ownership Interest
 
$
43,500

 
$
283

(1)
Represents implied gross valuation for the joint venture or sales price of the property.
(2)
Represents the Company's share of the gain.
In May 2017, our investment in a joint venture that owned two mezzanine notes secured by interests in the entity that owns 76 11th Avenue was repaid after the joint venture received repayment of the underlying loans.
Joint Venture Mortgages and Other Loans Payable
We generally finance our joint ventures with non-recourse debt. In certain cases we may provide guarantees or master leases for tenant space, which terminate upon the satisfaction of specified circumstances or repayment of the underlying loans. The first mortgage notes and other loans payable collateralized by the respective joint venture properties and assignment of leases at September 30, 2017 and December 31, 2016 , respectively, are as follows (amounts in thousands):
Property
 
Economic Interest (1)
 
Maturity Date
 
Interest
Rate (2)
 
September 30, 2017
 
December 31, 2016
Floating Rate Debt:
 
 
 
 
 
 
 
 
 
 
131-137 Spring Street
 
20.00
%
 
August 2020
 
2.77
%
 
$
141,000

 
$
141,000

Total joint venture mortgages and other loans payable
 
 
 
$
141,000

 
$
141,000

Deferred financing costs, net
 
 
 
 
 
 
 
(3,139
)
 
(3,970
)
Total joint venture mortgages and other loans payable, net
 
 
 
$
137,861

 
$
137,030

(1)
Economic interest represent the Company's interests in the joint venture as of September 30, 2017 . Changes in ownership or economic interests, if any, within the current year are disclosed in the notes to the investment in unconsolidated joint ventures note above.
(2)
Effective weighted average interest rate for the three months ended September 30, 2017 , taking into account interest rate hedges in effect during the period.

16

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

The combined balance sheets for the unconsolidated joint ventures, at September 30, 2017 and December 31, 2016 are as follows (in thousands):
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Commercial real estate property, net
$
274,695

 
$
279,451

Debt and preferred equity investments, net
140,850

 
273,749

Other assets
15,019

 
18,922

Total assets
$
430,564

 
$
572,122

Liabilities and members' equity
 
 
 
Mortgages and other loans payable, net
$
137,861

 
$
137,030

Other liabilities
19,764

 
22,185

Members' equity
272,939

 
412,907

Total liabilities and members' equity
$
430,564

 
$
572,122

Company's investments in unconsolidated joint ventures
$
128,794

 
$
174,127

The combined statements of operations for the unconsolidated joint ventures for the three and nine months ended September 30, 2017 and 2016 , are as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total revenues
$
7,340

 
$
3,707

 
$
26,934

 
$
27,590

Operating expenses
182

 
(175
)
 
636

 
1,003

Real estate taxes
381

 
33

 
1,013

 
881

Interest expense, net of interest income
1,025

 
37

 
2,759

 
2,144

Amortization of deferred financing costs
283

 

 
837

 
831

Depreciation and amortization
2,102

 

 
6,304

 
6,303

Total expenses
$
3,973

 
$
(105
)
 
$
11,549

 
$
11,162

Net income
$
3,367

 
$
3,812

 
$
15,385

 
$
16,428

Company's equity in net income from unconsolidated joint ventures
$
2,927

 
$
4,276

 
$
10,362

 
$
10,399


17

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

7. Mortgages and Other Loans Payable
The first mortgages and other loans payable collateralized by the respective properties and assignment of leases or debt investments at September 30, 2017 and December 31, 2016 , respectively, were as follows (amounts in thousands):
Property
 
Maturity Date
 
Interest Rate (1)
 
September 30, 2017
 
December 31, 2016
Fixed Rate Debt:
 
 
 
 
 
 
 
 
919 Third Avenue (2)
 
June 2023
 
5.12
%
 
$
500,000

 
$
500,000

315 West 33rd Street
 
February 2027
 
4.24
%
 
250,000

 

Floating Rate Debt:
 
 
 
 
 
 
 
 
2016 Master Repurchase Agreement
 
July 2018
 
3.73
%
 
$
184,642

 
$
184,642

Total mortgages and other loans payable
 
 
 
 
 
$
934,642

 
$
684,642

Deferred financing costs, net of amortization
 
 
 
 
 
(12,593
)
 
(8,574
)
Total mortgages and other loans payable, net
 
 
 
 

 
$
922,049

 
$
676,068

(1)
Effective weighted average interest rate for the quarter ended September 30, 2017 .
(2)
We own a 51.0% controlling interest in the consolidated joint venture that is the borrower on this loan.
At September 30, 2017 and December 31, 2016 , the gross book value of the properties and debt and preferred equity investments collateralizing the mortgages and other loans payable, not including assets held for sale, was approximately $2.5 billion and $1.7 billion , respectively.
Master Repurchase Agreements
The Company has entered into two Master Repurchase Agreements, or MRAs, known as the 2016 MRA and 2017 MRA, which provide us with the ability to sell certain debt investments with a simultaneous agreement to repurchase the same at a certain date or on demand. We seek to mitigate risks associated with our repurchase agreement by managing the credit quality of our assets, early repayments, interest rate volatility, liquidity, and market value. The margin call provisions under our repurchase facilities permit valuation adjustments based on capital markets activity, and are not limited to collateral-specific credit marks. To monitor credit risk associated with our debt investments, our asset management team regularly reviews our investment portfolio and is in contact with our borrowers in order to monitor the collateral and enforce our rights as necessary. The risk associated with potential margin calls is further mitigated by our ability to recollateralize the facility with additional assets from our portfolio of debt investments, our ability to satisfy margin calls with cash or cash equivalents and our access to additional liquidity through the 2012 credit facility, as defined below.
In June 2017, we entered into the 2017 MRA, with a maximum facility capacity of $300.0 million . The facility bears interest on a floating rate basis at a spread to 30-day LIBOR based on the pledged collateral and advance rate and has an initial one year term, with two one year extension options. At September 30, 2017 , the facility had a carrying value of $(1.1) million , representing deferred financing costs presented within other liabilities.
In July 2016, we entered into a restated 2016 MRA, with a maximum facility capacity of $300.0 million. The facility bears interest ranging from 225 and 400 basis points over 30-day LIBOR depending on the pledged collateral and has an initial two -year term, with a one year extension option. Since December 6, 2015, we have been required to pay monthly in arrears a 25 basis point fee on the excess of $150.0 million over the average daily balance during the period when the average daily balance is less than $150.0 million . At September 30, 2017 , the facility had a carrying value of $182.8 million , net of deferred financing costs.

18

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

8. Corporate Indebtedness
2012 Credit Facility
In August 2016, we entered into an amendment to the credit facility that was originally entered into by the Company in November 2012, referred to as the 2012 credit facility. As of September 30, 2017 , the 2012 credit facility, as amended, consisted of a $1.6 billion revolving credit facility and a $1.2 billion term loan, with a maturity date of March 29, 2019 and June 30, 2019, respectively. The revolving credit facility has an as-of-right extension to March 29, 2020. We also have an option, subject to customary conditions, to increase the capacity under the revolving credit facility to $3.0 billion at any time prior to the maturity date for the revolving credit facility without the consent of existing lenders, by obtaining additional commitments from our existing lenders and other financial institutions.
As of September 30, 2017 , the 2012 credit facility bore interest at a spread over LIBOR ranging from (i) 87.5 basis points to 155 basis points for loans under the revolving credit facility and (ii) 95 basis points to 190 basis points for loans under the term loan facility, in each case based on the credit rating assigned to the senior unsecured long term indebtedness of ROP.
At September 30, 2017 , the applicable spread was 125 basis points for the revolving credit facility and 140 basis points for the term loan facility. At September 30, 2017 , the effective interest rate was 2.49% for the revolving credit facility and 2.63% for the term loan facility. We are required to pay quarterly in arrears a 12.5 to 30 basis point facility fee on the total commitments under the revolving credit facility based on the credit rating assigned to the senior unsecured long term indebtedness of ROP. As of September 30, 2017 , the facility fee was 25 basis points.
As of September 30, 2017 , we had $80.8 million of outstanding letters of credit, $280.0 million drawn under the revolving credit facility and $1.2 billion outstanding under the term loan facility, with total undrawn capacity of $1.2 billion under the 2012 credit facility. At September 30, 2017 and December 31, 2016 , the revolving credit facility had a carrying value of $275.8 million and $(6.3) million , respectively, net of deferred financing costs. The December 31, 2016 carrying value represents deferred financing costs and is presented within other liabilities. At September 30, 2017 and December 31, 2016 , the term loan facility had a carrying value of $1.2 billion and $1.2 billion , respectively, net of deferred financing costs.
ROP, SL Green, and the Operating Partnership are all borrowers jointly and severally obligated under the 2012 credit facility. None of SL Green's other subsidiaries are obligors under the 2012 credit facility.
The 2012 credit facility includes certain restrictions and covenants (see Restrictive Covenants below).
Senior Unsecured Notes
The following table sets forth our senior unsecured notes and other related disclosures as of September 30, 2017 and December 31, 2016 , respectively, by scheduled maturity date (dollars in thousands):
Issuance
 
September 30,
2017
Unpaid
Principal
Balance
 
September 30,
2017
Accreted
Balance
 
December 31,
2016
Accreted
Balance
 
Coupon
Rate
(1)
 
Effective
Rate
 
Initial
Term
(in Years)
 
Maturity Date
August 5, 2011 (2)
 
$
250,000

 
$
249,934

 
$
249,880

 
5.00
%
 
5.00
%
 
7
 
August 2018
March 16, 2010 (2)
 
250,000

 
250,000

 
250,000

 
7.75
%
 
7.75
%
 
10
 
March 2020
November 15, 2012 (2)
 
200,000

 
200,000

 
200,000

 
4.50
%
 
4.50
%
 
10
 
December 2022
December 17, 2015 (2)
 
100,000

 
100,000

 
100,000

 
4.27
%
 
4.27
%
 
10
 
December 2025
 
 
$
800,000

 
$
799,934

 
$
799,880

 
 
 
 
 
 
 
 
Deferred financing costs, net
 
 
 
(3,650
)
 
(4,620
)
 
 
 
 
 
 
 
 
 
 
$
800,000

 
$
796,284

 
$
795,260

 
 
 
 
 
 
 
 
(1)
Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates.
(2)
Issued by SL Green, the Operating Partnership and ROP, as co-obligors. In October 2017, SL Green, the Operating Partnership and ROP, as co-obligors issued an additional $100.0 million of the 4.50% senior unsecured bonds due December 2022. The additional notes priced at 105.334% plus accrued interest from June 1, 2017, with a yield to maturity of 3.298% .
ROP provides a guaranty of the Operating Partnership's obligations under its 3.00% Exchangeable Senior Notes due 2017, which were repaid in October 2017. ROP also provides a guaranty of the Operating Partnership's obligations under its 3.25% Senior Notes due 2022, which were issued in October 2017 and will mature in October 2022.

19

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Restrictive Covenants
The terms of the 2012 credit facility, as amended, and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, SL Green's ability to pay dividends, make certain types of investments, incur additional indebtedness, incur liens and enter into negative pledge agreements and dispose of assets, and which require compliance with financial ratios relating to the maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a maximum ratio of secured indebtedness to total asset value and a maximum ratio of unsecured indebtedness to unencumbered asset value. The dividend restriction referred to above provides that SL Green will not during any time when a default is continuing, make distributions with respect to SL Green's common stock or other equity interests, except to enable SL Green to continue to qualify as a REIT for Federal income tax purposes. As of September 30, 2017 and 2016 , we were in compliance with all such covenants.
Principal Maturities
Combined aggregate principal maturities of mortgages and other loans payable, 2012 credit facility and senior unsecured notes as of September 30, 2017 , including as-of-right extension options and put options, were as follows (in thousands):
 
Scheduled
Amortization
 
Principal
 
Revolving
Credit
Facility
 
Unsecured Term Loan
 
Senior Unsecured Notes
 
Total
Remaining 2017
$

 
$

 
$

 
$

 
$

 
$

2018

 
184,642

 

 

 
250,000

 
434,642

2019

 

 
280,000

 
1,183,000

 

 
1,463,000

2020

 

 

 

 
250,000

 
250,000

2021

 

 

 

 

 

Thereafter

 
750,000

 

 

 
300,000

 
1,050,000

 
$

 
$
934,642

 
$
280,000

 
$
1,183,000

 
$
800,000

 
$
3,197,642

Consolidated interest expense, excluding capitalized interest, was comprised of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest expense before capitalized interest
$
34,658

 
$
25,087

 
$
96,740

 
$
84,175

Interest capitalized
(31
)
 
(362
)
 
(533
)
 
(799
)
Interest income

 
(2
)
 
(5
)
 
(9
)
Interest expense, net
$
34,627

 
$
24,723

 
$
96,202

 
$
83,367

9. Related Party Transactions
Cleaning/ Security/ Messenger and Restoration Services
Alliance Building Services, or Alliance, and its affiliates are partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors, and provide services to certain properties owned by us. Alliance’s affiliates include First Quality Maintenance, L.P., or First Quality, Classic Security LLC, Bright Star Couriers LLC and Onyx Restoration Works, and provide cleaning, extermination, security, messenger, and restoration services, respectively. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements.
Income earned from profit participation, which is included in other income on the consolidated statements of operations, was $0.8 million and $2.5 million for the three and nine months ended September 30, 2017 and 2016, respectively.
We also recorded expenses for these services, inclusive of capitalized expenses, of $2.6 million and and $7.1 million for the three and nine months ended September 30, 2017 , respectively, for these services (excluding services provided directly to tenants), and $1.2 million and $6.0 million for the three and nine months ended September 30, 2016 , respectively.

20

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

Allocated Expenses from SL Green
Property operating expenses include an allocation of salary and other operating costs from SL Green based on square footage of the related properties. Such amount was approximately $3.0 million and $9.2 million for the three and nine months ended September 30, 2017 , respectively. The amount was $2.8 million and $8.2 million for the three and nine months ended September 30, 2016 , respectively.
Insurance
We obtained insurance coverage through an insurance program administered by SL Green. In connection with this program, we incurred insurance expense of approximately $1.3 million and $4.1 million for the three and nine months ended September 30, 2017 . We incurred insurance expense of approximately $1.5 million and $4.4 million for the three and nine months ended September 30, 2016 .
10. Preferred Units
Through a consolidated subsidiary, we have authorized up to  109,161   3.50%  Series A Preferred Units of limited partnership interest, or the Greene Series A Preferred Units, with a liquidation preference of  $1,000.00  per unit. In August 2015, the Company issued  109,161  Greene Series A Preferred Units in conjunction with an acquisition. The Greene Series A Preferred unitholders receive annual dividends of  $35.00  per unit paid on a quarterly basis and dividends are cumulative, subject to certain provisions. The Greene Series A Preferred Units can be redeemed at any time, at the option of the unitholder, either for cash or are convertible on a one-for-one basis, into the Series B Preferred Units of limited partnership interest, or the Greene Series B Preferred Units. The Greene Series B Preferred Units can be converted at any time, at the option of the unitholder, into a number of common stock equal to  6.71348  shares of SL Green common stock for each Greene Series B Preferred Unit. As of September 30, 2017 , no Greene Series B Preferred Units have been issued.
ASC 815 Derivatives and Hedging requires bifurcation of certain embedded derivative instruments, such as conversion features in convertible equity instruments, and their measurement at fair value for accounting purposes. The conversion feature embedded in the Subsidiary Series A Preferred Units was evaluated, and it was determined that the conversion feature should be bifurcated from its host instrument and accounted for as a freestanding derivative. The derivative is reported as a derivative liability in accrued interest and other liabilities on the accompanying consolidated balance sheet and is adjusted to its fair value at each reporting date, with a corresponding adjustment to interest expense, net of interest income. The embedded derivative for the Subsidiary Series A Preferred Units was initially recorded at a fair value of zero on July 22, 2015, the date of issuance. At December 31, 2016, the carrying amount of the derivative was adjusted to its fair value of zero , with a corresponding adjustment to preferred units and interest expense, net of interest income. At September 30, 2017 , the carrying amount and fair value of the derivative remained at zero .
11. Partners' Capital
Since consummation of the Merger on January 25, 2007, the Operating Partnership has owned all the economic interests in ROP either by direct ownership or by indirect ownership through our general partner, which is its wholly-owned subsidiary.
Intercompany transactions between SL Green and ROP are generally recorded as contributions and distributions.
12. Fair Value Measurements
We are required to disclose fair value information with regard to our financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practical to estimate fair value. The FASB guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. We measure and/or disclose the estimated fair value of financial assets and liabilities based on a hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. This hierarchy consists of three broad levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date; Level 2 - inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 - unobservable inputs for the asset or liability that are used when little or no market data is available. We follow this hierarchy for our assets and liabilities measured at fair value on a recurring and nonrecurring basis. In instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level of input that is significant to the fair value measurement in its entirety. Our assessment of the significance of the particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

21

Reckson Operation Partnership, L.P.
Notes to Consolidated Financial Statements (cont.)
September 30, 2017
(unaudited)

We determine other than temporary impairment in real estate investments and debt and preferred equity investments, including intangibles primarily utilizing cash flow projections that apply, among other things, estimated revenue and expense growth rates, discount rates and capitalization rates, as well as sales comparison approach, which utilizes comparable sales, listings and sales contracts. All of which are classified as Level 3 inputs.
As of September 30, 2017 we held notes receivable totaling $250.0 million which were purchased at par, and were in maturity default at the time of acquisition. In August 2017, the Company determined that it was probable that the loans would not be repaid in full and therefore, the loans were put on non-accrual status. The Company has initiated proceedings to foreclose on the property, and expects to take control of the property unless the buyer is able to repay the principal and interest, including default interest and fees, on the notes receivable in full prior to the completion of the foreclosure process. We believe the collateral value is sufficient to recover the carrying amounts of the notes receivable.
The fair value of derivative instruments is based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well-recognized financial principles and reasonable estimates about relevant future market conditions, which are classified as Level 2 inputs.
The financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses, debt and preferred equity investments, mortgages and other loans payable and other secured and unsecured debt. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses reported in our consolidated balance sheets approximates fair value due to the short term nature of these instruments. The fair value of debt and preferred equity investments, which is classified as Level 3, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings. The fair value of borrowings, which is classified as Level 3, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates, which is provided by a third-party specialist.
The following table provides the carrying value and fair value of these financial instruments as of September 30, 2017 and December 31, 2016 (in thousands):
 
September 30, 2017
 
December 31, 2016
 
Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
 
Fair Value
 
 
 
 
 
 
 
 
Debt and preferred equity investments
$
2,020,739

 
(2)  
 
$
1,640,412

 
(2)  
 
 
 
 
 
 
 
 
Fixed rate debt
$
2,349,934

 
$