I have a few comments on my previous post on Bluerock Multifamily Trust. I noted that it was uncommon for a REITs single purpose entity to enter into its own working capital line of credit. But the more I thought about it, I can see the logic of having the single purpose entity's line of credit. The property has four owners, and it was probably unlikely that one of the four owners was going to commit financially without committing the other three, unless it received additional ownership or protections, which probably would not have been forthcoming. In this scenario, the line of credit at the special purpose entity level makes sense.
It is important to note that the working capital loan, because it is at the property ownership entity level and not at the REIT level, is an off-balance sheet transaction for the REIT, and the REIT's share of the obligation needs to be added when determining the REIT's debt level.
Bluerock Multifamily's restated September 30, 2010 10-Q lists all four of its property investments as investments in unconsolidated entities, which is how you should account for joint venture investments. Unconsolidated investments are shown on the REIT's balance sheet as a net figure, and don't reflect any debt of the joint venture. Again, this is the proper method to account for joint ventures, which is how the REIT invested in all four of its properties. Investors now need to dig through the financial statements' notes to find property-level data. The four Bluerock Multifamily investments have an aggregate leverage of 78%, and none of that debt is on the REIT's balance sheet. The debt on Bluerock Multifamily's balance sheet, which is 74% of its unconsolidated investments, is its borrowings from affiliates that the REIT used to make its equity investments. This debt is separate from the REIT's property specific debt. I getting light headed with debt this high.