NOTE 5 REAL ESTATE AND OTHER AFFILIATES

Our investment in real estate and other affiliates which are reported on the equity and cost methods are as follows:


	Economic/Legal Ownership				Carrying Value				Share of Earnings/Dividends
	December 31,		December 31,		December 31,		December 31,		Year Ended December 31,
($ in Thousands)	2015		2014		2015		2014		2015		2014		2013
Equity Method Investments
Master Planned Communities:
Discovery	—	(a)	—	(a)	$	12,052	$	—	$	—	$	—	$	N/A
Operating Assets:
Millennium Woodlands Phase II, LLC (b) (c)	81.43	%	81.43	%		—		1,023		(1,165)		(1,012)		—
Stewart Title	50.00	%	50.00	%		3,715		3,869		996		1,301		1,223
Clark County Las Vegas Stadium, LLC (c) (d)	50.00	%	50.00	%		11,050		10,548		152		(88)		(13)
The Metropolitan Downtown Columbia (e)	50.00	%	50.00	%		4,872		4,800		(13)		—		—
Woodlands Sarofim	20.00	%	20.00	%		2,588		2,595		166		175		180
Strategic Developments:
Circle T Ranch and Power Center	50.00	%	50.00	%		9,128		9,004		—		—		—
HHMK Development (c)	50.00	%	50.00	%		10		10		549		2,120		732
Millennium Woodlands Phase II, LLC (b) (c)	81.43	%	81.43	%		—		—		—		(279)		(74)
KR Holdings (c)	50.00	%	50.00	%		689		9,183		1,289		19,470		9,877
Parcel C (c)	50.00	%	50.00	%		7,070		8,737		—		—		—
Constellation (f)	50.00	%	50.00	%		2,685		—		—		—		N/A
						53,859		49,769		1,974		21,687		11,925
Cost method investments						3,952		3,917		1,747		1,649		2,503
Investment in Real Estate and Other Affiliates					$	57,811	$	53,686	$	3,721	$	23,336	$	14,428

N/A – Not applicable or not owned in the respective period.

(a)

See discussion below for a description of the joint venture ownership structure.

(b)

Millennium Woodlands Phase II, LLC was placed into service in the beginning of the third quarter 2014. The investment balance is in a deficit position, which is reported in Other liabilities. We expect to recover the deficit when the property reaches stabilized occupancy.

(c)

Equity method variable interest entity (“VIE”).

(d)

Formerly known as the Summerlin Las Vegas Baseball Club, LLC.

(e)

The Metropolitan Downtown Columbia was placed into service in the first quarter 2015.

(f)

Formerly known as Summerlin Apartments, LLC.

We are not the primary beneficiary of any of the VIEs listed above because we do not have the power to direct activities that most significantly impact the economic performance of such joint ventures and therefore we report our interests on the equity method. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of these VIEs. The aggregate carrying value of the unconsolidated VIEs was $21.5 million and $29.5 million as of December 31, 2015 and 2014, respectively, and was classified as Investment in Real Estate and Other Affiliates, in the Consolidated Balance Sheets. As of December 31, 2015 and 2014, approximately $109.6 million and $89.4 million, respectively, of indebtedness was secured by the properties owned by our Real Estate and Other Affiliates of which our share was approximately $64.8 million and $54.6 million as of December 31, 2015 and 2014, respectively, based upon our economic ownership. All of this indebtedness is without recourse to us.

The Company is the primary beneficiary of one VIE which is consolidated in the financial statements. The creditors of the consolidated VIE do not have recourse to the Company. As of December 31, 2015, the carrying values of the assets and liabilities associated with the operations of the consolidated VIE were $21.5 million and $1.1 million, respectively. As of December 31, 2014, the carrying values of the assets and liabilities associated with operations of the consolidated VIE were $21.1 million and $0.6 million, respectively. The assets of the VIE are restricted for use only by the particular VIE and are not available for our general operations.

Our recent significant investments in Real Estate Affiliates and the related accounting considerations are described below.

The Summit (formerly known as Discovery)

During the first quarter 2015, we formed DLV/HHPI Summerlin, LLC (“The Summit”) in a joint venture with Discovery Land Company (“Discovery”), and we contributed land with a book basis of $13.4 million and transferred Special Improvement District (“SID”) bonds related to such land with a carrying value of $1.3 million to the joint venture at the agreed upon capital contribution value of $125.4 million, or $226,000 per acre. Discovery is required to fund up to a maximum of $30.0 million cash as their capital contribution and we have no further capital obligations. The gains on the contributed land will be recognized in Equity in earnings from Real Estate and Other Affiliates as the joint venture sells lots.

After receipt of our capital contribution and a 5.0% preferred return, Discovery is entitled to a 5.0% return on its capital contribution plus cash distributions by the joint venture until it has received two times its equity contribution. Any further cash distributions are shared 50/50. Discovery is the manager on the project, and development began in the second quarter 2015 with the first lot closings expected to begin by the first quarter 2016. Given the nature of the venture’s capital structure and the provisions for the liquidation of assets, our share of the venture’s income producing activities will be recognized based on the HLBV method. Please refer to Note 1 – Summary of Significant Accounting Policies for a description of the HLBV method.

ONE Ala Moana Condominium Project

KR Holdings is a 50/50 joint venture that was formed to develop a 206-unit luxury condominium tower at the ONE Ala Moana Center in Honolulu, Hawaii. As of December 31, 2015, all of the units available for sale have been sold and closed.

Parcel C

On October 4, 2013, we entered into a joint venture agreement with a local developer, Kettler, Inc. (“Kettler”), to construct a 437-unit, Class A apartment building with 31,000 square feet of ground floor retail on Parcel C in downtown Columbia, Maryland. We contributed approximately five acres of land having an approximate book value of $4.0 million to the joint venture. Our land was valued at $23.4 million or $53,500 per constructed unit. When the venture closes on the construction loan and upon completion of certain other conditions, including obtaining completed site development and construction plans and an approved project budget, our partner will be required to contribute cash to the venture.

Constellation (formerly known as Summerlin Apartments)

On January 24, 2014, we entered into a joint venture with a national multi-family real estate developer, The Calida Group (“Calida”), to construct, own and operate a 124-unit gated luxury apartment development in Summerlin. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. This project represents the first residential development in Summerlin’s 400-acre downtown. In the first quarter 2015, we contributed a 4.5-acre parcel of land with an agreed value of $3.2 million in exchange for a 50% interest in the venture. Our partner contributed $3.2 million of cash for their 50% interest, acts as the development manager, funded all pre-development activities, obtained construction financing in the first quarter 2015 and provided guarantees required by the lender. In the fourth quarter 2015, we contributed an additional $1.0 million to the joint venture to fund development costs. Upon a sale of the property, we are entitled to 50% of the proceeds up to, and 100% of the proceeds in excess of, an amount determined by applying a 7.0% capitalization rate to net operating income. The venture commenced construction in February 2015 and will complete the project in phases, with the first units expected to become available for rent by second quarter 2016.

The Metropolitan Downtown Columbia

On October 27, 2011, we entered into a joint venture, Parcel D Development, LLC (“Parcel D”), with Kettler to construct a 380-unit Class A apartment building with ground floor retail space in downtown Columbia, Maryland. We and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. On July 11, 2013, the joint venture closed a $64.1 million construction loan, which is non‑recourse to us, and $63.1 million is outstanding as of December 31, 2015. The loan bears interest at one-month LIBOR plus 2.40% and matures in July 2020. At loan closing, our land contribution was valued at $20.3 million, or $53,500 per unit, and Kettler contributed $13.3 million in cash, of which $7.0 million was distributed to us. Both we and Kettler made additional contributions of $3.1 million to the joint venture in accordance with the loan agreement, thus increasing our total capital account to $16.4 million. The venture substantially completed construction of The Metropolitan Downtown Columbia during the first quarter of 2015, and the property was reclassified into our Operating Assets segment.