NOTE 5 INVESTMENTS IN REAL ESTATE AND OTHER AFFILIATES

Our investment in Real Estate and Other Affiliates that are reported in accordance with 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)	2017		2016		2017		2016		2017		2016			2015
Equity Method Investments
Master Planned Communities:
The Summit (a)	—	%	—	%	$	45,886	$	32,653	$	23,234	$	43,501		$	—
Operating Assets:
Las Vegas 51s, LLC (b) (c)	100.00		50.00			—		11,062		(152)		12			152
Constellation (b) (c)	100.00		50.00			—		2,730		(323)		(54)			—
The Metropolitan Downtown Columbia (d)	50.00		50.00			—		(1,064)		390		(800)			(13)
Millennium Six Pines Apartments (b)	100.00		100.00			—		—		—		44			(1,165)
Stewart Title of Montgomery County, TX	50.00		50.00			3,673		3,611		386		696			996
Woodlands Sarofim #1	20.00		20.00			2,696		2,683		53		182			166
Strategic Developments:
Circle T Ranch and Power Center (a)	50.00		50.00			4,455		4,956		—		10,497			—
HHMK Development	50.00		50.00			10		10		—		—			549
KR Holdings	50.00		50.00			749		707		41		18			1,289
m.flats/TEN.M (a)	50.00		50.00			6,521		6,379		(415)		—			—
33 Peck Slip (a)	35.00		35.00			8,651		8,243		(643)		106	(e)		—
						72,641		71,970		22,571		54,202			1,974
Cost method investments						3,952		4,406		2,927		2,616			1,747
Investment in Real Estate and Other Affiliates					$	76,593	$	76,376	$	25,498	$	56,818		$	3,721

(a)

Please refer to the discussion below for a description of the joint venture ownership structure.

(b)

We acquired our joint venture partner’s interest and have fully consolidated the assets and liabilities of the entity. See Note 4 – Acquisitions and Dispositions for additional information regarding this transaction.

(c)

Equity method VIE as of December 31, 2017.

(d)

The Metropolitan Downtown Columbia was in a deficit position of $2.6 million and $1.1 million at December 31, 2017 and December 31, 2016, respectively, due to distributions from operating cash flows in excess of basis. This deficit balance is presented in Accounts payable and accrued expenses at December 31, 2017. The deficit balance as of December 31, 2016 has been presented as previously reported.

(e)

The 33 Peck Slip hotel was closed in December 2016 for redevelopment and was transferred to the Strategic Developments segment as of January 1, 2017. The share of earnings for the year ended December 31, 2016 was recorded in the Operating Assets segment but is reflected above in the Strategic Developments segment for comparative purposes.

As of December 31, 2017, we are not the primary beneficiary of any of the joint ventures listed above because we do not have the power to direct activities that most significantly impact the economic performance of the joint ventures, and therefore, we report our interests in accordance with the equity method. At December 31, 2017, our 33 Peck Slip VIE with an aggregate carrying value of $8.7 million does not have sufficient equity at risk to finance its operations without additional financial support, as further discussed below. Our maximum exposure to loss as a result of this investment 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 this VIE. The aggregate carrying value of unconsolidated VIEs (Las Vegas 51s and Constellation at December 31, 2016, prior to our acquisition) was $13.8 million as of December 31, 2016, and was classified as Investment in Real Estate and Other Affiliates in the Consolidated Balance Sheets.

As of December 31, 2017, approximately $183.9 million of indebtedness was secured by the properties owned by our Real Estate and Other Affiliates of which our share was approximately $85.0 million based upon our economic ownership. All of this indebtedness is without recourse to us.

We are the primary beneficiary of three VIEs which are consolidated in the financial statements. The creditors of the consolidated VIEs do not have recourse to us. As of December 31, 2017, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $24.8 million and $2.7 million, respectively. As of December 31, 2016, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $21.7 million and $1.4 million, respectively. The assets of the VIEs are restricted for use only by the particular VIEs and are not available for our general operations.

Significant activity for our investments in Real Estate Affiliates and the related accounting considerations are described below.

The Summit

During the first quarter of 2015, we formed DLV/HHPI Summerlin, LLC (“The Summit”) a joint venture with Discovery Land Company (“Discovery”), and we contributed land with a book basis of $13.4 million and transferred 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 of 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 of $125.4 million and a 5.0% preferred return on such capital contribution, Discovery is entitled to cash distributions by the joint venture until it has received two times its equity contribution. Any further cash distributions are shared equally. Discovery is the manager of the project, and development began in the second quarter of 2015. 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.

Relevant financial statement information for The Summit is summarized as follows:


	December 31,
(in millions)	2017		2016
Total Assets	$	166.9	$	151.4
Total Liabilities		118.9		116.6
Total Equity		48.0		34.8


	Year Ended December 31,
(in millions)	2017		2016
Revenues (a)	$	58.6	$	79.8
Net income		23.2		43.5
Gross Margin		31.2		47.1

(a)

Revenues related to land sales at the joint venture are recognized on a percentage of completion basis.

Circle T Ranch and Power Center

On June 1, 2016, the Westlake Retail Associates joint venture closed on a 72-acre land sale with an affiliate of Charles Schwab Corporation. The year ended December 31, 2016 reflects the recognition of $10.5 million in Equity in earnings from Real Estate and Other Affiliates resulting from the land sale.

m.flats/TEN.M

On October 4, 2013, we entered into a joint venture agreement with a local developer, Kettler, Inc., to construct an apartment complex with ground floor retail in Downtown Columbia, Maryland. We contributed approximately five acres of land having a book value of $4.0 million to the joint venture and subsequently incurred an additional $3.1 million in capitalized development costs for a total book value contribution of $7.1 million. Our land was valued at $23.4 million, or $53,500 per constructed unit. In January 2016, the joint venture closed on an $88.0 million construction loan which is non-recourse to us and bears interest at one-month LIBOR plus 2.40% with an initial maturity date of February 2020, with three, one-year extension options. Upon closing of the loan, Kettler, Inc. contributed $16.1 million in cash and $7.3 million was distributed to us, of which we subsequently reinvested $6.3 million in the project in 2016. We accounted for this transaction as a partial sale of the land for which we recognized a net profit of $0.2 million at December 31, 2016.

33 Peck Slip

In January 2016, we entered into a joint venture to purchase a hotel located at 33 Peck Slip in the Seaport District of New York with a capital contribution of $6.0 million. We advanced a bridge loan of $25.0 million at a 5.0% interest rate to the joint venture at closing to expedite the acquisition, which was repaid in full in June 2016. In the second quarter of 2016, upon completion of a refinancing of the property with a $36.0 million redevelopment loan, we made additional capital contributions of $2.3 million in 2016 and $0.7 million in 2017. The 33 Peck Slip hotel was closed in December 2016 for redevelopment and was transferred to the Strategic Developments segment. Our total investment in the joint venture is $8.7 million as of December 31, 2017.