The Great Park Venture has two classes of interests—“Percentage Interests” and “Legacy Interests.” Legacy Interest holders are entitled to receive priority distributions in an aggregate amount equal to $476.0 million and up to an additional $89.0 million from subsequent distributions of cash depending on the performance of the Great Park Venture. The holders of the Percentage Interests will receive all other distributions. The Operating Company owns 37.5% of the Great Park Venture’s Percentage Interests as of September 30, 2020. The Great Park Venture has made distributions to the holders of Legacy Interests in the aggregate amount of $431.3 million as of September 30, 2020.

The Great Park Venture is the owner of Great Park Neighborhoods, a mixed-use, master-planned community located in Orange County, California. The Company, through the Management Company, manages the planning, development and sale of land at the Great Park Neighborhoods and supervises the day-to-day affairs of the Great Park Venture. The Great Park Venture is managed by an executive committee of representatives appointed by only the holders of Percentage Interests. The Company does not control the actions of the executive committee.

At each reporting period, and when events and circumstances dictate, the Company evaluates its equity method investment in the Great Park Venture for impairment. This evaluation focuses on the recoverability of the carrying value based upon the discounted value of distributions the Company expects to receive from the Great Park Venture. This evaluation is performed at the investment level and is separate and apart from impairment evaluations on long-lived assets, such as the Company’s consolidated inventory balances, that focus on recoverability with undiscounted cash flows. The Company evaluates the investment as a whole and does not evaluate the underlying assets of the Great Park Venture for impairment. If the Great Park Venture records an impairment charge against its assets, the Company will recognize its share of the loss, adjusted for basis differences. During the nine months ended September 30, 2020 and 2019, the Great Park Venture did not recognize any impairment losses on its long-lived assets.

In March 2020, the Company determined that an other-than-temporary impairment existed for the Company’s investment in the Great Park Venture as the estimated fair value of the investment was less than the carrying value. This was the result of a delay in the projected distributions from Great Park Venture to the Company. In determining that the impairment was other-than-temporary, the Company concluded at the measurement date that it was uncertain if a near term recovery of value that was lost as a result of delays to expected land sales from the impacts of the COVID-19 pandemic would occur. As a result, the Company recognized a $26.9 million impairment charge that is included in equity in earnings from unconsolidated entities on the condensed consolidated statement of operations during the nine months ended September 30, 2020.

Below are the most significant unobservable inputs used in the Company’s discounted cash flow model to determine the estimated fair value (level 3) of the Company’s investment in the Great Park Venture at the time the other-than-temporary impairment was recognized:


Unobservable inputs						Range
Annual home price appreciation						0% - 7%
Annual horizontal development cost appreciation						0% - 3%
Average annual absorption of homesites (market rate homesites)						900
2020 home price range						$640,000 - $1,300,000
Unlevered discount rate						9%

The cost of the Company’s investment in the Great Park Venture, adjusted for impairments, is higher than the Company’s underlying equity in the carrying value of net assets of the Great Park Venture (basis difference). The Company’s earnings or losses from the equity method investment are adjusted by amortization and accretion of the basis differences as the assets (mainly inventory) and liabilities that gave rise to the basis difference are sold, settled or amortized.

During the nine months ended September 30, 2020, the Great Park Venture recognized $1.1 million in land sale revenues to related parties of the Company and $22.0 million in land sale revenues to third parties. During the nine months ended September 30, 2019, the Great Park Venture recognized $132.5 million in land sale revenues to a related party of the Company and $98.7 million in land sale revenues to third parties, of which $31.0 million relates to homesites sold to a land banking entity whereby a related party of the Company retained the option to acquire these homesites in the future from the land bank entity. The following table summarizes the statements of operations of the Great Park Venture for the nine months ended September 30, 2020 and 2019 and reconciles the Company’s share to the amount recognized as equity in (loss) earnings (in thousands):


	Nine Months Ended September 30,
	2020		2019
Land sale revenues	$	23,054	$	231,216
Cost of land sales	(15,304)		(153,486)
Other costs and expenses	(35,995)		(48,525)
Net (loss) income of Great Park Venture	$	(28,245)	$	29,205
The Company’s share of net (loss) income	$	(10,592)	$	10,952
Basis difference amortization	(1,204)		(3,694)
Other-than-temporary investment impairment	(26,851)		—
Equity in (loss) earnings from Great Park Venture	$	(38,647)	$	7,258


	September 30, 2020		December 31, 2019
Inventories	$	906,920	$	870,861
Cash and cash equivalents	146,087		293,002
Receivable and other assets	25,567		32,395
Total assets	$	1,078,574	$	1,196,258
Accounts payable and other liabilities	$	147,916	$	159,965
Distribution payable to Legacy Interests	—		76,272
Redeemable Legacy Interests	133,695		133,695
Capital (Percentage Interest)	796,963		826,326
Total liabilities and capital	$	1,078,574	$	1,196,258
The Company’s share of capital in Great Park Venture	$	298,861	$	309,872
Unamortized basis difference	93,908		121,963
The Company’s investment in the Great Park Venture	$	392,769	$	431,835

The Company owns a 75% interest in the Gateway Commercial Venture as of September 30, 2020. The Gateway Commercial Venture is governed by an executive committee in which the Company is entitled to appoint two individuals. One of the other members of the Gateway Commercial Venture is also entitled to appoint two individuals to the executive committee. The unanimous approval of the executive committee is required for certain matters, which limits the Company’s ability to control the Gateway Commercial Venture. However, the Company is able to exercise significant influence and therefore accounts for its investment in the Gateway Commercial Venture using the equity method. The Company is the manager of the Gateway Commercial Venture, with responsibility to manage and administer its day-to-day affairs and implement a business plan approved by the executive committee.

The Gateway Commercial Venture acquired its interest in the Five Point Gateway Campus through debt and capital funding. The debt obtained by the Gateway Commercial Venture is non-recourse to the Company other than in the case of customary “bad act” exceptions or bankruptcy or insolvency events.

In August 2020, the Gateway Commercial Venture closed on the sale of two buildings at the Five Point Gateway Campus, comprising a total of approximately 660,000 square feet of research and development space currently leased to one tenant, a subsidiary of Broadcom Inc., under a triple net lease. The purchase price was $355.0 million and the purchaser is a real estate investment management company and operator. The sale of the buildings, which had a carrying value of approximately $278.0 million, resulted in a gain of approximately $74.8 million, net of transaction costs. Additionally, the Gateway Commercial Venture made a debt payment of $245.0 million to its lender and a distribution of $107.0 million to its members, of which approximately $80.3 million was distributed to the Company with net proceeds generated from the sale.

In May 2020, the Gateway Commercial Venture closed on the sale of approximately 11 acres of land and an approximately 189,000 square foot building to City of Hope for a purchase price of $108.0 million. The sale of this land and building, which had a carrying value of approximately $67.5 million, resulted in a gain of approximately $37.4 million, net of transaction costs. Concurrently, the Gateway Commercial Venture made a debt payment of $30.0 million to its lender and a distribution of $75.0 million to its members, of which approximately $56.3 million was distributed to the Company with net proceeds generated from the sale.

Cumulative distributions from unconsolidated entities are treated as returns on investment to the extent of the Company's share of cumulative earnings from the investment and included in the Company's consolidated statements of cash flows as cash flow from operating activities. Cumulative distributions in excess of the Company's share of cumulative earnings are treated as returns of investment and included in the Company's consolidated statements of cash flows as cash flows from investing activities.

The Company and a related party of the Company separately lease office space in the remaining building owned by the Gateway Commercial Venture at the Five Point Gateway Campus, and during the nine months ended September 30, 2020 and 2019, the Gateway Commercial Venture recognized $6.3 million and $6.2 million, respectively, in rental revenues from those leasing arrangements.


	Nine Months Ended September 30,
	2020		2019
Rental revenues	$	22,141	$	25,708
Rental operating and other expenses	(5,342)		(5,177)
Depreciation and amortization	(8,427)		(11,319)
Gain on asset sales, net	112,260		—
Interest expense	(8,547)		(12,938)
Net income (loss) of Gateway Commercial Venture	$	112,085	$	(3,726)
Equity in earnings (loss) from Gateway Commercial Venture	$	84,064	$	(2,795)


	September 30, 2020		December 31, 2019
Real estate and related intangible assets, net	$	91,231	$	451,988
Other assets	14,157		21,410
Total assets	$	105,388	$	473,398
Notes payable, net	$	29,366	$	302,344
Other liabilities	10,731		35,848
Members’ capital	65,291		135,206
Total liabilities and capital	$	105,388	$	473,398
The Company’s investment in the Gateway Commercial Venture	$	48,968	$	101,404