Note 6 - Investments in and Advances to Consolidated and Unconsolidated VIEs

6 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6. Investments in and Advances to Consolidated and Unconsolidated VIEs

Consolidated VIEs

Real Estate Joint Ventures Related to the Altman Companies and BBX Logistics

BBXRE invests in the managing member of real estate joint ventures sponsored by the Altman Companies and by BBX Logistics. In accordance with the applicable accounting guidance for the consolidation of VIEs, the Company analyzes its investments in the managing member of each real estate joint venture to determine if such managing member entities are VIEs and, to the extent that such entities are VIEs, if the Company is the primary beneficiary. Based on the Company’s analysis of the structure of these entities, including the respective operating agreements governing these entities and any relevant financial agreements, the Company has determined that (i) the managing member entities are VIEs due to the entities not having sufficient equity to finance their activities and (ii) the Company has variable interests in these entities as a result of its equity investments in such entities. Further, the Company has determined that it is the primary beneficiary of the managing member entities and, as a result, consolidates the managing member entities. The Company’s conclusion that it is the primary beneficiary of these entities is primarily based on the determination that the Company has the power to direct activities of the entities that most significantly affect their economic performance. With respect to joint ventures sponsored by the Altman Companies that were formed prior to the Acquisition Date, prior to the Acquisition Date the Company had determined that it was not the primary beneficiary of certain managing member entities based on the fact that BBXRE and Mr. Altman shared decision-making authority for all significant operating and financing decisions related to such entities. However, as a result of the acquisition of the Altman Companies and Mr. Altman’s ongoing employment with the Altman Companies, the Company reevaluated its investments in these entities and determined that, as of and subsequent to the Acquisition Date, BBXRE and Mr. Altman constitute a related party group under the accounting guidance for VIEs that collectively is the primary beneficiary of each of these entities and that BBXRE is the primary beneficiary of the managing member entities as it is the member of the related party group whose activities are most closely associated with the entities.

As a result of the above, the Company consolidates the managing members of the following real estate joint ventures:

● Altis Lake Willis Phase 1

● Altis Lake Willis Phase 2

● Altis Grand at Suncoast

● Altis Blue Lake

● Altis Santa Barbara

● Altis Grand Kendall

● Altis Twin Lakes

● Altis Grand Bay

● The Park at Delray

● The Park at Lakeland

● The Park at Davie

As further described below under Unconsolidated VIEs, although the Company consolidates the managing member of the various real estate joint ventures sponsored by the Altman Companies and by BBX Logistics, the Company has determined that, other than with respect to the Altis Grand Kendall joint venture, the real estate joint ventures in which the managing member entities hold investments are VIEs in which the managing member entities are not the primary beneficiary. However, with respect to the Altis Grand Kendall joint venture, the Company determined that the venture is a VIE in which the managing member is the primary beneficiary, as the managing member of the Altis Grand Kendall joint venture has the power to direct the activities of the joint venture that most significantly affect its economic performance and such power is not constrained by any kick-out or substantive participating rights held by the non-managing members. As a result, the Company consolidates the Altis Grand Kendall joint venture.

ABBX Guaranty, LLC (“ABBX”)

In 2018, BBXRE and Mr. Altman formed ABBX Guaranty, LLC (“ABBX”), a joint venture that provides guarantees on the indebtedness and construction cost overruns of development joint ventures sponsored by the Altman Companies. Under the terms of the operating agreement of ABBX, BBXRE and Mr. Altman will retain their respective 50% equity interests in the joint venture until such time that the joint venture is no longer providing guarantees related to development joint ventures originated prior to the Acquisition Date. At such time that ABBX is no longer providing guarantees related to such development joint ventures, it is expected that BBXRE will acquire Mr. Altman’s equity interest in ABBX based on his then outstanding capital in ABBX. Prior to the Acquisition Date, the Company previously determined that ABBX was a VIE in which BBXRE was not the primary beneficiary based on the fact that BBXRE and Mr. Altman share decision-making authority for all significant operating and financing decisions related to ABBX. As a result, the Company previously accounted for its investment in ABBX using the equity method of accounting. As a result of the acquisition of the Altman Companies, BBXRE reevaluated its investment in ABBX and determined that, as of and subsequent to the Acquisition Date, (i) ABBX is still a VIE and (ii) BBXRE and Mr. Altman constitute a related party group under the accounting guidance for VIEs that collectively is the primary beneficiary of ABBX. Further, based on the Company's analysis of the facts and circumstances, the Company determined that BBXRE is the primary beneficiary of ABBX as of and subsequent to the Acquisition Date as it is the member of the related party group whose activities are most closely associated with ABBX. Accordingly, as of subsequent to the Acquisition Date, the Company consolidates ABBX in its consolidated financial statements. See Note 14 for additional information regarding ABBX’s guarantees.

Altman Management

Altman Management ("AMC"), historically provided property management services pursuant to property management agreements to the owners of multifamily apartment communities, including real estate joint ventures sponsored by the Altman Companies, affiliates of the Altman Companies (including joint ventures in which Mr. Altman is an investor), and unrelated third parties. In March 2023, the Altman Companies amended and restated the operating agreement of AMC to admit RAM Partners, LLC ("RAM") as a joint venture partner. The Altman Companies continues to serve as the managing member of AMC, but any major decisions requiring the approval of both parties. However, once the parties resolve certain ongoing matters related to the formation of the joint venture, RAM will serve as the managing member of AMC, with any major decisions continuing to require the approval of both parties. Under the terms of the operating agreement, the parties will each be entitled to receive distributions of available cash of the joint venture based on a proscribed formula within the operating agreement, with the parties generally each receiving 50% of distributable cash after (i) RAM has received an amount equal to its initial contribution to AMC and (ii) each of the parties have thereafter received a return of any additional capital contributions subsequent to the formation of the joint venture. Further, pursuant to the terms of the agreement, each party has the right to terminate the joint venture arrangement at any time which would result in RAM transferring its ownership interests in AMC back to the Altman Companies and result in the Altman Companies once again being the sole owner of AMC. The Company evaluated the operating agreement of AMC and determined that AMC is a VIE due to its lack of sufficient equity to fund its operations. Further, the Company has also determined that the Altman Companies is the primary beneficiary of AMC, as the Altman Companies is currently the managing member and, once RAM succeeds to the position of managing member of the joint venture, the Altman Companies has substantive kick-out rights related to RAM as the managing member due to its ability to remove RAM as a member from AMC without cause and without any significant barrier to exercising that right. As such, the Company continues to include AMC in its consolidated financial statements as a consolidated VIE and recognizes a noncontrolling interest related to RAM’s equity interest in AMC.

Altis Grand Bay

In January 2024, BBXRE, through various consolidated subsidiaries, formed 11240 Biscayne Manager, LLC (the “Altis Grand Bay Manager joint venture”), a joint venture formed with third party investors in which a consolidated subsidiary of BBXRE serves as the managing member. Upon the formation of the Altis Grand Bay Manager joint venture, an affiliate of BBXRE assigned a purchase and sale agreement for the acquisition of land in Miami, Florida to the joint venture. The Altis Grand Bay Manager joint venture will initially be responsible for incurring predevelopment costs related to the potential acquisition and development of a 336 unit multifamily apartment community in Miami, Florida and for obtaining equity and debt financing for the potential development of the community. After obtaining entitlements and sourcing development financing, the joint venture currently expects to form a joint venture with other third party investors to acquire and develop the land in which the Altis Grand Bay Manager joint venture will serve as the managing member. BBXRE owns 50% of the membership interests in the Altis Grand Bay Manager joint venture, and the remaining interests are owned by third party investors. The Company evaluated its investment in the Altis Grand Bay Manager joint venture and determined that the joint venture is a VIE and that BBXRE is the primary beneficiary. The Company’s conclusion that BBXRE is the primary beneficiary of the Altis Grand Bay Manager joint venture is based on its determination that BBXRE has the power to direct the activities of the joint venture that most significantly impact its economic performance. As a result, the Company consolidates the Altis Grand Bay Manager joint venture. 

The Park at Lakeland and The Park at Davie

In  January 2024, BBX Logistics formed The Park at Lakeland joint venture, a joint venture with affiliates of FRP Holdings, Inc. ("FRP"), and assigned a contract to acquire approximately 22.5 acres of land in Lakeland, Florida to the joint venture for the purpose of developing a logistics facility. In connection with the formation of the joint venture, BBX Logistics initially invested $0.2 million in the administrative managing member of the joint venture, and the administrative managing member invested those proceeds in the joint venture in exchange for a 50% membership interest in the venture. In March 2024, the joint venture acquired the land expected to be developed into The Park at Lakeland, and BBX Logistics has continued to contribute capital to the administrative managing member for predevelopment expenditures and land acquisition costs based on its current 50% membership interest in The Park at Lakeland joint venture. Pursuant to the terms of the operating agreement for the joint venture, upon the origination of debt financing for the development and the commencement of vertical construction of the logistics facility, BBX Logistics and FRP will recapitalize the joint venture, with BBX Logistics subsequently owning a 10% membership interest in the venture and FRP owning the remaining 90% membership interest in the joint venture. However, pursuant to the terms of the operating agreement for The Park at Lakeland joint venture, BBX Logistics, as the administrative managing member, will then be entitled to receive 10% of the joint venture distributions until the administrative managing member and FRP receives their aggregate capital contributions. Thereafter, the administrative managing member will be entitled to receive an increasing percentage of the joint venture distributions based upon FRP receiving a specified return on its contributed capital.

In March 2024, BBX Logistics formed The Park at Davie joint venture, a joint venture with affiliates of FRP, for the purpose of acquiring approximately 11.3 acres of land in Davie, Florida and developing a logistics facility. In connection with the formation of the joint venture, BBX Logistics initially invested $0.5 million in the administrative managing member of the joint venture, and the administrative managing member invested those proceeds in the joint venture in exchange for a 50% membership interest in the venture. In July 2024, the joint venture acquired the land expected to be developed into The Park at Davie and, in connection with the acquisition, BBX Logistics contributed $11.9 million of capital to the administrative managing member for investment in the joint venture for land acquisition costs and predevelopment expenditures based on its 50% membership interest in The Park at Davie joint venture. Pursuant to the terms of the operating agreement for the joint venture, upon the origination of debt financing for the development and the commencement of vertical construction of the logistics facility, BBX Logistics and FRP will recapitalize the joint venture resulting in BBX Logistics subsequently owning a 20% membership interest in the venture and FRP owning the remaining 80% membership interest in the joint venture. Pursuant to the terms of the operating agreement, BBX Logistics, as the administrative managing member, will be entitled to receive 20% of the joint venture distributions until the administrative managing member and FRP receives their aggregate capital contributions. Thereafter, the administrative managing member is entitled to receive an increasing percentage of the joint venture distributions based upon FRP receiving a specified return on its contributed capital. 

The Company evaluated its investment in the managing member of The Park at Lakeland and The Park at Davie joint ventures and determined that the managing members are VIEs and that The Logistics Properties is the primary beneficiary. The Company then evaluated the managing member's investment in each of The Park at Lakeland and The Park at Davie joint ventures and determined that the joint ventures are VIEs and that the managing members are not the primary beneficiaries. The Company’s conclusion that the managing members are not the primary beneficiary of The Park at Lakeland and The Park at Davie joint ventures is based on the determination that the managing member of each joint venture does not have the power to direct the activities of the respective joint venture that most significantly affect its economic performance. In particular, while the managing member is the day-to-day operating manager of each joint venture, the other member has substantive participating rights with respect to all activities that most significantly impact the joint venture’s economic performance. As a result, the Company consolidates the managing members, and the managing members account for their investment in the underlying The Park at Lakeland and The Park at Davie joint ventures under the equity method of accounting.

Summary of Financial Information Related to Consolidated VIEs

The assets and liabilities of the Company's consolidated VIEs as of June 30, 2024 that are included in the Company’s consolidated statement of financial position are as follows (in thousands):

	Real Estate
	Joint Ventures (1)		ABBX		AMC		Total
Cash	$	3,159		—		597		3,756
Restricted cash		—		10,186		—		10,186
Trade accounts receivable, net		—		—		377		377
Real estate		90,615		—		—		90,615
Investment in and advances to unconsolidated real estate joint ventures		46,168		—		—		46,168
Other assets		1,106		—		300		1,406
Total assets	$	141,048		10,186		1,274		152,508
Accounts payable		108		—		20		128
Accrued expenses		329		—		210		539
Other liabilities		—		—		55		55
Notes payable and other borrowings		48,654		—		—		48,654
Total liabilities	$	49,091		—		285		49,376
Noncontrolling interest	$	57,071		5,091		344		62,506

The assets and liabilities of the Company's consolidated VIEs as of December 31, 2023 that are included in the Company’s consolidated statement of financial position are as follows (in thousands):

	Real Estate
	Joint Ventures (1)		ABBX		AMC		Total
Cash	$	4,045		—		476		4,521
Restricted cash		—		10,089		—		10,089
Trade accounts receivable, net		—		—		385		385
Real estate		64,055		—		—		64,055
Investment in and advances to unconsolidated real estate joint ventures		39,821		—		—		39,821
Other assets		698		—		292		990
Total assets	$	108,619		10,089		1,153		119,861
Accounts payable		—		—		16		16
Accrued expenses		140		9		200		349
Other liabilities		—		—		1,833		1,833
Notes payable and other borrowings		27,321		—		—		27,321
Total liabilities	$	27,461		9		2,049		29,519
Noncontrolling interest	$	54,707		5,045		137		59,889

⁽¹⁾ Represents the aggregate assets, liabilities, and noncontrolling interests of the consolidated real estate joint ventures sponsored by the Altman Companies or BBX Logistics, as described above. These real estate joint ventures have similar economic characteristics, financing arrangements, and organizational structures.

The assets held by the consolidated VIEs in the above tables are owned by the respective VIEs and can only be used to settle obligations of such VIEs, and the liabilities in the above table are non recourse to BBX Capital and its other subsidiaries.  Further, guarantees issued by ABBX are limited to the assets of ABBX and are non recourse to BBX Capital and its other subsidiaries. 

Unconsolidated VIEs

As of June 30, 2024, the Company had equity interests in and advances to unconsolidated real estate joint ventures involved in the development of multifamily rental apartment communities, warehouse and logistics facilities, and single-family master planned for sale housing communities. 

As a result of the consolidation of the managing members of various real estate joint ventures sponsored by the Altman Companies and by BBX Logistics, the Company’s unconsolidated real estate joint ventures as of June 30, 2024 and December 31, 2023 include the managing members’ investments in the underlying real estate joint ventures where the Company has concluded that the managing members do not consolidate the applicable underlying joint ventures.

Investments in unconsolidated real estate joint ventures are accounted for as unconsolidated VIEs under the equity method of accounting.

The Company’s investments in and advances to unconsolidated real estate joint ventures consisted of the following (in thousands):

	June 30,					December 31,
	2024		Ownership (1)			2023		Ownership (1)
Altis Grand Central	$	604		1.49	%		636		1.49	%
Altis Lake Willis Phase 1		7,404		1.68			7,126		1.68
Altis Lake Willis Phase 2		3,502		5.10			3,398		5.10
Altis Grand at Suncoast		11,652		12.31			12,195		12.31
Altis Blue Lake		4,953		1.68			4,736		1.68
Altis Santa Barbara		7,520		5.10			6,425		5.10
Altis Twin Lakes		6,165		11.39			3,961		11.39
The Park at Delray		2,871		10.00			2,800		10.00
The Park at Lakeland		1,220		50.00			—		—
The Park at Davie		881		50.00			—		—
Marbella		1,038		70.00			1,043		70.00
The Main Las Olas		—		3.41			479		3.41
Sky Cove		119		26.25			118		26.25
Sky Cove South		116		26.25			1,001		26.25
Other		127					158
Total	$	48,172					44,076

⁽¹⁾ The Company’s ownership percentage in each real estate joint venture represents BBX Capital Real Estate's percentage of the contributed capital in each venture, excluding amounts attributable to noncontrolling interests. The operating agreements for many of these ventures provide for a disproportionate allocation of distributions to the extent that certain investors receive specified returns on their investments, and as a result, these percentages do not necessarily reflect the Company’s economic interest in the expected distributions from such ventures.

See Note 8 to the Company’s consolidated financial statements for the year ended December 31, 2023 included in the 2023 Annual Report for the Company’s accounting policies relating to its investments in unconsolidated real estate joint ventures, including the Company’s analysis and determination that such entities are VIEs in which the Company is not the primary beneficiary.  

BBX Capital's aggregate maximum loss exposure in unconsolidated VIEs, which includes joint ventures sponsored by the Altman Companies and by BBX Logistics, is the amount of its equity investment in these entities and the assets of ABBX as of June 30, 2024, in the aggregate amount of $63.4 million, which reflects the carrying amount of the Company's investments in these joint ventures and the restricted cash held by ABBX and BBXIG, as further described in Note 14.

Basis Differences

The aggregate difference between the Company’s investments in unconsolidated real estate joint ventures and its underlying equity in the net assets of such ventures was $17.5 million as of June 30, 2024, which includes (i) a $16.8 million adjustment to recognize certain investments in unconsolidated joint ventures sponsored by the Altman Companies at their estimated fair values upon the Company's consolidation of the managing members of such joint ventures as of the Acquisition Date and (ii) $1.4 million of interest capitalized by the Company relating to such joint ventures, partially offset by (i) a $0.5 million impairment loss previously recognized by the Company related to its investment in one of the joint ventures and (ii) a $0.2 million reduction in the carrying amount of certain investments relating to the elimination of general contractor and development management fees earned by the Altman Companies or BBX Logistics, as applicable, and recognized as revenues by the Company but are capitalized by the underlying development joint ventures. Based on the facts and circumstances of the agreements between the Altman Companies or BBX Logistics, as applicable, and the joint ventures, the Company has determined that the transactions with the ventures are arm's-length transactions, and revenue from construction contracts, real estate development management fee revenue, and the costs of revenue from the construction contracts, as applicable, are eliminated from the Company's statements of operations and comprehensive income based on the Company’s ownership percentage in the underlying joint ventures. During the three months ended June 30, 2024 and 2023, the Company eliminated $2.6 million and $4.1 million, respectively, of revenue from construction contracts and real estate development management fee revenue and $2.2 million and $4.0 million, respectively, of cost of revenue from construction contracts related to such transactions with these unconsolidated real estate joint ventures. During the six months ended June 30, 2024 and 2023, the Company eliminated $4.5 million and $7.1 million, respectively, of revenue from construction contracts and real estate development management fee revenue and $4.5 million and $6.8 million, respectively, of cost of revenue from construction contracts related to such transactions with these unconsolidated real estate joint ventures.  

The Main Las Olas

As of December 31, 2023, BBXRE had invested $3.8 million as one of a number of investors in The Main Las Olas joint venture, which was formed to invest in the development of The Main Las Olas, a mixed-use project in downtown Fort Lauderdale, Florida comprised of an office tower with approximately 365,000 square feet of leasable area, a residential tower with approximately 341 units, and approximately 45,000 square feet of ground floor retail. In April 2024, The Main Las Olas joint venture sold its ownership interest in the residential tower and a portion of the ground floor retail. As a result, BBXRE received aggregate cash distributions of $2.1 million from The Main Las Olas joint venture and recognized $1.6 million of equity earnings from the venture during the during the three and six months ended June 30, 2024.