17.	Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from

time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with

third

-party investors to develop land and construct homes that are sold directly to

third

-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other

third

parties.

During the

first

quarter of fiscal

2017,

we transferred

one

community we owned and our option to buy

three

communities to an existing joint venture, resulting

in the receipt of

1.2

million of net cash.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

(Dollars in thousands)	January 31, 2018
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	36,994		$	823		$	37,817
Inventories		652,030			8,370			660,400
Other assets		34,438			-			34,438
Total assets	$	723,462		$	9,193		$	732,655

Liabilities and equity:
Accounts payable and accrued liabilities	$	106,971		$	298		$	107,269
Notes payable		364,886			-			364,886
Total liabilities		471,857			298			472,155
Equity of:
Hovnanian Enterprises, Inc.		78,613			3,805			82,418
Others		172,992			5,090			178,082
Total equity		251,605			8,895			260,500
Total liabilities and equity	$	723,462		$	9,193		$	732,655
Debt to capitalization ratio		59	%		0	%		58	%

(Dollars in thousands)	October 31, 2017
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	60,580		$	194		$	60,774
Inventories		666,017			9,162			675,179
Other assets		36,026			-			36,026
Total assets	$	762,623		$	9,356		$	771,979

Liabilities and equity:
Accounts payable and accrued liabilities	$	121,646		$	429		$	122,075
Notes payable		330,642			-			330,642
Total liabilities		452,288			429			452,717
Equity of:
Hovnanian Enterprises, Inc.		88,884			3,746			92,630
Others		221,451			5,181			226,632
Total equity		310,335			8,927			319,262
Total liabilities and equity	$	762,623		$	9,356		$	771,979
Debt to capitalization ratio		52	%		0	%		51	%

As of

January 31, 2018

and

October 31, 2017,

we had advances and a note receivable outstanding of

$23.1

million and

$22.4

million, respectively, to these unconsolidated joint ventures. These amounts were included in the “

Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to

$92.3

million and

$115.1

million at

January 31, 2018

and

October 31, 2017,

respectively.

In some cases our net investment in these joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our joint venture investments and any impairments recorded in the applicable joint venture. Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During the

three

months ended

January 31, 2018,

we did

not

write-down any of our joint venture investments; however,

one

of our joint ventures in the Northeast recorded an asset impairment. We recorded our proportionate share of this impairment charge of

$0.7

million as part of our share of the net loss of the venture.

	For the Three Months Ended January 31, 2018
(In thousands)	Homebuilding			Land Development			Total

Revenues	$	58,565		$	1,275		$	59,840
Cost of sales and expenses		(72,136	)		(1,158	)		(73,294	)
Joint venture net (loss) income	$	(13,571	)	$	117		$	(13,454	)
Our share of net (loss) income	$	(5,199	)	$	59		$	(5,140	)

	For the Three Months Ended January 31, 2017
(In thousands)	Homebuilding			Land Development			Total

Revenues	$	64,937		$	1,202		$	66,139
Cost of sales and expenses		(67,226	)		(982	)		(68,208	)
Joint venture net (loss) income	$	(2,289	)	$	220		$	(2,069	)
Our share of net (loss) income	$	(1,681	)	$	110		$	(1,571	)

“

(Loss) income from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled

$1.9

million and

$2.2

million for the

three

months ended

January 31, 2018

and

2017,

respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed Consolidated Statement of Operations.

In determining whether or

not

we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcom

e the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing.

For some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently

58%.

Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the joint venture entity is considered a VIE under ASC

810

“Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are

not

the primary beneficiary, and therefore we do

not

consolidate these entities.