REAL ESTATE

12 Months Ended

Dec. 31, 2015

Real Estate [Abstract]

REAL ESTATE

NOTE 2. REAL ESTATE

A summary of our real estate owned as of the end of the year is listed below (dollars in thousands):

	2015			2014
Apartments	$	626,141		$	452,631
Apartments under construction		18,229			1,512
Commercial properties		201,567			179,171
Land held for development		89,697			148,480
Real estate held for sale		—			—
Real estate subject to sales contract		47,192			22,695
Total real estate, at cost, less impairment		982,827			804,489
Less accumulated deprecation		(138,808	)		(115,368	)
Total real estate, net of depreciation	$	844,019		$	689,121

Expenditures for repairs and maintenance are charged to operations as incurred. Significant betterments are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.

Depreciation is computed on a straight line basis over the estimated useful lives of the assets as follows: 

Land improvements	25 to 40 years
Buildings and improvements	10 to 40 years
Tenant improvements	Shorter of useful life or terms of related lease
Furniture, fixtures and equipment	3 to 7 years

Provision for Impairment

For the year ended December 31, 2015, the Company provided an impairment of $5.3 million for the golf course and related assets located in the U.S. Virgin Islands. This impairment relates to the decision to sell the development parcels in the U.S. Virgin Islands and the resultant decrease in the estimated fair value of the remaining assets. There was no provision for impairment for the year ended December 31, 2014. In 2013, impairment was recorded as an additional loss in the commercial portfolio of $9.6 million, the land portfolio of $1.5 million and the remaining $0.2 million was related to a provision for losses taken on our notes receivable. A recent appraisal done during the refinance of an office building in Dallas, Texas, resulted in a fair value lower than book basis. The impairment in our land portfolio was due to a potential sale of land at a value lower than book basis.

Fair Value Measurement

The Company applies the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. The Company is required to assess the fair value of its consolidated real estate assets with indicators of impairment. The value of impaired real estate assets is determined using widely accepted valuation techniques, including discounted cash flow analyses on the expected cash flow of each asset, as well as the income capitalization approach, which considers prevailing market capitalization rates, analyses of recent comparable sales transactions, information from actual sales negotiations and bona fide purchase offers received from third parties. The methods used to measure fair value may produce an amount that may not be indicative of net realizable value or reflective of future values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The fair value measurements used in these evaluations are considered to be Level 2 and 3 valuations within the fair value hierarchy in the accounting rules, as there are significant observable (Level 2) and unobservable inputs (Level 3). Examples of Level 2 inputs the Company utilizes in its fair value calculations are appraisals and bona fide purchase offers from third parties. Examples of Level 3 inputs the Company utilizes in its fair value calculations are discount rates, market capitalization rates, expected lease rental rates, timing of new leases, an estimate of future sales prices and comparable sales prices of similar assets, if available. All of the impairment charges outlined above were recorded in the statements of operations, either in continuing operations or discontinued operations.
  

			Fair Value Measurements Using (dollars in thousands):
December 31, 2015	Fair Value		Level 1		Level 2		Level 3
Commercial	$	3,000	$	—	$	---	$	3,000

A commercial property (golf course) with a carrying value of approximately $8.3 million was written down to its fair value of $3.0 million resulting in an impairment change of $5.3 million. The method used to determine fair value was an analysis of the discounted cash flow of the asset.

There was no provision for impairment for the year ended December 31, 2014.

			Fair Value Measurements Using (dollars in thousands):
December 31, 2013	Fair Value		Level 1		Level 2		Level 3
Land	$	849	$	—	$	849	$	—
Commercial	$	26,194	$	—	$	26,194	$	—

Land with a carrying amount of $2,355,768 was written down to its fair value of $849,468 resulting in an impairment charge of $1,506,300 in 2013. The method used to determine the fair value was to take the debt balance on the collateralized acres plus the book value of the uncollateralized acres.

A commercial building with a carrying amount of $35,794,331 was written down to its fair value of $26,194,331 resulting in an impairment charge of $9,600,000 in 2013. The Level 2 input used to determine the fair value above was a third party appraisal.

The following is a brief description of the most significant property acquisitions and sales in 2015:

Purchases

For the year ended December 31, 2015, the Company acquired five income-producing apartment complexes from third parties in the states of Texas (3), Tennessee (1) and Alabama (1), increasing the total number of units by 990, for a combined purchase price of $82.9 million. In addition, the Company acquired seven income-producing apartment complexes from related parties in the states of Texas (2), Florida (2), Tennessee (1), Mississippi (1), and Kansas (1) increasing the total number of units by 1,155, for a combined purchase price of $30.4 million. The Company also purchased a commercial office building in Texas, comprised of 92,723 square feet, for $16.8 million.  

Sales

For the year ended December 31, 2015, the Company sold approximately 579 acres of land located in Texas to independent third parties for a total sales price of $102.9 million. We recorded a total gain of $18.9 million from the sales. In November 2015, the Company sold approximately 88 acres of land located in the U.S. Virgin Islands to an unrelated party. The sales represents most of the development land owned by the Company in the U.S. Virgin Islands. Total cash consideration for the sale was $33.9 million. We recorded a gain of $12.1 million related to the transaction. 

In November 2015, the Company entered into a sales contract with an unrelated party. The contract was for most of the developable land owned by the Company in the Mercer Crossing Development located in Farmers Branch, Texas. In addition, IOT, ARL and RAI also sold land in this transaction. Total consideration for the sale was $75 million. The ultimate allocation of sales proceeds to the parties involved is yet to be determined and will be completed when the final use of the land, certain development commitments are completed and the note is collected.  The agreement between TCI and the other parties related to this transaction provides for TCI to hold the subordinated note from the buyer in the amount of $50 million. At the closing, the note payable to related parties of $16.1 million was paid off. Due to an inadequate down payment from the buyer and the level of seller financing involved, the transaction is being accounted for under the deposit method. Under the deposit method, no revenue is recognized and the asset sold remains on the books until the criteria for full revenue recognition is met.

In addition, one income-producing apartment complex consisting of 200 units located in Ohio was foreclosed upon. The Company recorded a gain of $0.7 million related to the extinguishment of debt.

As of December 31, 2015, the Company has approximately 91 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions TCI has deferred the recording of the sales in accordance with ASC 360-20.