Real Estate Joint Ventures

The Company enters into real estate joint ventures, from time to time, for the purpose of developing real estate in which the Company may or may not have a controlling financial interest. Generally accepted accounting principles (“GAAP”) require consolidation of VIEs in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. The Company examines specific criteria and uses judgment when determining whether the Company is the primary beneficiary and must consolidate a VIE. The Company continues to assess whether it is the primary beneficiary on an ongoing basis.

Consolidated Real Estate Joint Ventures

In December 2016, the Company entered into a joint venture agreement with Windmark JV pursuant to which the Company transferred to Windmark JV all of its interest in the Windmark Beach project. Windmark JV is a joint venture between Windmark Beach, LLC (“WMBLLC”), a wholly owned subsidiary of the Company, The Fairholme Unlimited Foundation, Inc. (a 501(c)(3) private operating foundation), and another unrelated 501(c)(3) charitable foundation. WMBLLC, a wholly owned subsidiary of the Company is the managing member of Windmark JV and runs its day-to-day operations. Windmark JV owns and its members make major decisions related to the management and development of the Windmark Beach project. For financial accounting purposes, the Company is deemed to control Windmark JV, which is consolidated within the financial results of the Company. The joint venture agreement provided for Windmark JV to transfer $20.0 million to the Company in exchange for the Windmark Beach property and assets. However, WMBLLC contributed capital of $9.9 million to Windmark JV in exchange for 49.0% equity interest, resulting in a net increase in cash and cash equivalents of $10.3 million, which was received from the non-controlling members for their 51.0% equity interest and an increase in non-controlling interests for the same amount on the Company’s consolidated balance sheets as of December 31, 2016. There was no impact on the results of operations of the Company as a result of the transaction. The sale of the Windmark Beach project created a net taxable loss for the Company in 2016. The loss will be carried back to 2014 for a federal income tax refund of $24.6 million. The carryback of the loss will also create an alternative minimum tax (“AMT”) credit carryforward of $13.5 million. The AMT credit carryforward may be carried forward indefinitely to offset future federal income tax liabilities. For Florida income tax purposes, the net taxable loss may be carried forward through 2036 to offset future Florida taxable income.

During 2012, the Company entered into a joint venture agreement with a partner to develop a retail center at Pier Park North. As of December 31, 2016, the Company owned a 60.0% equity interest in the consolidated joint venture. The Company’s partner is responsible for the day-to-day activities of the joint venture. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined the joint venture is a VIE and that the Company is the VIE’s primary beneficiary as of December 31, 2016 and 2015.

In October 2015, the Pier Park North JV refinanced a construction loan and entered into a $48.2 million loan (the “Refinanced Loan”). As of December 31, 2016, $48.1 million was outstanding on the Refinanced Loan. At issuance, the Refinanced Loan was secured by a first lien on, and security interest in, a majority of Pier Park North JV’s property and a short term $6.6 million letter of credit. In October 2016, the letter of credit was reduced to $1.3 million based on the terms of the Refinanced Loan agreement. Additionally, in connection with this refinancing, each of the Pier Park North JV partners executed a limited guarantee in favor of the lender, based on their percentage ownership in the joint venture. See Note 11. Debt.

In addition, the Company is the primary beneficiary of Artisan Park, L.L.C, another real estate joint venture, that is consolidated within the financial results of the Company. The Company is entitled to 74% of the profits or losses of this VIE and is responsible for the day-to-day activities of the joint venture.

Unconsolidated Real Estate VIE

During 2016 and 2015, the Company was a partner in ALP Liquidating Trust (“ALP”) that is accounted for using the equity method. The joint venture was entered into to develop and sell certain mixed use residential and commercial projects. The Company has evaluated the VIE consolidation requirements with respect to this joint venture and has determined that the Company is not the primary beneficiary, since the Company does not have the power to direct the activities that most significantly impact the economic performance of the VIE. The Company is not required to contribute additional funds to ALP.

Summarized financial information for ALP is as follows:



	December 31, 2016		December 31, 2015
BALANCE SHEETS:
Cash and cash equivalents	$	11,948	$	13,760
Other assets	59		58
Total assets	$	12,007	$	13,818

Accounts payable and other liabilities	$	955	$	1,978
Equity⁽¹⁾	11,052		11,840
Total liabilities and equity	$	12,007	$	13,818

(1) In 2008, the Company wrote-off its investment in ALP as a result of ALP reserving its assets to satisfy potential claims and obligations in accordance with its publicly reported liquidation basis of accounting. Subsequently, ALP changed its method of accounting to a going concern basis and reinstated its equity and stated it would report certain expenses as they are incurred. The Company has not recorded any additional equity income as a result of the ALP’s change in accounting.



	2016		2015		2014
STATEMENTS OF OPERATIONS:
Income	$	371	$	—	$	5
Total expenses	1,159		3,073		1,957
Net loss	$	788	$	3,073	$	1,952

Total ALP income of $0.4 million for the year ended December 31, 2016, is due to the sale of remnant parcels.