3. Variable Interest Entities

The Company enters into real estate joint ventures for the purpose of developing real estate in which the Company may or may not have a controlling financial interest. GAAP requires consolidation of variable interest entities (“VIE”) 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 performs this review initially at the time the Company enters into joint venture agreements and subsequently when reconsideration events occur.

Consolidated VIEs

During 2012, the Company entered into a joint venture agreement with a partner to develop a retail lifestyle center at Pier Park North. The Company and its partner will contribute total cash of approximately $15.0 million to the joint venture, of which the Company will contribute approximately $9.9 million or 66% of the cash contributions. As of May 3, 2013, the Company has contributed approximately $1.4 million of cash and land with an agreed upon value of $6.0 million to the joint venture.

In February 2013, the joint venture entered into a construction loan agreement for $40.5 million that matures in February 2016. As of March 31, 2013, no amounts were outstanding on the construction loan. The construction loan requires the Company to provide the following: (i) completion guarantee until substantial completion; (ii) principal repayment guarantee limited to 33% of the outstanding balance of the loan; (iii) guarantee covering, among other things, operating deficits and accrued and unpaid interest; and (iv) customary non-recourse covenants covering items like misrepresentation, misappropriation of funds and fraud. In addition, the construction loan includes covenants that the Company maintains minimum liquidity, which is defined as unencumbered and unrestricted cash or cash equivalents of $25 million and net worth of $350 million, which is defined as total assets less the Company’s direct liabilities.

During the three months ended March 31, 2013, the Company has contributed $0.9 million in cash and land with an agreed upon value of $6.0 million, representing over 90% of the total equity in the joint venture. The Company’s partner has contributed cash of $0.7 million into the joint venture during the three months ended March 31, 2013. In addition, the Company and its partner have provided the above guarantee on the VIE’s construction loan. The construction loan requires additional capital contributions from the partners as specified in the construction loan agreement before amounts under the construction loan can be disbursed. In accordance with the joint venture agreement, additional cash contributions will be made 66% and 34% by the Company and its partner, respectively. The Company’s partner is responsible for the day-to-day activities; however, the Company has significant involvement in the design of the related development plan and approves all major decisions including the project development and annual budgets. In accordance with the joint venture agreement, the Company will be entitled to 66% of the profits or losses of the VIE. The Company has evaluated the VIE consolidation requirements with respect to this transaction and has determined that the Company is the primary beneficiary as the Company has both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb losses of and the right to receive benefits that are significant to the VIE. Therefore, the results of the VIE have been consolidated within the financial results of the Company.

In addition, the Company is the primary beneficiary of another real estate joint venture, Artisan Park, L.L.C, 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; therefore, the Company has determined that the Company is the primary beneficiary as it has both the power to direct the activities that most significantly affect the joint venture’s economic performance and the obligation to absorb losses of and the right to receive benefits that are significant to the VIE. If it is determined by the joint venture’s executive committee that an additional capital contribution is needed, the partners shall be afforded the right, but shall not have the obligation, to make a capital contribution based on the partner’s respective percentage interest.

As of March 31, 2013, the carrying amounts of the VIEs’ assets and non-recourse liabilities that are consolidated were $7.3 million and $1.7 million, respectively. The VIEs’ assets can only be used to settle obligations of that VIE. Those assets are owned by, and those liabilities are obligations of, the VIEs, and not the Company.

Unconsolidated VIEs

The Company is a partner in the following three real estate joint ventures that are accounted for using the equity method: East San Marco L.L.C., Rivercrest L.L.C., and ALP Liquidating Trust. These joint ventures were entered into to develop and sell certain mixed use residential and commercial projects, which only East San Marco L.L.C. still has real estate investments remaining in the joint venture. The Company has evaluated the VIE consolidation requirements with respect to these joint ventures 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 or the control is shared equally with the other partner. The Company’s maximum exposure to losses in the VIEs is generally limited to its investment in the joint venture and the Company and the other partner do not have an obligation to make capital contributions without a mutual agreement. The Company’s investments in unconsolidated joint ventures are recorded in real estate investments and were $2.2 million at March 31, 2013 and December 31, 2012.

Summarized financial information for the unconsolidated investments on a combined 100% basis is as follows:


	March 31, 2013		December 31, 2012
BALANCE SHEETS:
Investment in real estate	$	12,381	$	12,381
Cash and cash equivalents		18,098		18,523
Other assets		357		130

Total assets	$	30,836	$	31,034

Accounts payable and other liabilities	$	827	$	761
Equity⁽¹⁾		30,009		30,273

Total liabilities and equity	$	30,836	$	31,034

⁽¹⁾

The majority of the equity in unconsolidated investments relates to ALP Liquidating Trust (“The Trust). In 2008, the Company wrote-off its investment in the Trust as a result of the Trust reserving its assets to satisfy potential claims and obligations in accordance with its publicly reported liquidation basis of accounting. Subsequently, the Trust 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 trust’s change in accounting.


	For the Three Months Ended March 31,
	2013			2012
STATEMENTS OF OPERATIONS:
Total expenses	$	332		$	248

Net loss	$	(332	)	$	(248	)