Investments in Unconsolidated Entities

We have investments in various unconsolidated entities. These joint ventures (i) develop land for the joint venture participants and, in other cases, for sale to other third-party builders (“Land Development Joint Ventures”); (ii) develop for-sale homes and condominiums (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investments in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in a portfolio of distressed loans and real estate (“Structured Asset Joint Venture”).

The table below provides information as of January 31, 2016, regarding active joint ventures that we are invested in, by joint venture category ($ amounts in thousands):



	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Number of unconsolidated entities	7		3		10		1		21
Investment in unconsolidated entities	$	211,965	$	76,972	$	116,338	$	9,589	$	414,864
Number of unconsolidated entities with funding commitments by the Company	5		2		2		—		9
Company's remaining funding commitment to unconsolidated entities (a)	$	251,607	$	18,768	$	4,439	$	—	$	274,814


(a)	The remaining funding commitment for our Land Development Joint Ventures includes $90.0 million, which one of the joint ventures expects to fund through outside financing.

Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at January 31, 2016, regarding the debt financing obtained by category ($ amounts in thousands):



	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Total
Number of joint ventures with debt financing	4		2		9		15
Aggregate loan commitments	$	470,000	$	222,000	$	779,902	$	1,471,902
Amounts borrowed under commitments	$	429,056	$	126,869	$	562,546	$	1,118,471

More specific and/or recent information regarding our investments in and future commitments to these entities is provided below.

Land Development Joint Ventures

See Note 14, “Commitments and Contingencies,” for information regarding land purchase agreements that we have with our Land Development Joint Ventures.

In the fourth quarter of fiscal 2015, we entered into a joint venture with an unrelated party to purchase and develop a parcel of land located in Irvine, California. The joint venture expects to develop approximately 840 home sites on this land in multiple phases. We have a 50% interest in this joint venture. The joint venture intends to develop the property and sell approximately 50% of the value of the home sites to each of the members of the joint venture. At January 31, 2016, we had an investment of $77.0 million in this joint venture and were committed to make additional contributions to this joint venture of up to $220.3 million. To finance a portion of the land purchase, the joint venture entered into a $320.0 million purchase money mortgage with the seller.

Home Building Joint Ventures

In the first quarter of fiscal 2015, we entered into a joint venture with an unrelated party to complete the development of a high-rise luxury condominium project in New York City on property that we owned. We contributed $15.9 million as our initial contribution for a 25% interest in this joint venture. We sold the property to the joint venture for $78.5 million, and we were reimbursed for development and construction costs incurred by us prior to the sale. The gain of $9.3 million that we realized on the sale was deferred and will be recognized in our results of operations as units are sold and delivered to the ultimate home buyer. At January 31, 2016, we had an investment of $17.0 million in this joint venture. The joint venture entered into a construction loan agreement of $124.0 million to fund the land purchase and a portion of the cost of the development of the property. At January 31, 2016, the joint venture had $79.8 million borrowed under the construction loan.

We have an investment in a joint venture in which we have a 50% interest to develop a high-rise luxury condominium project in conjunction with a luxury hotel in New York City being developed by a related joint venture, discussed below in Rental Property Joint Ventures. At January 31, 2016, we had invested $40.2 million in this joint venture and expect to make additional investments of approximately $10.5 million for the development of this project. In the first quarter of fiscal 2015, this joint venture, along with the related hotel joint venture, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and the hotel, of which we allocated $98.0 million to the condominium project. At January 31, 2016, this joint venture had $47.1 million of outstanding borrowings under the construction loan agreement.

Rental Property Joint Ventures

In the second quarter of fiscal 2015, we entered into two joint ventures with an unrelated party to develop luxury for-rent residential apartment buildings. Prior to the formation of these joint ventures, we acquired the properties, through two 100%-owned entities, and incurred $18.8 million of land and land development costs. Our partner acquired a 75% interest in each of these entities for $14.5 million. At January 31, 2016, we had a combined investment of $10.1 million in these ventures. In addition, in fiscal 2015, these joint ventures entered into construction loan agreements with several banks to provide up to $87.0 million of financing for the development of their respective apartment buildings. At January 31, 2016, these joint ventures had $0.9 million of borrowings under the construction loan agreements.

We have an investment in a joint venture in which we have a 50% interest to develop a luxury hotel in conjunction with a high-rise luxury condominium project in the urban New York market being developed by a related joint venture, discussed in Home Building Joint Ventures above. At January 31, 2016, we had invested $27.0 million in this joint venture and expect to make additional investments of approximately $4.0 million for the development of the luxury hotel. In the first quarter of fiscal 2015, this joint venture, along with the related condominium joint venture, entered into a $160.0 million construction loan agreement to complete the construction of the condominiums and the hotel, of which we allocated $62.0 million to the hotel project. At January 31, 2016, this joint venture had $27.5 million of outstanding borrowings under the construction loan agreement.

In 1998, we formed the Trust to invest in commercial real estate opportunities. The Trust is effectively owned one-third by us; one-third by Robert I. Toll, Bruce E. Toll (and members of his family), Douglas C. Yearley, Jr., and former members of our senior management; and one-third by an unrelated party. As of January 31, 2016, our investment in the Trust was zero as cumulative distributions received from the Trust have been in excess of the carrying amount of our net investment. We provide development, finance, and management services to the Trust and recognized fees under the terms of various agreements in the amounts of $0.4 million and $0.6 million in the three-month periods ended January 31, 2016 and 2015, respectively. In each of the three months ended January 31, 2016 and 2015, we received a $2.0 million distribution from the Trust, which is included in “Income from unconsolidated entities” in our Condensed Consolidated Statements of Operations and Comprehensive Income.

Guarantees

The unconsolidated entities in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

In some instances, the guarantees provided in connection with loans to an unconsolidated entity are joint and several. In these situations, we generally have a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed upon share of the guarantee; however, if a joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share.

We believe that, as of January 31, 2016, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay all or a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At January 31, 2016, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $945.2 million and had borrowed an aggregate of $591.8 million. The terms of these guarantees generally range from 10 months to 51 months. We estimate that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $945.2 million, without taking into account any recoveries from the underlying collateral or any reimbursement from our partners. Of this maximum potential exposure, $85.8 million is related to repayment and carry cost guarantees. Based on the amounts borrowed at January 31, 2016, our maximum potential exposure under all guarantees is estimated to be approximately $591.8 million, without taking into account any recoveries from the underlying collateral or any reimbursement from our partners. Of the estimated $591.8 million, $59.9 million is related to repayment and carry cost guarantees.

In addition, we have guaranteed approximately $10.2 million of ground lease payments and insurance deductibles for three joint ventures.

As of January 31, 2016, the estimated aggregate fair value of the guarantees provided by us related to debt and other obligations of certain unconsolidated entities was approximately $4.8 million. We have not made payments under any of the guarantees, nor have we been called upon to do so.

Variable Interest Entities

At January 31, 2016 and October 31, 2015, we determined that one of our joint ventures was a VIE under the guidance of ASC 810, “Consolidation.” However, we have concluded that we were not the primary beneficiary of the VIE because the power to direct the activities of such VIE that most significantly impact its performance was shared by us and such VIE’s other partners. Business plans, budgets, and other major decisions are required to be unanimously approved by all members. Management and other fees earned by us are nominal and believed to be at market rates, and there is no significant economic disproportionality between us and the other members. The information presented below regarding the investments, commitments, and guarantees in unconsolidated entities deemed to be VIEs is also included in the information provided above.

At January 31, 2016 and October 31, 2015, our investment in the unconsolidated joint venture deemed to be a VIE, which is included in “Investments in unconsolidated entities” in the accompanying Condensed Consolidated Balance Sheets, totaled $6.5 million and $6.7 million, respectively. At January 31, 2016 and October 31, 2015, the maximum exposure of loss to our investment in the unconsolidated joint venture that is a VIE is limited to our investment in the unconsolidated VIE, except with regard to $89.8 million of loan guarantees and $0.4 million of additional commitments to the VIE. Of our potential exposure for these loan guarantees, $14.3 million is related to repayment and carry cost guarantees.

Joint Venture Condensed Financial Information

The Condensed Balance Sheets, as of the dates indicated, and the Condensed Statements of Operations and Comprehensive Income, for the periods indicated, for the unconsolidated entities in which we have an investment, aggregated by type of business, are included below (in thousands):

Condensed Balance Sheets:



	January 31, 2016
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	35,054	$	7,830	$	27,710	$	37,785	$	108,379
Inventory	713,254		338,853						1,052,107
Non-performing loan portfolio							17,976		17,976
Rental properties					361,191				361,191
Rental properties under development					381,411				381,411
Real estate owned (“REO”)							98,372		98,372
Other assets	75,522		68,576		11,976		2,469		158,543
Total assets	$	823,830	$	415,259	$	782,288	$	156,602	$	2,177,979
Debt (1)	$	430,143	$	132,430	$	562,546			$	1,125,119
Other liabilities	31,673		75,017		29,145		4,125		139,960
Members’ equity	362,014		207,812		190,597		61,004		821,427
Noncontrolling interest							91,473		91,473
Total liabilities and equity	$	823,830	$	415,259	$	782,288	$	156,602	$	2,177,979
Company’s net investment in unconsolidated entities (2)	$	211,965	$	76,972	$	116,338	$	9,589	$	414,864



	October 31, 2015
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Structured Asset Joint Venture		Total
Cash and cash equivalents	$	29,281	$	11,203	$	44,310	$	10,469	$	95,263
Inventory	701,527		322,630						1,024,157
Non-performing loan portfolio							27,572		27,572
Rental properties					278,897				278,897
Rental properties under development					390,399				390,399
Real estate owned (“REO”)							117,758		117,758
Other assets (1)	70,799		61,144		12,199		80,475		224,617
Total assets	$	801,607	$	394,977	$	725,805	$	236,274	$	2,158,663
Debt (1)	$	417,025	$	117,251	$	514,895	$	77,950	$	1,127,121
Other liabilities	29,772		70,078		30,329		136		130,315
Members’ equity	354,810		207,648		180,581		63,288		806,327
Noncontrolling interest							94,900		94,900
Total liabilities and equity	$	801,607	$	394,977	$	725,805	$	236,274	$	2,158,663
Company’s net investment in unconsolidated entities (2)	$	214,060	$	76,120	$	110,454	$	12,226	$	412,860


(1)	Included in other assets of the Structured Asset Joint Venture at October 31, 2015 is $78.0 million of restricted cash held in a defeasance account that was used to repay debt of the Structured Asset Joint Venture in December 2015.

(2)

Differences between our net investment in unconsolidated entities and our underlying equity in the net assets of the entities are primarily a result of the acquisition price of an investment in a land development joint venture in fiscal 2012 that was in excess of our pro rata share of the underlying equity; impairments related to our investment in unconsolidated entities; interest capitalized on our investment; the estimated fair value of the guarantees provided to the joint ventures; and distributions from entities in excess of the carrying amount of our net investment.

Condensed Statements of Operations and Comprehensive Income:



	For the three months ended January 31, 2016
	Land Development Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	12,622	$	16,042		$	12,884		$	938		$	42,486
Cost of revenues	7,159		13,476			7,691			7,187			35,513
Other expenses	1,029		1,522			6,190			566			9,307
Total expenses	8,188		14,998			13,881			7,753			44,820
Gain on disposition of loans and REO									25,983			25,983
Income (loss) from operations	4,434		1,044			(997		)	19,168			23,649
Other income (loss)	821		(73		)	75			182			1,005
Net income (loss)	5,255		971			(922		)	19,350			24,654
Less: income attributable to noncontrolling interest									(11,610		)	(11,610		)
Net income (loss) attributable to controlling interest	5,255		971			(922		)	7,740			13,044
Other comprehensive income						87						87
Total comprehensive income (loss)	$	5,255	$	971		$	(835	)	$	7,740		$	13,131
Company’s equity in earnings of unconsolidated entities (3)	$	5,006	$	343		$	1,742		$	1,547		$	8,638



	For the three months ended January 31, 2015
	Land Development Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures			Structured Asset Joint Venture			Total
Revenues	$	18,276	$	19,294	$	7,611		$	889		$	46,070
Cost of revenues	9,630		16,913		3,269			6,074			35,886
Other expenses	135		1,575		4,388			326			6,424
Total expenses	9,765		18,488		7,657			6,400			42,310
Gain on disposition of loans and REO								7,631			7,631
Income (loss) from operations	8,511		806		(46		)	2,120			11,391
Other income			72					586			658
Net income (loss)	8,511		878		(46		)	2,706			12,049
Less: income attributable to noncontrolling interest								(1,623		)	(1,623		)
Net income (loss) attributable to controlling interest	8,511		878		(46		)	1,083			10,426
Other comprehensive loss					(22		)				(22		)
Total comprehensive income (loss)	$	8,511	$	878	$	(68	)	$	1,083		$	10,404
Company’s equity in earnings of unconsolidated entities (3)	$	2,442	$	542	$	1,700		$	217		$	4,901

(3)

Differences between our equity in earnings of unconsolidated entities and the underlying net income (loss) of the entities are primarily a result of a basis difference of an acquired joint venture interest, distributions from entities in excess of the carrying amount of our net investment, recoveries of previously incurred charges, and our share of the entities’ profits related to home sites purchased by us, which reduces our cost basis of the home sites acquired.