Investments in Unconsolidated Entities

We have investments in various unconsolidated joint venture entities. These joint ventures (i) develop land for the joint venture participants and for sale to outside builders (“Land Development Joint Ventures”); (ii) develop for-sale homes (“Home Building Joint Ventures”); (iii) develop luxury for-rent residential apartments, commercial space, and a hotel (“Rental Property Joint Ventures”), which includes our investment in Toll Brothers Realty Trust (the “Trust”); and (iv) invest in distressed loans and real estate and provide financing for residential builders and developers for the acquisition and development of land and home sites (“Gibraltar Joint Ventures”). In fiscal 2016, 2015 and 2014, we recognized income from the unconsolidated entities in which we had an investment of $40.7 million, $21.1 million, and $41.1 million, respectively.

The table below provides information as of October 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		Gibraltar Joint Ventures		Total
Number of unconsolidated entities	7		3		12		4		26
Investment in unconsolidated entities	$	223,483	$	98,754	$	153,640	$	20,534	$	496,411
Number of unconsolidated entities with funding commitments by the Company	5		2		4		1		12
Company’s remaining funding commitment to unconsolidated entities	$	244,287	$	9,902	$	9,623	$	10,000	$	273,812

Certain joint ventures in which we have investments obtained debt financing to finance a portion of their activities. The table below provides information at October 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		10		16
Aggregate loan commitments	$	470,000	$	135,253	$	854,266	$	1,459,519
Amounts borrowed under commitments	$	393,741	$	106,857	$	659,191	$	1,159,789

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

Land Development Joint Ventures

During the year ended October 31, 2016, our Land Development Joint Ventures sold approximately 776 lots and recognized revenues of $142.0 million. We acquired 207 of these lots for $64.2 million. Our share of the joint venture income from the lots we acquired of $9.3 million was deferred. During the year ended October 31, 2015, our Land Development Joint Ventures sold approximately 1,015 lots and recognized revenues of $128.9 million. We acquired 376 of these lots for $56.2 million. Our share of the income from the lots we acquired of $9.8 million was deferred.

Subsequent event

We have an investment in a joint venture in which we have a 50% interest to develop a parcel of land located in Irvine, California. The joint venture expects to develop approximately 840 home sites on this land and sell approximately 50% of the value of the home sites to each of the members of the joint venture. At October 31, 2016, we had an investment of $85.3 million in this joint venture and were committed to make additional contributions to this joint venture of up to $213.0 million. To finance a portion of the land purchase, the joint venture entered into a $320.0 million purchase money mortgage with the seller at the formation of the joint venture. Subsequent to October 31, 2016, the joint venture entered into a $200.0 million building loan agreement and each member made a capital contribution of $80.0 million. A portion of the proceeds from the building loan in addition to the capital contributions made subsequent to October 31, 2016, were used to repay the purchase money mortgage. We and an affiliate of our partner provided certain guarantees under the building loan agreement. Each partner has an obligation to fund 50% of the payments made as a result of performing under these guarantees. We estimate that the maximum exposure under these guarantees would be $200.0 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.

Home Building Joint Ventures

Our Home Building Joint Ventures are delivering homes in New York City and Jupiter, Florida. During the year ended October 31, 2016, our Home Building Joint Ventures delivered 115 homes with a value of $164.9 million. During the year ended October 31, 2015, our Home Building Joint Ventures delivered 96 homes with a value of $78.1 million.

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 in fiscal 2015 was deferred and will be recognized in our results of operations as units are sold and delivered to the ultimate home buyer. In fiscal 2016, the joint venture commenced settlement of units and, accordingly, we recognized $1.5 million of previously deferred gains. At October 31, 2016, we had an investment of $19.8 million in this joint venture. In fiscal 2015, 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 October 31, 2016, the joint venture had $83.0 million borrowed under the construction loan.

Subsequent event

In December 2016, 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. Before the formation of this joint venture, we acquired the property and incurred approximately $176.0 million of land and land development costs. The joint venture, in which we have a 20% interest, purchased the property from us at our cost, of which $59.8 million was financed by a $236.5 million construction loan obtained by the joint venture. From the sale, we received proceeds of $148.0 million, of which $106.1 million was held in escrow by our captive title company at October 31, 2016 and included in “Receivables, prepaid expenses, and other assets” on our Consolidated Balance Sheet at October 31, 2016. We have an initial investment in the joint venture of $27.8 million. We and an affiliate of our partner provided certain guarantees under the construction loan agreement. We estimate that the maximum exposure under these guarantees, if the full amount of the loan commitment was borrowed, would be $236.5 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.

Rental Property Joint Ventures

As of October 31, 2016, our Rental Property Joint Ventures owned 11 for-rent apartment projects, which are located in the metro Boston to metro Washington, D.C. corridor. At October 31, 2016, our joint ventures had approximately 2,950 units that were occupied or ready for occupancy, 600 units in the lease-up stage, 900 units under active development, and 400 units in the planning stage. In addition, we either own, have under contract, or under a letter of intent approximately 4,750 units, which are in the planning stage. We intend to develop these units with joint venture partners in the future.

In the second quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a 525-unit luxury for-rent residential apartment building near Union Station in Washington, D.C. Prior to the formation of this joint venture, we acquired the land, through a 100%-owned entity, and incurred $35.1 million of land and land development costs. Our partner acquired a 50% interest in this entity for $20.2 million and we subsequently received cash of $18.7 million to align the capital accounts of each of the partners of the joint venture. As a result of the sale of 50% of our interests to our partner, we recognized a gain of $3.0 million, which is recorded in “Other income-net” on our Condensed Consolidated Statement of Operations and Comprehensive Income in fiscal 2016. Due to our continued involvement in the joint venture through our ownership interest, we deferred $3.0 million of the gain realized on the sale. At October 31, 2016, we had an investment of $24.5 million in this joint venture and expect to make additional investments of approximately $4.8 million for the development of this project. Subsequent to October 31, 2016, the joint venture entered into a $130.6 million construction loan agreement. Each partner has an obligation to fund 50% of the payments made as a result of performing under these guarantees. We estimate that the maximum exposure under these guarantees, if the the full amount of the loan commitment was borrowed, would be $130.6 million without taking into account any recoveries from the underlying collateral or any reimbursement from our partner.

In the fourth quarter of fiscal 2016, we entered into a joint venture with an unrelated party to develop a 390-unit luxury for-rent residential apartment building in a Boston, Massachusetts suburb, on land that we were under contract to purchase. We have a 25% interest in this joint venture. In the fourth quarter of fiscal 2016, the joint venture entered into a $91.0 million construction loan agreement with a bank to finance the development of this project. At October 31, 2016, there were no outstanding borrowings under the construction loan agreement. At October 31, 2016, we had an investment of $7.9 million in this joint venture and expect to make additional investments of approximately $3.0 million for the development of this project.

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 current and former members of our senior management; and one-third by an unrelated party. As of October 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 $1.6 million, $2.2 million, and $2.3 million in fiscal 2016, 2015 and 2014, respectively. In fiscal 2015, we received distributions of $6.1 million from the Trust, of which $3.5 million was recognized as income and is included in “Income from unconsolidated entities” in our fiscal 2015 Consolidated Statement of Operations and Comprehensive Income. In fiscal 2014, the Trust refinanced the mortgage on one of its properties and distributed $36.0 million of the net proceeds from the refinancing to its partners. We received $12.0 million as our share of the proceeds and recognized this distribution as income which is included in “Income from unconsolidated entities” in our fiscal 2014 Consolidated Statement of Operations and Comprehensive Income.

Gibraltar Joint Ventures

In the second quarter of fiscal 2016, we, through our wholly owned subsidiary, Gibraltar Capital and Asset Management, LLC (“Gibraltar”), entered into two ventures with an institutional investor to provide builders and developers with land banking and venture capital. We have a 25% interest in these ventures. These ventures will finance builders’ and developers’ acquisition and development of land and home sites and pursue other complementary investment strategies. We may invest up to $100.0 million in these ventures. As of October 31, 2016, we had an investment of $8.8 million in these ventures.

In addition, in the second quarter of fiscal 2016, we entered into a separate venture with the same institutional investor to purchase, from Gibraltar, certain foreclosed real estate owned and distressed loans for $24.1 million. We have a 24% interest in this venture. In fiscal 2016, we recognized a gain of $1.3 million from the sale of these assets to the venture. At October 31, 2016, we had a $5.7 million investment in this venture and are committed to invest an additional $10.0 million, if necessary.

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 the 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 October 31, 2016, in the event we become legally obligated to perform under a guarantee of an obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the venture. At October 31, 2016, the unconsolidated entities that have guarantees related to debt had loan commitments aggregating $875.7 million and had borrowed an aggregate of $576.0 million. The term of these guarantees generally ranges from one month to 48 months. We estimate that the maximum potential exposure under these guarantees, if the full amount of the loan commitments were borrowed, would be $875.7 million, without taking into account any recoveries from the underlying collateral or any reimbursement from our partners. Of this maximum potential exposure, $87.0 million is related to repayment and carry cost guarantees. Based on the amounts borrowed at October 31, 2016, our maximum potential exposure under all guarantees is estimated to be approximately $576.0 million, without taking into account any recoveries from the underlying collateral or any reimbursement from our partners. Of the estimated $576.0 million, $61.5 million is related to repayment and carry cost guarantees.

In addition, we have guaranteed approximately $4.3 million of ground lease payments and insurance deductibles for three joint ventures.

As of October 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 October 31, 2016 and 2015, we determined that three and one, respectively, of our joint ventures were VIEs under the guidance within ASC 810. However, we have concluded that we were not the primary beneficiary of the VIEs because the power to direct the activities of such VIEs that most significantly impact their performance was either shared by us and the VIEs’ other partners or such activities were controlled by our partner. For VIEs where the power to direct significant activities is shared, 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 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 October 31, 2016 and 2015, our investments in our unconsolidated joint ventures deemed to be VIEs, which are included in “Investments in unconsolidated entities” in our Consolidated Balance Sheets, totaled $16.4 million and $6.7 million, respectively. At October 31, 2016, the maximum exposure of loss to our investments in unconsolidated joint ventures that are VIEs was limited to our investments in the unconsolidated VIEs, except with regard to $70.0 million of loan guarantees and $1.4 million of additional commitments to the VIEs. At October 31, 2015, the maximum exposure to loss of our investment in the unconsolidated joint venture that was a VIE was 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 fund the VIE. Of our potential exposure for these loan guarantees at October 31, 2016 and 2015, $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:



	October 31, 2016
	Land Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Gibraltar Joint Ventures		Total
Cash and cash equivalents	$	38,466	$	12,820	$	29,103	$	50,405	$	130,794
Inventory	719,732		345,588				9,568		1,074,888
Non-performing loan portfolio							4,298		4,298
Rental properties					621,615				621,615
Rental properties under development					302,632				302,632
Real estate owned							87,226		87,226
Other assets	76,518		82,794		14,574		1,919		175,805
Total assets	$	834,716	$	441,202	$	967,924	$	153,416	$	2,397,258
Debt	$	394,813	$	110,879	$	659,191			$	1,164,883
Other liabilities	38,769		75,419		35,303		3,390		152,881
Members’ equity	401,134		254,904		273,430		50,886		980,354
Noncontrolling interest							99,140		99,140
Total liabilities and equity	$	834,716	$	441,202	$	967,924	$	153,416	$	2,397,258
Company’s net investment in unconsolidated entities (2)	$	223,483	$	98,754	$	153,640	$	20,534	$	496,411



	October 31, 2015
	Land Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures		Gibraltar Joint Ventures		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							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 Gibraltar Joint Ventures at October 31, 2015 was $78.0 million of restricted cash held in a defeasance account that was used to repay debt of one of the Gibraltar Joint Ventures 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 investments; 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 year ended October 31, 2016
	Land Develop- ment Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Gibraltar Joint Ventures			Total
Revenues	$	142,015	$	168,164		$	58,707		$	5,929		$	374,815
Cost of revenues	63,429		118,621			29,791			24,684			236,525
Other expenses	3,904		8,124			30,779			2,043			44,850
Total expenses	67,333		126,745			60,570			26,727			281,375
Gain on disposition of loans and REO									49,579			49,579
Income (loss) from operations	74,682		41,419			(1,863		)	28,781			143,019
Other income (expense)	3,464		(486		)	1,144			1,172			5,294
Net income (loss)	78,146		40,933			(719		)	29,953			148,313
Less: income attributable to noncontrolling interest									(18,218		)	(18,218		)
Net income (loss) attributable to controlling interest	78,146		40,933			(719		)	11,735			130,095
Other comprehensive income						100						100
Total comprehensive income (loss)	$	78,146	$	40,933		$	(619	)	$	11,735		$	130,195
Company’s equity in earnings of unconsolidated entities (3)	$	15,772	$	16,945		$	5,721		$	2,310		$	40,748



	For the year ended October 31, 2015
	Land Develop- ment Joint Ventures		Home Building Joint Ventures		Rental Property Joint Ventures			Gibraltar Joint Ventures			Total
Revenues	$	128,889	$	78,072	$	35,732		$	6,102		$	248,795
Cost of revenues	58,435		69,142		15,539			16,739			159,855
Other expenses	1,999		6,135		24,174			1,312			33,620
Total expenses	60,434		75,277		39,713			18,051			193,475
Gain on disposition of loans and REO								42,939			42,939
Income (loss) from operations	68,455		2,795		(3,981		)	30,990			98,259
Other income	615		1,072		4,376			2,224			8,287
Net income	69,070		3,867		395			33,214			106,546
Less: income attributable to noncontrolling interest								(19,928		)	(19,928		)
Net income attributable to controlling interest	69,070		3,867		395			13,286			86,618
Other comprehensive income					52						52
Total comprehensive income	$	69,070	$	3,867	$	447		$	13,286		$	86,670
Company’s equity in earnings of unconsolidated entities (3)	$	12,005	$	3,448	$	3,027		$	2,639		$	21,119



	For the year ended October 31, 2014
	Land Develop- ment Joint Ventures		Home Building Joint Ventures			Rental Property Joint Ventures			Gibraltar Joint Ventures			Total
Revenues	$	136,949	$	54,923		$	32,875		$	8,023		$	232,770
Cost of revenues	73,628		53,221			14,250			14,152			155,251
Other expenses	730		5,165			35,003			1,585			42,483
Total expenses	74,358		58,386			49,253			15,737			197,734
Gain on disposition of loans and REO									30,420			30,420
Income (loss) from operations	62,591		(3,463		)	(16,378		)	22,706			65,456
Other income	66		105			45,933			3,121			49,225
Net income (loss)	62,657		(3,358		)	29,555			25,827			114,681
Less: income attributable to noncontrolling interest									(15,496		)	(15,496		)
Net income (loss) attributable to controlling interest	62,657		(3,358		)	29,555			10,331			99,185
Other comprehensive income						728						728
Total comprehensive income (loss)	$	62,657	$	(3,358	)	$	30,283		$	10,331		$	99,913
Company’s equity in earnings (losses) of unconsolidated entities (3)	$	1,190	$	(2,034	)	$	40,081		$	1,904		$	41,141

(3)

Differences between our equity in earnings (losses) of unconsolidated entities and the underlying net income (loss) of the entities is primarily a result 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; a gain recognized for the sale of our ownership interest in one of our joint ventures; and our share of the entities’ profits related to home sites purchased by us which reduces our cost basis of the home sites acquired.