Real Estate Entities and Investments in Affiliates

The operations of our Real Estate segment are conducted through our wholly owned subsidiary, Granite Land Company (“GLC”). Generally, GLC participates with third-party partners in entities that are formed to accomplish specific real estate development projects. Our real estate affiliates include limited partnerships or limited liability companies of which we are a limited partner or member. The agreements with GLC’s partners in these real estate entities define each partner’s management role and financial responsibility in the project. If one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume full management or financial responsibility for the project. This may result in the future consolidation of entities that are currently accounted for under the equity method in our condensed consolidated financial statements. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. Our proportionate share of the profits and losses of these entities depends on the ultimate operating results of the entities.

Substantially all the assets of these real estate entities in which we are participants through our GLC subsidiary are classified as real estate held for development and sale and are pledged as collateral for the associated debt. All outstanding debt of these entities is non-recourse to Granite. However, there is recourse to our real estate affiliates that incurred the debt (i.e., the limited partnership or limited liability company of which we are a limited partner or member).

GLC receives authorization to provide additional financial support for certain of its real estate entities in increments to address changes in business plans. During the six months ended June 30, 2013, GLC was authorized to increase its financial support to one consolidated real estate entity by $5.9 million to meet existing debt obligations, and during the six months ended June 30, 2012 there was no increase to its authorized financial support. As of June 30, 2013, $3.4 million of the total authorized investment had yet to be contributed to the consolidated entity.

We have determined that certain of these joint ventures are consolidated because they are VIEs and we are the primary beneficiary. The factors we consider in determining whether we are a VIE’s primary beneficiary include the decision authority of each partner, which partner manages the day-to-day operations of the project and the amount of our equity investment in relation to that of our partners.

We continually evaluate whether there are changes in the status of the VIE’s or changes to the primary beneficiary designation of the VIE. Based on our assessments during the six months ended June 30, 2013 and 2012, we determined no change was required for existing real estate entities.

To determine if impairment charges should be recognized, the carrying amount of each consolidated real estate development project is reviewed on a quarterly basis. Based on our quarterly evaluations of each project’s business plan, we recorded no material impairment charges to our real estate development projects or investments during the three and six months ended June 30, 2013 and 2012.

Consolidated Real Estate Entities

As of June 30, 2013, December 31, 2012 and June 30, 2012, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was $50.7 million, $50.2 million and $57.4 million, respectively. Non-recourse debt, including current maturities, associated with these entities was $9.5 million, $11.6 million and $21.0 million as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively. All other amounts associated with these entities were insignificant for the periods presented. As of June 30, 2013, December 31, 2012 and June 30, 2012, $40.7 million, $40.3 million and $47.5 million, respectively, of the real estate held for development and sale balances were in Washington residential real estate. The remaining balances were primarily in various commercial projects in Texas and California.

Investments in Affiliates

Our investments in affiliates balance consists of the following:



(in thousands)	June 30, 2013		December 31, 2012		June 30, 2012
Equity method investments in real estate affiliates	$	20,378	$	19,775	$	17,563
Equity method investments in other affiliates	11,043		11,024		10,958
Total investments in affiliates	$	31,421	$	30,799	$	28,521

We have determined that certain real estate joint ventures are not consolidated because they are VIEs and we are not the primary beneficiary. We have determined that certain non-real estate joint ventures are not consolidated because they are not VIEs and we do not hold the majority voting interest. As such, these entities were accounted for using the equity method. We account for our share of the operating results of these equity method investments in other income in the condensed consolidated statements of operations and as a single line item on our condensed consolidated balance sheets as investments in affiliates.

The equity method investments in real estate included $14.1 million, $13.8 million and $12.2 million in residential real estate in Texas as of June 30, 2013, December 31, 2012 and June 30, 2012, respectively. The remaining balances were in commercial real estate in Texas. As of June 30, 2013, these real estate entities had total assets ranging from approximately $1.9 million to $47.2 million. As of each of the periods presented, the most significant non-real estate equity method investment was a 50% interest in a limited liability company which owns and operates an asphalt terminal and operates an emulsion plant in Nevada.

The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:



(in thousands)	June 30, 2013		December 31, 2012		June 30, 2012
Total assets	$	160,422	$	166,112	$	158,431
Net assets	93,771		92,106		87,197
Granite’s share of net assets	31,421		30,799		28,521