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.

We have determined that certain of these entities are consolidated because they are VIEs and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the nine months ended September 30, 2014 and 2013, we determined no change was required for existing real estate entities.

Our real estate entities 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. The amount of GLC’s exposure is limited to GLC’s equity investment in the real estate joint venture. However, if one of GLC’s partners is unable to fulfill its management role or make its required financial contribution, GLC may assume, at its option, full management and/or financial responsibility for the project.

All of the assets of these real estate entities in which we are a participant 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).

To determine if impairment charges should be recognized, the carrying amount of each 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 nine months ended September 30, 2014 and 2013.

During 2013, we concluded the majority of our 2010 Enterprise Improvement Plan (“EIP”) which included the impairment and planned orderly divestiture of our real estate investment business consistent with our strategy to focus on our core business. Consequently, during 2013 we recorded impairment charges on certain real estate assets in accordance with our EIP. When real estate assets which we continue to have a financial interest are sold, we may recognize additional restructuring charges or gains; however, we do not expect these charges or gains to be material to our consolidated financial statements. No restructuring charges were recorded during the three and nine months ended September 30, 2014 and an immaterial restructuring gain was recorded during the three and nine months ended September 30, 2013.

Consolidated Real Estate Entities

As of September 30, 2014, December 31, 2013 and September 30, 2013, real estate held for development and sale associated with consolidated real estate entities included in our condensed consolidated balance sheets was $11.8 million, $12.5 million and $50.3 million, respectively. Non-recourse debt, including current maturities, associated with these entities was $7.0 million, $8.0 million and $9.2 million as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. All other amounts associated with these entities were insignificant as of the dates presented. Residential real estate held for development and sale in Washington State was $11.6 million as of both September 30, 2014 and December 31, 2013, and was $40.8 million as of September 30, 2013. The remaining balances were in various commercial projects in California and Texas. During 2014, we sold or otherwise disposed of three consolidated real estate entities in connection with our 2010 Enterprise Improvement Plan. The associated gain was not material.

Investments in Affiliates

We have determined that certain real estate entities 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 are 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.

Our investments in affiliates balance consists of the following:



(in thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Equity method investments in real estate affiliates	$	24,040	$	21,392	$	20,488
Equity method investments in other affiliates	10,137		11,088		10,850
Total investments in affiliates	$	34,177	$	32,480	$	31,338

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



(in thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Total assets	$	172,220	$	173,988	$	166,601
Net assets	103,651		99,444		95,490
Granite’s share of net assets	34,177		32,480		31,338

The equity method investments in real estate included $17.8 million, $14.9 million and $14.0 million in residential real estate in Texas as of September 30, 2014, December 31, 2013 and September 30, 2013, respectively. The remaining balances were in commercial real estate in Texas. Of the $172.2 million in total assets as of September 30, 2014, real estate entities had total assets ranging from $1.9 million to $57.0 million and non-real estate entities had total assets ranging from $0.3 million to $22.5 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.