Real Estate Investments

(a) Acquisitions of Real Estate

For the year ended December 31, 2016, the Company purchased four communities consisting of 753 apartment homes for $333.7 million. The table below summarizes acquisition activity for the year ended December 31, 2016 ($ in millions):



Property Name	Location	Apartment Homes	Essex Ownership Percentage		Quarter in 2016	Purchase Price
Mio	San Jose, CA	103	100	%	Q1	$	51.3
Form 15	San Diego, CA	242	100	%	Q1	97.4
Emerson Valley Village	Los Angeles, CA	144	100	%	Q4	67.0
Ashton Sherman Village	Los Angeles, CA	264	100	%	Q4	118.0
Total 2016		753				$	333.7

The $333.7 million aggregate purchase price for the acquisitions listed above were included on the Company's consolidated balance sheet as follows: $72.4 million was included in land and land improvements, $259.3 million was included in buildings and improvements, and $2.0 million was included in prepaid expenses and other assets, within the Company's consolidated balance sheets.

For the year ended December 31, 2015, the Company purchased seven communities consisting of 1,722 apartment homes for $638.1 million.

(b) Sales of Real Estate Investments

For the year ended December 31, 2016, the Company sold three communities consisting of 323 apartment homes for $80.8 million resulting in gains totaling $14.0 million, net of $4.4 million deferred tax on gain on sale of real estate. The table below summarizes disposition activity for the year ended December 31, 2016 ($ in millions):



Property Name	Location	Apartment Homes	Essex Ownership Percentage		Ownership	Quarter in 2016	Sales Price		Gains
Harvest Park	Santa Rosa, CA	104	100	%	EPLP	Q1	$	30.5	$	6.4	⁽¹⁾
Tuscana	Tracy, CA	30	100	%	EPLP	Q4	6.7		0.3		⁽²⁾
Candlewood North	Northridge, CA	189	100	%	EPLP	Q4	43.6		7.3
Total 2016		323					$	80.8	$	14.0


⁽¹⁾	Net of $4.3 million deferred tax on gain on sale of real estate.


⁽²⁾	Net of $0.1 million deferred tax on gain on sale of real estate.

During 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million, resulting in a gain of $9.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

During 2015, the Company sold two communities, consisting of 848 apartment homes, for $308.8 million resulting in gains totaling $44.9 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statement of income. In March 2015, the Company sold two commercial buildings, located in Emeryville, CA for $13.0 million, resulting in gain of $2.4 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.

During 2014, the Company sold four communities, consisting of 594 apartment homes, for $120.4 million resulting in gains totaling $43.6 million, which are included in the line item gain on sale of real estate and land in the Company's consolidated statements of income.

As of December 31, 2016, Jefferson at Hollywood, a 270 apartment home community, located in Los Angeles, CA, was classified as held for sale. The carrying value of $102.0 million is included in real estate assets held for sale, net, on the Company's consolidated balance sheet.

(d) Co-investments

The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments’ accounting policies are similar to the Company’s accounting policies. The co-investments own, operate, and develop apartment communities.

During 2016, a co-investment of the Company sold two communities, consisting of 532 apartment homes, for $147.3 million, resulting in gains totaling $13.0 million, which represents the Company's share of the gain, and are included in the line item equity income from co-investments in the Company's consolidated statements of income.

In November 2016, the Company converted its preferred equity investment, with a carrying value of $12.9 million, in a limited liability company that owns a property located in San Jose, CA to a 50.1% equity interest ownership. The Company continues to account for its interest in this limited liability company under the equity method.

In November 2016, the Company contributed four wholly owned properties into a new entity, BEX II. In December 2016, the Company sold a 49.9% ownership interest in BEX II to a third party. Subsequent to the sale the Company accounts for its interest in BEX II under the equity method. The sale of the 49.9% ownership interest resulted in a gain of $126.6 million, which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

The carrying values of the Company’s co-investments as of December 31, 2016 and 2015 are as follows ($ in thousands):



	Ownership		December 31,
	Percentage		2016		2015
Membership interest/Partnership interest in:
CPPIB	50%-55%		$	422,068	$	422,317
Wesco I, III and IV	50	%	180,687		218,902
Palm Valley	50	%	68,396		68,525
BEXAEW	50	%	47,963		88,850
BEX II	50	%	19,078		—
Other	50%-55%		43,713		32,927
Total operating co-investments			781,905		831,521
Total development co-investments	50%-55%		157,317		98,214
Total preferred interest co-investments (includes related party investments of $35.9 million and $35.8 million as of December 31, 2016 and December 31, 2015, respectively - FN 5 - Related Party Transactions for further discussion)			222,053		106,312
Total co-investments			$	1,161,275	$	1,036,047

The combined summarized financial information of co-investments is as follows ($ in thousands):



	December 31,
	2016		2015
Combined balance sheets:⁽¹⁾
Rental properties and real estate under development	$	3,807,245	$	3,360,360
Other assets	121,505		96,785
Total assets	$	3,928,750	$	3,457,145
Debt	$	1,617,639	$	1,499,601
Other liabilities	74,607		92,241
Equity	2,236,504		1,865,303
Total liabilities and equity	$	3,928,750	$	3,457,145
Company's share of equity	$	1,161,275	$	1,036,047



	Years ended December 31,
	2016			2015			2014
Combined statements of income: ⁽¹⁾
Property revenues	$	289,011		$	260,175		$	188,548
Property operating expenses	(99,637		)	(93,067		)	(71,419		)
Net operating income	189,374			167,108			117,129
Gain on sale of real estate	28,291			14			23,333
Interest expense	(46,894		)	(44,834		)	(39,990		)
General and administrative	(7,448		)	(5,879		)	(6,321		)
Equity income from co-investments ⁽²⁾	—			—			26,798
Depreciation and amortization	(103,986		)	(103,613		)	(74,657		)
Net income	$	59,337		$	12,796		$	46,292
Company's share of net income ⁽³⁾	$	48,698		$	21,861		$	39,893


⁽¹⁾	Includes preferred equity investments held by the Company.


⁽²⁾	Represents income from Wesco II's preferred equity investment in Park Merced.


⁽³⁾	Includes the Company's share of equity income from co-investments, income from preferred equity investments, gain on sale of co-investments, co-investment promote income, and income from early redemption of preferred equity investments. Includes income earned from investments with a related party of $3.4 million and $3.7 million for the years ended December 31, 2016 and 2015, respectively.

Operating Co-investments

As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 11,274 and 10,520 apartment homes, respectively, in operating communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $781.9 million and $831.5 million at December 31, 2016 and 2015, respectively.

Development Co-Investments

As of December 31, 2016 and 2015, the Company, through several joint ventures, owned 1,427 and 1,676 apartment homes, respectively, in development communities. The Company owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $157.3 million and $98.2 million at December 31, 2016 and 2015, respectively.

In February 2015, the Company entered into a joint venture to develop 500 Folsom, a multi-family community comprised of 545 apartment homes located in San Francisco, California. The Company has a 50% ownership interest in the development which has a projected total cost of $415.0 million. Construction began in the fourth quarter of 2015 and the property is projected to open in the fourth quarter of 2018. At December 31, 2016, the total remaining estimated costs to be incurred on this project were $307.6 million, of which the Company’s portion of the remaining costs was $153.7 million.

Preferred Equity Investments

As of December 31, 2016 and 2015, the Company held preferred equity investment interests in several joint-ventures which own real estate. The Company’s book value of these preferred equity investments was $222.1 million and $106.3 million at December 31, 2016 and 2015, respectively.

In March 2016, the Company made a commitment to fund a $47.1 million preferred equity investment in a limited liability company located in Glendale, CA. As of December 31, 2016, the entire commitment of $47.1 million was funded. This investment earns a 12.0% preferred return and is scheduled to mature in March 2020.

In May 2016, the Company made a $23.7 million preferred equity investment in a limited liability company located in Seattle, WA. This investment will accrue interest based on a 10.0% compounded preferred return for the first 30 months, after which the rate may decrease to 8.0% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.

In August 2016, the Company made a commitment to fund a $11.6 million preferred equity investment in a limited liability company located in Santa Ana, CA. As of December 31, 2016, the entire commitment of $11.6 million was funded. This investment will accrue interest based on a 12.0% compounded preferred return and is scheduled to mature in March 2020.

In November 2016, the Company made a $23.0 million preferred equity investments in a limited liability company located in San Jose, CA. The investment accrues interest based on a 11.0% compounded preferred return which will decrease to 9.0% upon stabilization of the operating property which the limited liability company owns. This investment is scheduled to mature on the later of the date when permanent financing is obtained or November 2019.

In November 2016, the Company made a $10.7 million preferred equity investment in a limited liability company located in Redmond, WA. The investment accrues interest based on a 11.0% compounded preferred return for the first 30 months, after which the rate may decrease to 9.5% if certain loan-to-value thresholds are met and is scheduled to mature in November 2020.

In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with a related party, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next paragraph. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return.

In June 2015, the Company made $10.0 million and $5.0 million preferred equity investments in limited liability companies owned by a related party, that own properties located in San Jose and Concord, California, respectively. These investments earn a 9.5% preferred return and are scheduled to mature in June 2022.

In August 2015, the Company made a $5.0 million preferred equity investment in a limited liability company owned by a related party that owns a property located in Los Angeles, California. This investment earns a 9.5% preferred return and is scheduled to mature in August 2022.

In August 2015, the Company redeemed a preferred equity investment in a joint venture that holds a property in San Jose, California with a carrying value of $20.4 million. The Company recognized a gain of $1.5 million as a result of this redemption which is included in equity income from co-investments in the consolidated statements of income.

(e) Real Estate under Development

The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company had two consolidated development projects, four unconsolidated joint venture development projects, and various consolidated predevelopment projects, aggregating 2,223 apartment homes for an estimated total cost of $1.3 billion, of which $704.0 million remains to be expended. The Company’s portion of the remaining costs was $528.0 million at December 31, 2016.