Note 16—CONSOLIDATED FUNDS AND VENTURES

Due to the Company’s minimal equity ownership interests in certain consolidated entities, the assets, liabilities, revenues, expenses, equity in losses from those entities’ unconsolidated Lower Tier Property Partnerships and the losses allocated to the noncontrolling interests of the consolidated entities have been separately identified on the consolidated balance sheets and statements of operations. Third-party ownership in these CFVs is recorded in equity as “Noncontrolling interests in CFVs and IHS.”

The total assets, by type of consolidated fund or venture, at June 30, 2013 and December 31, 2012 are summarized as follows:

(in thousands)	June 30, 2013		December 31, 2012
LIHTC Funds	$	358,358	$	381,394
SA Fund		177,793		175,572
Consolidated Lower Tier Property Partnerships		163,531		135,674
Other consolidated entities		2,059		922
Total assets of CFVs	$	701,741	$	693,562

The following provides a detailed description of the nature of these entities.

LIHTC Funds

In general, the LIHTC Funds invest in limited partnerships that develop or rehabilitate and operate affordable multifamily housing rental properties. These properties generate tax operating losses and federal and state income tax credits for their investors, enabling them to realize a return on their investment through reductions in income tax expense. The LIHTC Funds’ primary assets are their investments in Lower Tier Property Partnerships, which are the owners of the affordable housing properties (see Investments in Lower Tier Property Partnerships in the Asset Summary below). The LIHTC Funds account for these investments using the equity method of accounting. The Company sold its GP interest in substantially all of the LIHTC Funds through the sale of its TCE business in July 2009. However, the Company retained its GP interest in certain LIHTC Funds. The Company continues to consolidate 11 funds at June 30, 2013 and December 31, 2012. The Company’s GP ownership interests of the funds remaining at June 30, 2013 ranges from 0.01% to 0.04%. The Company has guarantees associated with these funds. These guarantees, along with the Company’s ability to direct the activities of the funds, have resulted in the Company being the primary beneficiary for financial reporting purposes. At June 30, 2013 and December 31, 2012, the Company’s maximum exposure under these guarantees is estimated to be approximately $660 million; however, the Company does not anticipate any losses under these guarantees.

SA Fund

The Company is the majority owner of the GP of the SA Fund, which is an investment fund formed to invest directly or indirectly in affordable for-sale and rental housing in South Africa and, to a lesser extent, Sub-Saharan Africa (see SA Fund investments in the Asset Summary below). The SA Fund has $128.0 million in equity commitments from investors, of which $113.3 million has been funded at June 30, 2013. As a 2.7% limited partner of the SA Fund, the Company’s portion of this equity commitment is $3.4 million. At June 30, 2013, the Company had funded $2.9 million of this equity commitment. The SA Fund also has an agreement with Overseas Private Investment Corporation (“OPIC”), an agency of the US, to provide loan financing not to exceed $80.0 million, of which $49.1 million has been funded. Because the Company is deemed the primary beneficiary of the SA Fund through its majority owned GP interest in the SA Fund, the Company’s 2.7% equity investment is eliminated and the SA Fund is consolidated. The Company is allocated 2.7% of the SA Fund’s operating activities through an income or loss allocation.

Consolidated Lower Tier Property Partnerships

Due to financial or operating issues at a Lower Tier Property Partnership, the Company may assert its rights to assign the GP’s interest in the Lower Tier Property Partnership to affiliates of the Company. Generally, the Company will take these actions to either preserve the tax status of the Company’s bonds and/or to protect the LIHTC Fund’s interests in the tax credits. As a result of its ownership interest, controlling financial interest or its designation as the primary beneficiary, the Company consolidates these Lower Tier Property Partnerships. The Company consolidated fifteen and twelve Lower Tier Property Partnerships at June 30, 2013 and December 31, 2012, respectively. Lower Tier Property Partnerships own and operate affordable multifamily housing rental properties (see Real estate held-for-use and held-for-sale in the Asset Summary below).

Other Consolidated Entities

The Company also has other consolidated entities where it has been deemed to be the primary beneficiary or the Company has a controlling interest. At June 30, 2013, these entities include two non-profit entities that provide charitable services and programs for the affordable housing market.

The following section provides more information related to the assets of the CFVs at June 30, 2013 and December 31, 2012.

Asset Summary:

(in thousands)	June 30, 2013		December 31, 2012
Cash, cash equivalents and restricted cash	$	56,098	$	53,957
Investments in Lower Tier Property Partnerships		312,725		333,335
SA Fund investments		156,723		161,433
Real estate held-for-use, net		153,427		111,931
Real estate held-for-sale		-		15,338
Other assets		22,768		17,568
Total assets of CFVs	$	701,741	$	693,562

Substantially all of the assets of the CFVs are restricted for use by the specific owner entity and are not available for the Company’s general use.

LIHTC Funds’ Investments in Lower Tier Property Partnerships

The Lower Tier Property Partnerships of the LIHTC Funds are considered variable interest entities; although, in most cases it is the third party GP who is the primary beneficiary. Therefore, substantially all of the LIHTC Funds’ investments in Lower Tier Property Partnerships are accounted for under the equity method. The following table provides the LIHTC Funds’ investment balances in the unconsolidated Lower Tier Property Partnerships as well as the assets and liabilities of the Lower Tier Property Partnerships at June 30, 2013 and December 31, 2012:

(in thousands)	June 30, 2013		December 31, 2012
LIHTC Funds’ investment in Lower Tier Property Partnerships	$	312,725	$	333,335
Total assets of Lower Tier Property Partnerships ⁽¹⁾	$	1,347,153	$	1,371,880
Total liabilities of Lower Tier Property Partnerships⁽¹⁾		1,041,521		1,041,961

⁽¹⁾

The assets of the Lower Tier Property Partnerships are primarily real estate and the liabilities are predominantly mortgage debt.

The Company’s maximum exposure to loss from the LIHTC Funds and the underlying Lower Tier Property Partnerships relate to the guarantee exposure associated with the LIHTC Funds discussed above and the Company’s bonds which represent the primary mortgage debt obligation held by the LIHTC Funds’ underlying Lower Tier Property Partnerships. The fair value of the Company’s bonds secured by properties owned by the Lower Tier Property Partnerships at June 30, 2013 and December 31, 2012, was $384.8 million and $421.3 million, respectively. At July 3, 2013 and subsequent to the sale of TEB’s common shares, the fair value of the Company’s bonds secured by the Lower Tier Property Partnerships was $62.8 million. The Company is subject to an agreement that requires the Company to post collateral in order to foreclose on the properties securing these bonds.

SA Fund Investments

The SA Fund was organized under South African law in a similar manner to US investment companies and therefore follows accounting guidance specific to investment companies which requires fair value accounting for investments. The Company calculates such fair value based on estimates because there are no readily available market values. In establishing fair values of its investments, the Company considers financial conditions and operating results, local market conditions, market values of comparable companies and real estate, the stage of each investment, and other factors as appropriate, including obtaining appraisals from independent third-party licensed appraisers.

As required by GAAP, assets and liabilities are classified into levels based on the lowest level of input that is significant to the fair value measurement, see Note 9, “Fair Value Measurements.” The SA Fund investments are carried at their fair value of $156.7 million and $161.4 million at June 30, 2013 and December 31, 2012, respectively and are considered Level 3 valuations. As noted in the following two tables, the SA Fund investments declined $10.6 million and $24.6 million for the three months and six months ended June 30, 2013, respectively, due to foreign currency translation losses. Because the SA Fund’s functional currency is the South African rand and the Company’s functional currency is the US dollar, the Company translates the SA Fund’s rand balance sheet into a dollar denominated balance sheet as part of consolidating the SA Fund into the Company’s balance sheet. The translation losses recorded for the first six months of 2013 were a result of the weakening of the South African rand as compared to the US dollar.

The following table presents the activity for the SA Fund investments at fair value on a recurring basis using Level 3 inputs for the three months ended June 30, 2013 and 2012:

	For the three months ended June 30,
(in thousands)	2013		2012
Balance, April 1,	$	161,586	$	131,337
Net gains included in earnings		5,940		4,217
Net foreign currency translation losses included in other comprehensive income		(10,629)		(10,048)
Impact from purchases		3,961		8,568
Impact from sales		(4,135)		(7,124)
Balance, June 30,	$	156,723	$	126,950

The following table presents the activity for the SA Fund investments at fair value on a recurring basis using Level 3 inputs for the six months ended June 30, 2013 and 2012:

	For the six months ended June 30,
(in thousands)	2013		2012
Balance, January 1,	$	161,433	$	108,329
Net gains included in earnings		17,296		9,990
Net foreign currency translation losses included in other comprehensive income		(24,569)		(3,683)
Impact from purchases		7,670		19,738
Impact from sales		(5,107)		(7,424)
Balance, June 30,	$	156,723	$	126,950

The SA Fund has committed $165.6 million of capital to the project entities who in turn invest that capital into affordable for-sale and rental properties of which $128.7 million was funded at June 30, 2013.

Lower Tier Property Partnership’s Real estate held-for-use, net

The real estate held-for-use by Lower Tier Property Partnerships, which are consolidated by the Company, was comprised of the following at June 30, 2013 and December 31, 2012:

(in thousands)	June 30, 2013		December 31, 2012
Building, furniture and fixtures	$	156,273	$	116,320
Accumulated depreciation		(19,844)		(15,598)
Land		16,998		11,209
Total	$	153,427	$	111,931

Depreciation expense was $4.3 million and $3.9 million for the six months ended June 30, 2013 and 2012, respectively, of which $1.2 million was recorded in discontinued operations for the six months ended June 30, 2012. Buildings are depreciated over a period of 40 years. Furniture and fixtures are depreciated over a period of six to seven years. The Company did not recognize any impairment losses for the six months ended June 30, 2013 and 2012.

The Lower Tier Property Partnerships which own the real estate held-for-use (affordable multifamily properties) were consolidated by non-profit entities that are in turn consolidated by the Company. The Company does not have an equity interest in the Lower Tier Property Partnerships or the non-profit entities. However, the Company provided debt financing to the Lower Tier Property Partnerships. In consolidation, because the Company consolidates the Lower Tier Property Partnerships, the real estate held by the Lower Tier Property Partnerships is reflected on the Company’s balance sheet. The Company’s bonds have been eliminated against the related mortgage debt obligations of the Lower Tier Property Partnerships. The Company’s maximum loss exposure is the fair value of its bonds. At June 30, 2013, the fair value of these bonds was $151.8 million, including $15.3 million of net unrealized gains occurring since consolidation that have not been reflected in the Company’s common shareholders’ equity given that the Company is required to consolidate and account for the real estate, which prohibits an increase in value from its original cost basis until the real estate is sold. At June 30, 2013, $88.5 million of the Company’s eliminated bonds were pledged as collateral for senior interests in and debt owed to securitization trusts.

The increase in real estate held-for-use was due to one of the non-profits we consolidate assuming the GP interest in three multifamily property operations and taking title to two multifamily properties during the second quarter of 2013. The five properties were carried at $43.5 million at June 30, 2013. See Note 12, “Equity” for more information.

Lower Tier Property Partnership’s Real estate held-for-sale

As discussed in Note 15, “Discontinued Operations” a non-profit entity consolidated by the Company sold a multifamily property during the first quarter of 2013 that was previously classified as held for sale at December 31, 2012.

The following section provides more information related to the liabilities of the CFVs at June 30, 2013 and December 31, 2012.

Liability Summary:

(in thousands)	June 30, 2013		December 31, 2012
Liabilities of CFVs:
Debt	$	49,903	$	55,433
Unfunded equity commitments to unconsolidated Lower Tier Property Partnerships		15,157		15,881
Other liabilities		7,883		6,150
Total liabilities of CFVs	$	72,943	$	77,464

Debt

At June 30, 2013 and December 31, 2012, the debt of the CFVs had the following terms:

	June 30, 2013
(in thousands)	Carrying Amount		Face Amount		Weighted-average Effective Interest Rates			Maturity Dates
SA Fund	$	49,621	$	49,621		2.6	%	April 2018
Other		282		1,706		19.0		Various dates through April 2025

	December 31, 2012
(in thousands)	Carrying Amount		Face Amount		Weighted-average Effective Interest Rates			Maturity Dates
SA Fund	$	49,352	$	49,352		2.6	%	April 2018
Other		6,081		7,289		10.4		Various dates through October 2021

SA Fund

The SA Fund has an agreement with OPIC to provide loan financing not to exceed $80.0 million. The SA Fund has drawn a total of $49.1 million of debt against this financing arrangement as of June 30, 2013. This debt is an obligation of the SA Fund and there is no recourse to the Company.

This debt is denominated in US dollars; however, the SA Fund’s functional currency is the South African rand. Therefore, the SA Fund is exposed to foreign currency risk. In order to hedge this risk, from an economic standpoint, the SA Fund has entered into certain foreign exchange derivative contracts. As required, these derivative instruments are carried at fair value. The SA Fund does not designate these derivatives as accounting hedges and therefore, changes in fair value are recognized through the consolidated statements of operations. The change of value in the debt obligation due to currency fluctuation is also recognized through the consolidated statements of operations.

At June 30, 2013 the SA Fund had $3.4 million of cash pledged as collateral for the foreign exchange derivative contracts.

Other

As discussed in Note 7, “Derivative Financial Instruments” during the first quarter of 2013, the Company purchased $5.9 million of debt investments held by the Counterparty, which the Company had guaranteed.

The following section provides more information related to the income statement of the CFVs for the three months and six months ended June 30, 2013 and 2012.

Income Statement Summary:

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2013		2012		2013		2012
Revenue:
Rental and other income from real estate	$	6,366	$	4,188	$	11,653	$	7,916
Interest and other income		3,784		2,380		4,744		3,222
Total revenue from CFVs		10,150		6,568		16,397		11,138

Expenses:
Depreciation and amortization		2,843		2,071		5,353		4,054
Interest expense		477		398		975		796
Other operating expenses		4,978		3,615		9,337		7,198
Foreign currency loss		3,395		1,461		7,550		818
Asset impairments		4,857		1,149		7,881		5,282
Total expenses from CFVs		16,550		8,694		31,096		18,148

Net gains (losses) related to CFVs:
Unrealized gains on investments		5,939		4,217		17,295		9,990
Derivative gains		2,994		1,073		6,625		195
Net loss on sale of properties		-		-		-		(170)
Equity in losses from Lower Tier Property Partnerships of CFVs		(7,368)		(6,895)		(13,786)		(19,431)
Net loss		(4,835)		(3,731)		(4,565)		(16,426)
Net losses allocable to noncontrolling interests in CFVs ⁽¹⁾		6,572		5,319		7,387		19,613
Net income allocable to the common shareholders related to CFVs	$	1,737	$	1,588	$	2,822	$	3,187

⁽¹⁾

Net losses allocable to noncontrolling interests in CFVs have been adjusted to exclude noncontrolling interests related to IHS.

The details of Net income allocable to the common shareholders related to CFVs for the three months and six months ended June 30, 2013 and 2012 are as follows:

	For the three months ended June 30,				For the six months ended June 30,
(in thousands)	2013		2012		2013		2012
Interest income	$	1,318	$	907	$	2,517	$	1,678
Asset management fees		884		1,140		1,741		2,584
Guarantee fees		331		381		662		730
Equity in losses from Lower Tier Property Partnerships		(939)		(904)		(2,437)		(1,940)
Equity in income from SA Fund		208		128		491		265
Other income		(65)		(64)		(152)		(130)
Net income allocable to the common shareholders	$	1,737	$	1,588	$	2,822	$	3,187