3. Variable Interest Entities

The Partnership reviewed and re-evaluated each entity in which it holds a variable interest to identify if any of the variable interests have become reportable VIEs or Consolidated VIEs pursuant to new guidance issued in 2015 that had an effective date of January 1, 2016. The Partnership re-evaluated its investments related to mortgage revenue bonds, property loans, and investment in an unconsolidated entity.

The Partnership invests in mortgage revenue bonds which have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties throughout the United States. The Partnership owns 100% of these mortgage revenue bonds and each bond is secured by a first mortgage on the property. In certain cases, the Partnership has also made property loans to the property owners which may be secured by second mortgages on these properties. Although Residential Properties financed with mortgage revenue bonds held by the Partnership are owned by separate entities in which the Partnership has no equity ownership interest, the debt financing provided by the Partnership creates a variable interest in these ownership entities that may require the Partnership to report the assets, liabilities, and results of operations of these entities on a consolidated basis under GAAP. In addition, the Partnership evaluated its investment in an unconsolidated entity and concluded the limited membership interest created a variable interest. Once the Partnership concluded these entities were VIEs, it needed to evaluate whether the VIE should be consolidated.

For the Partnership to consolidate a VIE, it must be considered the primary beneficiary of the VIE. In determining the primary beneficiary of a VIE, the Partnership considers the activities of the VIE which most significantly impact their economic performance and who has the power to control such activities. The Partnership also considers the related party relationship of the entities involved in the VIEs. At March 31, 2016 and December 31, 2015, with the exception of the PHCs (Note 5) MBS Securities (Note 6) and TEBS and TOB Trusts, the Partnership determined it is not the primary beneficiary of any of the VIEs and therefore the Partnership has no consolidated VIEs.

In the first quarter of 2016, the Partnership made an equity investment in Vantage. The Partnership has determined its limited membership interest in Vantage is a variable interest, but it is not the primary beneficiary of the entity, therefore, Vantage is a VIE at March 31, 2016.

The Partnership concluded it was the primary beneficiary of two properties, Bent Tree and Fairmont Oaks, and therefore, reported these two properties as Consolidated VIEs for the three months ended March 31, 2015. In the fourth quarter of 2015 the Partnership’s Consolidated VIEs, Bent Tree and Fairmont Oaks, were sold. As a result, these entities met the criteria for discontinued operations presentation in the Partnership’s condensed consolidated financial statements for the three months ended March 31, 2015. The Partnership eliminated the Consolidated VIE segment in the fourth quarter of 2015 (see Notes 7, 10, and 21).

With the exception of Vantage, the PHCs (Note 5), MBS Securities (Note 6) and TEBS and TOB Trusts, the following table presents information regarding the Partnership’s variable interests in VIEs held by the Partnership on March 31, 2016 and December 31, 2015 that the Partnership did not consolidate:

	March 31, 2016
	Balance Sheet Classification				Maximum Exposure to Loss
	Mortgage Revenue Bond		Property Loan		Mortgage Revenue Bond		Property Loan
Ashley Square Apartments	$	5,600,695	$	1,482,000	$	5,084,000	$	5,078,342
Bridle Ridge		8,552,233		-		7,565,000		-
Bruton Apartments		20,454,301		-		18,145,000		-
Columbia Gardens		14,915,592		-		15,222,003		-
Glenview Apartments		6,829,007		-		6,723,000		-
Harden Ranch		7,725,305		-		6,960,000		-
Montclair Apartments		3,582,096		-		3,458,000		-
Santa Fe Apartments		4,933,037		-		4,736,000		-
Seasons at Simi Valley		6,803,653		-		6,320,000		-
Sycamore Walk		5,493,352		-		5,447,000		-
Tyler Park Apartments		6,636,002		-		6,065,947		-
Vantage at Braunfels, LLC		-		6,578,789		-		6,578,789
Vantage at Brooks, LLC		-		7,406,905		-		7,406,905
Westside Village Market		4,220,252		-		3,964,084		-
Willow Run		14,916,596		-		15,221,965		-
Woodlyn Village		4,917,283		-		4,351,000
	$	115,579,404	$	15,467,694	$	109,262,999	$	19,064,036

	December 31, 2015
	Balance Sheet Classification				Maximum Exposure to Loss
	Mortgage Revenue Bond		Property Loan		Mortgage Revenue Bond		Property Loan
Ashley Square Apartments	$	5,607,163	$	1,482,000	$	5,099,000	$	7,942,472
Bruton Apartments		20,046,839		-		18,145,000		-
Columbia Gardens		15,224,597		-		15,224,597		-
Cross Creek		9,034,294		3,624,614		6,101,605		3,624,614
Glenview Apartments		6,926,243		-		6,723,000		-
Harden Ranch		7,628,981		-		6,960,000		-
Montclair Apartments		3,569,573		-		3,458,000		-
Santa Fe Apartments		4,884,102		-		4,736,000		-
Seasons at Simi Valley		6,724,110		-		6,320,000		-
Sycamore Walk		5,447,000		-		5,447,000		-
Tyler Park Apartments		6,562,209		-		6,075,000		-
Vantage at Braunfels, LLC		-		4,364,787		-		4,364,787
Vantage at Brooks, LLC		-		3,533,104		-		3,533,104
Westside Village Market		4,172,340		-		3,970,000		-
Willow Run		15,224,591		-		15,224,591		-
Totals	$	111,052,042	$	13,004,505	$	103,483,793	$	19,464,977

The mortgage revenue bonds are classified on the Condensed Consolidated Balance Sheet as available-for-sale investments and are carried at fair value while property loans are presented on the balance sheet as other assets and are carried at the unpaid principal less any loan loss allowances. See Note 4 for additional information regarding the mortgage revenue bonds and Note 9 for additional information regarding the property loans. The maximum exposure to loss for the mortgage revenue bonds is equal to the unpaid principal balance on March 31, 2016. The maximum exposure to loss on the property loans at March 31, 2016 and December 31, 2015 is equal to the unpaid principal balance plus accrued interest. The difference between the mortgage revenue bond’s carrying value and the maximum exposure to loss is a function of the unrealized gains or losses on the mortgage revenue bonds. The difference between the property loans’ carrying value and the maximum exposure is the value of loan loss allowances that have been previously recorded against the outstanding property loan balances.