INVESTMENT IN JOINT VENTURES, PARTNERSHIPS AND OTHER RELATED MATTERS

Variable Interest Entities

The determination of whether the assets and liabilities of a VIE are consolidated on our balance sheet or not consolidated on our balance sheet depends on the terms of the related transaction and our continuing involvement with the VIE. We determine whether we hold a variable interest in a VIE based on a consideration of the nature and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis. We are deemed the primary beneficiary and therefore consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE's economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE; and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE.

Gabella Multifamily Project

A wholly-owned subsidiary of the Company is the managing member of, and holds a 90% ownership interest in, Southwest JV. Titan initially held the remaining 7% ownership interest, and acquired an additional 3% profits-only interest based upon the satisfaction of certain budget and completion milestones with respect to the project. Titan met those milestones in the second quarter of 2016, at which time the Company recorded Titan’s profit participation of $0.7 million in the accompanying condensed consolidated balance sheet as an increase in the asset basis with an offsetting increase to noncontrolling interests. The Company, through its wholly-owned subsidiary, has the power and authority to govern the business of Southwest JV, subject to certain conditions.

Upon formation of Southwest JV, we contributed certain land, made certain cash equity contributions and IMH Gabella secured a $24.0 million construction loan for which the Company provided completion, repayment and carve-out guaranties. Funding of this loan commenced during the second quarter of 2015 when the Company completed the required $11.5 million equity funding under the loan. The Company has no further capital contribution requirements under the loan. In the event that certain specified occupancy targets are met, Titan has the right to have its interests repurchased by Southwest JV, and Southwest JV, conversely, has certain rights to redeem Titan’s interest in the event Titan fails to exercise those put rights within a specified time. Generally, income or loss is to be allocated among the members of Southwest JV in accordance with their respective percentage interests. Upon the sale of Gabella, the sale proceeds shall be distributed first to the Company in an amount equal to its capital contributions less any previous distributions it may have received, and then to the Company and Titan in accordance with their respective interests in Southwest JV.

The Company’s interests in Southwest JV relate to equity ownership and profits participation between the members; a profits interest arrangement between the members involving certain budget and completion milestones; equity option provisions; parental guaranties related to construction financing; and contractual arrangements limiting Titan’s initial participation in the economics of certain assets and liabilities. Terms of the equity option require the Company to purchase Titan’s equity investment upon certain conditions, after a specified period of time if Titan elects to sell its equity investment. The Company provided Southwest JV with all of its initial capital, executed contracts on behalf of Southwest JV, and has final approval rights over all significant matters. The assets, liabilities, and results of operations of IMH Gabella are included in the Company’s condensed consolidated financial statements under the voting interest model. Except for Titan’s sale profit participation described above, Titan had no reportable interest in the assets, liabilities or equity of Southwest JV at September 30, 2016 or December 31, 2015, or in the net income or loss of IMH Gabella during the three and nine months ended September 30, 2016 or September 30, 2015.

Park City, Utah Lakeside VIE

In the fourth quarter of 2015, the Company, through a consolidated subsidiary, Lakeside DV Holdings, LLC (“LDV Holdings”), entered into a joint venture with a third party developer, Park City Development, LLC (“PCD”) for the purpose of acquiring, holding and developing certain real property located in Park City, Utah (“Lakeside JV”). The intent of Lakeside JV is to sell townhome, single family residential and hotel lots. Under the Lakeside JV limited liability company agreement, the Company agreed to contribute up to $4.2 million for a 90% interest in Lakeside JV, while PCD agreed to contribute up to $0.5 million for a 10% interest. PCD’s principal has provided a limited guaranty to the Company for performance in the event of certain “bad boy” acts by PCD.

As of September 30, 2016, the Company had contributed $3.6 million to Lakeside JV and is obligated to contribute an additional $0.6 million over the life of the development project, per the project’s initial operating budget. During the three and nine months ended September 30, 2016, the Company provided no financial or other support to Lakeside JV that was not contractually required. Equity balances in Lakeside JV are subject to a 12% preferred return, compounded quarterly. Once the preferred return is distributed, a combination of pro rata distributions and additional distributions to PCD are made until PCD and the Company each receive a 26% internal rate of return. Thereafter, 50% of the balance is to be distributed pro rata to each party and 50% is to be paid to PCD.

As more fully described in our Form 10-K for the year ended December 31, 2015, it was determined that the Company is not the primary beneficiary of Lakeside JV and, therefore, we do not consolidate our investment in the Park City, Utah VIE. The investment balance of $3.4 million, which is net of historical operating losses, is included as a component of investment in unconsolidated entities on the condensed consolidated balance sheet.

During 2015, the Company syndicated $1.7 million of its required investment in Lakeside JV to several investors (“Syndicates”) by selling preferred equity interests in LDV Holdings. These investments are included in noncontrolling interests, a component of shareholders’ equity in the accompanying condensed consolidated balance sheets. LDV Holdings’ cash flows are to be distributed first to its members in proportion to the preferred equity investment, including the preferred return, then to the extent of additional capital contribution made by the members. Thereafter, cash flows are to be distributed to members at varying rated as certain return hurdles are achieved.

In the Company’s estimation, the fair value of the unimproved real estate holdings of Lakeside JV exceeds our investment basis as of September 30, 2016. The Company’s maximum exposure to loss in the Lakeside JV as of September 30, 2016 is $2.4 million. The risk of loss on the balance of the investment is borne by the Syndicates.

During the three and nine months ended September 30, 2016, the loss on the equity investment that was recorded in the accompanying condensed consolidated statements of operations was $48,000 and $0.2 million, respectively of which $19,000 and $0.1 million, respectively, was allocable to the Syndicates.

The following is a summary of the Company’s interest in the Park City Utah VIE and the Company’s maximum exposure to loss as a result of its involvement as of September 30, 2016, (in thousands):



Entity	Initial Investment		Additional Contributions		Net Loss Inception to Date			Company's Variable Interest in Entity		Commitment to Future Additional Contributions		Company's Maximum Exposure to Loss in Entity
Lakeside JV	$	1,823	$	135	$	(146	)	$	1,812	$	574	$	2,386

Equity Interests Acquired through Guarantor Recoveries

During the second quarter of 2015, the Company, through certain subsidiaries, obtained certain real estate assets and equity interests in a number of limited liability companies and limited partnerships with various real estate holdings and related assets as a result of certain enforcement and collection efforts. Several of the limited liability companies and partnerships hold interests in real property and are now co-owned with various unrelated third parties. Since the entities were not considered VIEs, we applied the voting interest model to ascertain the need for consolidation. Certain of these entities have been consolidated in the accompanying condensed consolidated financial statements, while others have been accounted for under the equity method of accounting, based on the extent of the Company’s controlling financial interest in each such entity. Based on our analysis, the consolidated entities in which these equity interests were awarded did not meet the definition of a business under GAAP since the only assets of such entities consist of unimproved real estate holdings, and the entities lack other inputs and processes necessary to produce outputs.

Because the entities did not qualify as businesses, the acquisition of such interests in these entities was deemed to be an asset acquisition, whereby we recorded our proportionate interest of each entity’s total assets and liabilities at fair value at the date of acquisition. Thereafter, any subsequent income or loss is being allocated to controlling and noncontrolling interests based on their respective ownership percentages. For entities where the Company does not control the real estate venture, and the other unrelated partners (or the equivalent) either hold substantive participating rights or have control, the Company uses the equity method of accounting.

As more fully described in our Form 10-K for the year ended December 31, 2015, as a result of limitations over the accuracy or reliability of available historical financial information, the Company has presented financial information on its investment in these entities based on the fair value of the underlying real estate assets and estimable liabilities as of the acquisition date, as it believes this information is reliable and relevant to the users of its financial statements.

The assets of these entities include primarily unimproved real estate and rights to develop water located in the Southwestern United States. The Company does not consolidate these entities because the Company and the other owners of equity interests in these entities share decision making abilities and have joint control over the entities, and/or because the Company does not control the activities of the entities. The Company does not have any obligation to fund the outstanding liabilities or working capital needs of these entities. The Company’s ownership interests in these entities range from 2.4% to 48.0% and, collectively, the Company’s net investment in these entities totals $3.0 million at September 30, 2016.

Summarized Financial Information of Unconsolidated Entities

The following presents summarized certain financial information of the entities in which the Company holds investments that are recorded on the equity method as of and for the quarter ended September 30, 2016 (in thousands):



	September 30, 2016
Total assets	$	19,182
Total liabilities	$	927

There were no revenues and $48,000 and $0.2 million of expenses incurred by our unconsolidated entities during the three and nine months ended September 30, 2016, respectively. There were no revenues or expenses incurred by our unconsolidated entities during the three and nine months ended September 30, 2015.