INVESTMENT IN JOINT VENTURES, PARTNERSHIPS, AND OTHER RELATED MATTERS

Gabella Multifamily Project

During 2014, the Company, through a wholly owned subsidiary, formed a joint venture, Southwest Acquisitions, LLC (“Southwest JV”) with a third party developer, Titan, for the purpose of holding and developing certain real property contributed to the joint venture by the Company. Southwest JV used a wholly-owned subsidiary, IMH Gabella, LLC (“IMH Gabella”), to hold the joint venture’s real estate assets and enter into related agreements. A wholly owned subsidiary of the Company was the managing member of, and held a 90% ownership interest in, Southwest JV. Titan held a 7% ownership interest plus an additional 3% profits-only interest based upon the satisfaction of certain budget and completion milestones with respect to the project. Generally, income or loss was allocated between Titan and the Company in accordance with their respective percentage interests. The milestones entitled Titan to its additional profits interest were met in the second quarter of 2016, at which time the Company recorded $0.7 million in profits-payment obligation.

The Company’s interests in Southwest JV related 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. The Company provided Southwest JV with all of its initial capital, executed contracts on behalf of Southwest JV, and had final approval rights over all significant matters. The assets, liabilities, and results of operations of IMH Gabella were included in the Company’s 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 December 31, 2016 or December 31, 2015, or in the net income or loss of IMH Gabella during the years ended December 31, 2016 or 2015.

As referenced in Note 4, the Gabella project was sold in the fourth quarter of 2016 for $38.5 million and a gain on sale of $9.7 million, and all applicable distributions and profit participation payments were made to the members of Southwest JV at the time of sale.

Park City, Utah Lakeside Investment

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 and PCD agreed to contribute up to $0.5 million for a 10% interest. PCD’s principal provided a limited performance guaranty to the Company in the case of certain defaults by PCD.

As of December 31, 2016 and 2015, the Company had contributed $3.7 million and $3.4 million, respectively, to Lakeside JV. As of December 31, 2016, the Company was obligated to contribute an additional $0.5 million. During 2015, the Company syndicated $1.7 million of its investment to several investors (“Syndicates”) by selling preferred equity interests in LDV Holdings. The syndicated investment was made up of $1.4 million from various related parties and $0.3 million from an unrelated party. Of the $1.4 million invested by related parties, $1.1 million was invested by one of the Company’s directors and preferred shareholders (see Note 12), $0.2 million was invested by two members of the Company’s board of directors, and $0.1 million was invested by a partner from Polsinelli, one of the Company’s outside law firms. The Company has no obligation to return the initial investment to the Syndicates. 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 contributions made by its members. Thereafter, cash flows are to be distributed to members at varying rates as certain return hurdles are achieved. Other than a 2% management fee to be paid to the Company, cash flows distributions from LDV Holdings to the Syndicates are to effectively mirror the distributions to LDV Holdings from Lakeside JV. The investment by the Syndicates in LDV Holdings is included in non-controlling interests, a component of shareholders’ equity in the accompanying consolidated balance sheets.

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 was to be made until PCD and the Company each received a 26% internal rate of return. Thereafter 50% of the balance was to be distributed pro rata to each member and 50% was to be paid to PCD.

As of December 31, 2016, PCD was the managing member of Lakeside JV and conducted its day-to-day operations. Although the Company had significant investment in and influence over major decisions concerning Lakeside JV, PCD had express authority to run the day-to-day operations of Lakeside JV in accordance with the initial operating budget and subsequent budgets. The Company did not have “kick-out rights” over the managing member. As a result of the foregoing, we concluded that the Company was not the primary beneficiary of the joint venture, and, therefore, we did not consolidate our investment in the Lakeside JV.

In the Company’s estimation, the fair value of the unimproved real estate holdings of Lakeside JV exceeded our investment basis as of December 31, 2016 and 2015. The Company’s maximum exposure to loss in the Lakeside JV as of December 31, 2016 and 2015 was $2.3 million and $2.5 million, respectively. The risk of loss on the balance of the investment is borne by the Syndicates.

During the year ended December 31, 2016, the loss on the equity investment that was recorded in the accompanying consolidated statements of operations was $0.2 million, of which $0.1 million was allocable to the Syndicates.

Subsequent to December 31, 2016, the Company purchased PCD’s 10% interest in Lakeside JV for $0.7 million and terminated PCD as manager. Upon purchase of PCD’s interest, Lakeside JV became a consolidated entity of the Company in the first quarter of 2017.

The following is a summary of the Company’s interest in the Lakeside JV VIE and the Company’s maximum exposure to loss as a result of its involvement with the VIE as of December 31, 2016 and 2015, (in thousands):



December 31, 2016
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	$	221	$	(236	)	$	1,808	$	488	$	2,296



December 31, 2015
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	$	—	$	—	$	1,823	$	709	$	2,532

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 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.

ASC 323 Investments - Equity Method and Joint Ventures and Article 4.08(g) of Regulation S-X require that summarized financial information of material investments accounted for under the equity method be provided for the investee’s financial position and results of operations including assets, liabilities and results of operations. Notwithstanding the extensive efforts of the Company to compile the necessary financial information, the Company has determined that the information needed for the preparation of historical financial statements of these entities to satisfy these requirements is not sufficiently reliable. As a result, the Company elected to present 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 date acquired, as it believes this information is reliable and relevant to the users of its financial statements. There have been no material changes in the financial position or operations from the date of acquisition through December 31, 2016.

The assets of these entities consist primarily of 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. Under the court-approved settlement pursuant to which the Company received these equity interests, 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 $3.1 million at December 31, 2016 and 2015.

During the year ended December 31, 2016, a subsidiary of the Company executed promissory notes with certain of the unconsolidated partnerships to loan up to $0.7 million for the funding of various costs of such partnerships. As of December 31, 2016, the total principal advanced under these notes was $0.4 million. The promissory notes earn interest at rates ranging from 5.5% to 8.0% and have maturity dates which are the earliest to occur of 1) the date of transfer of the partnership’s real estate assets, 2) the date on which the current general partner resigns, withdraws or is removed as general partner, or 3) July 31, 2018. The promissory notes are secured by real estate owned by such partnerships.

Summarized Financial Information of Unconsolidated Entities (unaudited)

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 years ended December 31, 2016 and 2015 (in thousands):



	December 31, 2016			December 31, 2015
Total assets	$	19,456		$	19,434
Total liabilities	6,269			927
Net income (loss)	(422		)	—

The increase in reported liabilities as of December 31, 2016 is attributed to various balances due to the general partner and other related parties for management fees, accounting fees, notes payable, interest and other amounts. Such amounts were indeterminable at December 31, 2015.

During the year ended December 31, 2016, the equity income recorded on this equity investment in the accompanying consolidated statements of operations was $32 thousand. There were no material revenues or expenses recorded for our unconsolidated entities for the year ended December 31, 2015.

Multifamily Portfolio Investment

During the year ended December 31, 2013, we entered into a limited liability agreement to form a joint venture with unrelated parties for the purpose of acquiring a multi-family portfolio comprised of 14 apartment communities across six states. Under the terms of the joint venture agreement, we contributed $15.0 million through one of our wholly-owned subsidiaries that held the status of a preferred member, while another of our wholly-owned subsidiaries served as a limited guarantor member on the senior indebtedness of the joint venture that was secured by the acquired operating properties.

During the fourth quarter of 2013, we sold our preferred equity investment in the joint venture to the holder of the other primary interests in the joint venture. However, the Company continued to serve as a limited guarantor member on the senior indebtedness of the joint venture that is secured by the acquired operating properties, for which we were entitled to receive additional remuneration on a quarterly basis until we were released from the limited guarantee. We received quarterly payments ranging from $0.3 million to $0.5 million during the guarantee period. Such payments were considered earned when received. In the first quarter of 2015, the borrower secured a replacement guarantor on the senior loan, and we entered into a court-approved settlement with the borrower, which released the Company from any potential liability under the guarantee.

During the year ended December 31, 2015, the Company recorded revenues of $0.5 million as consideration for its limited guarantee, and $1.3 million in connection with the court-approved settlement with the borrower. No amounts were recorded during the year ended December 31, 2016.