REAL ESTATE HELD FOR SALE AND OTHER REAL ESTATE OWNED

At June 30, 2017, we held total REO assets of $34.0 million, of which $14.6 million were held for sale and $19.4 million were classified as other real estate owned. At December 31, 2016, we held total REO assets of $122.1 million, of which $17.8 million was held for sale, $88.7 million were held as operating properties (which have been reclassified as assets of discontinued operations on the accompanying condensed consolidated balance sheets), and $15.5 million were classified as other real estate owned.

A summary of operating properties and REO assets owned as of June 30, 2017 and December 31, 2016, respectively, by method of acquisition, is as follows (in thousands):



	Acquired Through Foreclosure and/or Guarantor Settlement				Acquired Through Purchase and Costs Incurred				Accumulated Depreciation					Total
	2017		2016		2017		2016		2017		2016			2017		2016
Real Estate Held for Sale	$	13,595	$	17,717	$	1,000	$	917	$	—	$	(797	)	$	14,595	$	17,837
Discontinued Operations	—		83,652		—		14,079		—		(8,997		)	—		88,734
Other Real Estate Owned	8,025		8,356		11,398		7,145		—		—			19,423		15,501
Total	$	21,620	$	109,725	$	12,398	$	22,141	$	—	$	(9,794	)	$	34,018	$	122,072

Following is a roll-forward of REO activity from December 31, 2016 to June 30, 2017 (dollars in thousands):



	Operating Properties			# of Projects		Held for Sale			# of Projects		Other Real Estate Owned			# of Projects	Total Net Carrying Value
Balances at December 31, 2016	$	88,734		2		$	17,837		10		$	15,501		7	$	122,072
Additions:
Capital Costs Additions	649			—		230			—		190			—	1,069
Consolidation of Park City Development, LLC Interest in Lakeside JV	—			—		—			—		4,062			1	4,062
Transfer to held for sale	(89,115		)	(2	)	89,115			2		—			—	—
Reductions:
Cost of Properties Sold	10			—		(92,587		)	(4	)	(330		)	—	(92,907		)
Depreciation and Amortization	(278		)	—		—			—		—			—	(278		)
Balances at June 30, 2017	$	—		—		$	14,595		8		$	19,423		8	$	34,018

As discussed in Note 5, we acquired the remaining interest of Park City Development, LLC in Lakeside JV. Following the acquisition of that interest, we were deemed to control the entity and changed our accounting for the investment from an unconsolidated equity investment to a consolidated investment, at which time we recorded the related real estate, other assets and liabilities. During the six months ended June 30, 2017, the Company sold REO from four projects (in whole or portions thereof), for $97.1 million (net of transaction costs and other non-cash adjustments) resulting in a total net gain on sale of $8.5 million, of which $6.8 million is included as a component of discontinued operations in the unaudited condensed consolidated statement of operations. During the six months ended June 30, 2016, we sold five REO assets (or portions thereof) for $3.3 million (net of transaction costs and other non-cash adjustments), resulting in a total net gain of less than $0.1 million.

REO Planned Development and Operations

Costs and expenses related to operating, holding and maintaining our operating properties and REO assets are expensed as incurred and included in operating property direct expenses, and expenses for non-operating real estate owned in the accompanying condensed consolidated statements of operations. For the three months ended June 30, 2017 and 2016, these costs and expenses were $1.1 million ($0.3 million of which is included in income from discontinued operations) and $6.9 million ($6.0 million of which is included in loss from discontinued operations), respectively. For the six months ended June 30, 2017 and 2016, these costs and expenses were $5.8 million ($4.0 million of which is included in income from discontinued operations) and $12.6 million ($10.7 million of which is included in income from discontinued operations), respectively. Costs related to the development or improvements of the Company’s real estate assets are generally capitalized and costs relating to holding the assets are generally charged to expense. Cash outlays for capitalized development costs totaled $1.1 million and $8.3 million for the six months ended June 30, 2017 and 2016, respectively.

We continue to evaluate our use and disposition options with respect to our REO assets. REO assets that are classified as held for sale or as other real estate owned are measured at the lower of carrying amount or fair value, less estimated cost to sell, and are subject to fair value analysis on not less than a quarterly basis. REO assets that are classified as held for development or as operating properties are considered “held and used” and are evaluated for impairment when circumstances indicate that the carrying amount exceeds the sum of the un-discounted net cash flows expected to result from the development or operation and eventual disposition of the asset.

Reclassification of Assets from Operating Properties to REO Held for Sale

In the first quarter of 2017, we reclassified our two Sedona hotel operating properties to REO held for sale as a result of management’s decision and actions to dispose of such assets. The properties were sold in February 2017.

As of December 31, 2016, the Sedona hotel assets represented 60.6% of the Company’s total assets and constituted an individually significant component of the Company’s business. The Sedona assets contributed pretax loss of $0.2 million for the three months ended June 30, 2017, and $40.0 thousand in pretax income for the three months ended June 30, 2016.

Based on material nature of the hotel assets, the operations and gain on sale of the Sedona hotels is reported as discontinued operations on the financial statements. See Note 12, Discontinued Operations, for additional information.