Real Estate

Real estate consists of:



	At Year-End
	2014			2013
	(In thousands)
Entitled, developed and under development projects	$	321,273		$	361,687
Undeveloped land (includes land in entitlement)	93,182			86,367
Commercial and income producing properties
Carrying value	192,678			99,476
Accumulated depreciation	(31,377		)	(28,066		)
Net carrying value	161,301			71,410
	$	575,756		$	519,464

Our estimated cost of assets we expect to convey to utility and improvement districts were $65,212,000 in 2014 and $62,183,000 in 2013, which includes $31,913,000 at year-end 2014 and $41,795,000 at year-end 2013 related to our Cibolo Canyons project near San Antonio. These costs relate to water, sewer and other infrastructure assets we have submitted or will submit to utility or improvement districts for approval and reimbursement. We submitted for reimbursement to these districts $7,118,000 in 2014 and $17,923,000 in 2013. We collected $15,497,000 from these districts in 2014, of which $9,883,000 is related to our Cibolo Canyons project and was accounted for as a reduction of our investment in the mixed-use development. We collected $5,545,000 from these districts in 2013, of which $600,000 related to our Cibolo Canyons project. We expect to collect the remaining amounts billed when these districts achieve adequate tax bases to support payment.

In 2014, we received $50,550,000 from CCSID under 2007 economic development agreements (EDA) related to development of the JW Marriott^® Hill Country Resort & Spa (Resort) at our Cibolo Canyons project near San Antonio, of which $46,500,000 was related to CCSID's issuance of $48,900,000 Hotel Occupancy Tax (HOT) and Sales and Use Tax Revenue Bonds. These bonds are obligations solely of CCSID and are payable from HOT and sales and use taxes levied on the Resort by CCSID. To facilitate the issuance of the bonds, we provided a $6,846,000 letter of credit to the bond trustee as security for certain debt service fund obligations in the event CCSID tax collections are not sufficient to support payment of the bonds in accordance with their terms. The letter of credit must be maintained until the earlier of redemption of the bonds or scheduled bond maturity in 2034. We also entered into an agreement with San Antonio Real Estate (SARE), owner of the Resort, to assign SARE’s senior rights under the EDA to us in exchange for consideration provided by us, including a surety bond to be drawn if CCSID tax collections are not sufficient to support ad valorem tax rebates payable to SARE. The surety bond has a balance of $9,010,000 at year-end 2014. The surety bond will decrease as CCSID makes annual ad valorem tax rebate payments to SARE, which obligation is scheduled to be retired in full by 2020. As a result of these transactions, we recorded a gain of $6,577,000 after recovery of our full resort investment of $24,067,000, which was included in entitled, developed and under development projects. In 2013, we received $4,400,000 from CCSID from hotel occupancy and sales revenues collected as taxes by CCSID.

In 2014, undeveloped land increased due to a non-monetary exchange of leasehold timber rights on approximately 10,300 acres for 5,400 acres of undeveloped land with a partner in a consolidated venture, in which we recorded a $10,476,000 gain.

In 2014, we acquired full ownership in CJUF III, RH Holdings LP partnership (the Eleven venture), owner of a 257-unit multifamily project in Austin in which we previously held a 25 percent interest, for $21,500,000. The acquisition-date fair value was $55,275,000, including debt of $23,936,000. Our investment in the Eleven venture prior to acquiring our partner’s interest was $2,229,000. We accounted for this transaction as a business combination achieved in stages and as a result, we remeasured our equity method investment in the Eleven venture to its acquisition-date fair value of $9,839,000 and recognized the resulting gain of $7,610,000 in real estate segment earnings. At acquisition, we recorded additions to real estate commercial and income producing properties of $53,917,000 and other assets of $992,000 primarily consisting of in-place tenant leases of $865,000. In addition, we recorded a working capital deficit of $979,000 and debt of $23,936,000.

In 2014, the increase in commercial and income producing properties was principally due to the Eleven multifamily project which is now wholly-owned after acquisition of our partner's interest in the Eleven venture and $26,110,000 from acquisition of three multifamily development sites. At year-end 2014, commercial and income producing properties represents our $53,382,000 investment in our 257-unit multifamily property in Austin, our investment in a 413 guest room hotel in Austin with a carrying value of $30,712,000, our $33,062,000 investment in our 354-unit multifamily property in Dallas and our investment in multifamily development sites located in Austin, Charlotte, and Nashville with a combined carrying value of $44,145,000.

As a general contractor on guaranteed maximum price contracts associated with two multifamily venture properties, we recognized charges of $5,111,000 in 2014 and $554,000 in 2013 related to cost overruns.

We recognized non-cash asset impairment charges of $399,000 in 2014 associated with two owned and consolidated entitled projects. We had $1,790,000 non-cash impairment charges in 2013 associated with a master-planned community and golf club near Dallas. We had no non-cash asset impairment charges in 2012.

Depreciation expense related to income producing properties was $3,319,000 in 2014, $2,507,000 in 2013 and $3,640,000 in 2012 and is included in other operating expense.