Investment in Unconsolidated Ventures

In the past, we have participated in real estate ventures for the purpose of acquiring and developing residential, multifamily and mixed-use communities in which we may or may not have a controlling financial interest. U.S. GAAP requires consolidation of Variable Interest Entities (VIEs) in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb the VIE losses and right to receive benefits that are significant to the VIE. We examine specific criteria and use judgment when determining whether a venture is a VIE and whether we are the primary beneficiary. We perform this review initially at the time we enter into venture agreements and reassess upon reconsideration events.

At September 30, 2018, we had ownership interests in five ventures in which we have significant influence over operations and financial policies. We have accounted for these ventures using the equity method of accounting. None of our unconsolidated ventures are a VIE.

Combined summarized balance sheet information for our ventures accounted for using the equity method follows:



	September 30, 2018		December 31, 2017
	(In thousands)
Assets:
Cash and cash equivalents	$	10,162	$	13,119
Real estate	17,248		168,914
Other assets	127		21,721
Total assets	$	27,537	$	203,754
Liabilities and Equity:
Accounts payable and other liabilities	$	651	$	13,101
Debt ^(a)	—		85,133
Equity	26,886		105,520
Total liabilities and equity	$	27,537	$	203,754

Forestar's investment in unconsolidated ventures	$	11,721	$	64,579

Combined summarized income statement information for our ventures accounted for using the equity method follows:



	Nine Months Ended September 30,		Twelve Months Ended December 31,
	2018		2017		2016
	(In thousands)
Revenues	$	22,215	$	65,748	$	46,130
Earnings	$	15,112	$	39,150	$	9,119
Forestar's equity in earnings of unconsolidated ventures	$	4,795	$	17,899	$	6,123

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^(a)	At September 30, 2018 there was no venture debt outstanding and therefore, there is no amount which is recourse to us. At December 31, 2017, $4,583,000 of the total venture debt outstanding was recourse to us.

In the nine months ended September 30, 2018, our equity in earnings from one of our unconsolidated ventures in which we own a 37.5% interest, LM Land Holdings, LP, accounted for over 10% of our consolidated pre-tax income. At September 30, 2018, LM Land Holdings, LP had $21,618,000 in venture assets, $409,000 in accounts payable and other liabilities, and $21,209,000 in venture equity on its balance sheet. At September 30, 2018, our investment in this venture was $8,912,000. In the nine months ended September 30, 2018, LM Land Holdings, LP recognized $17,425,000 of revenues and generated $18,135,000 in earnings, which includes $5,679,000 of earnings related to the recognition of a deferred gain. Our share of these earnings was $6,352,000.

In the nine months ended September 30, 2018, we made no further investments in these ventures and received $4,292,000 in distributions; in 2017, we invested $4,548,000 in these ventures and received $34,439,000 in distributions; and in 2016, we invested $6,089,000 in these ventures and received $13,419,000 in distributions. Distributions include both return of investments and distributions of earnings.

In the nine months ended September 30, 2018, we sold our ownership interest in eight of our unconsolidated ventures to Starwood as part of a strategic asset sale (See Note 5—Held for Sale). In the nine months ended September 30, 2018, we also sold our interest in a residential venture in Atlanta, generating $11,049,000 in net proceeds and a gain of $2,030,000. We also sold our interest in a multifamily venture near Denver, generating $19,226,000 in net proceeds and a gain of $14,573,000.

In the nine months ended September 30, 2018, a venture in which we own a 50% interest recognized a non-cash impairment charge of $3,045,000 associated with a golf course near Atlanta. Our share of this non-cash impairment charge is included within equity in earnings of unconsolidated ventures in our consolidated statements of operations.

In 2017, a multifamily venture in which we owned a 30% interest sold a 320-unit multifamily project in Nashville for $71,750,000 and recognized a gain of $18,986,000. Our share of earnings was $7,783,000 and we received a distribution of $11,956,000 as a result of this sale.

In 2017, a venture in which we owned a 50% interest benefited from the sale of 46 commercial acres in Houston for $9,719,000 generating $6,612,000 in earnings to the venture. Our pro-rata share of the earnings associated with this sale was $3,306,000 and our pro-rata share of the total distributable cash was $4,348,000.

In 2017, a venture in which we own a 50% interest, sold certain mineral assets to us for $2,400,000. Subsequent to closing of this transaction, we received $1,200,000 from the venture, representing our pro-rata share of distributable cash. In 2017, this venture recognized a non-cash impairment charge of $3,756,000 associated with a commercial tract near Corpus Christi.

In 2016, we sold our interest in a multifamily venture that owned a 304-unit multifamily property near Denver, generating $13,917,000 in net proceeds and a gain of $10,363,000 which is included in gain on sale of assets.

We provided construction and development services for some of these ventures for which we receive fees. Fees for these services were $0 in 2018, $741,000 in 2017 and $2,466,000 in 2016, and are included in real estate revenues in our consolidated statements of operations.