Real Estate Inventories

12 Months Ended

Dec. 31, 2019

Real estate inventories consisted of the following (in thousands):



	December 31, 2019		December 31, 2018
Real estate inventories owned:
Homes completed or under construction	$	951,974	$	959,911
Land under development	1,641,354		1,743,537
Land held for future development	122,847		201,874
Model homes	275,204		238,828
Total real estate inventories owned	2,991,379		3,144,150
Real estate inventories not owned:
Land purchase and land option deposits	74,057		71,909
Total real estate inventories not owned	74,057		71,909
Total real estate inventories	$	3,065,436	$	3,216,059

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land

development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The decrease in land held for future development as of December 31, 2019 compared to December 31, 2018 is attributable to two communities where development activity commenced during the year ended December 31, 2019 and a $7.0 million impairment charge discussed below.

During the fourth quarter of 2018, we acquired a Dallas–Fort Worth-based homebuilder for an all cash purchase price of approximately $61.5 million. This transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. As a result of this transaction, we recorded approximately $63.2 million of real estate inventories owned, approximately $5.5 million of other assets and approximately $7.2 million of accounts payable and other accrued liabilities. All net assets and operations acquired in this transaction are included in the Trendmaker Homes reporting segment in Note 2, Segment Information.

Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.

Interest incurred, capitalized and expensed were as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Interest incurred	$	89,691		$	91,631		$	84,264
Interest capitalized	(89,691		)	(91,631		)	(84,264		)
Interest expensed	$	—		$	—		$	—
Capitalized interest in beginning inventory	$	184,400		$	176,348		$	157,329
Interest capitalized as a cost of inventory	89,691			91,631			84,264
Interest previously capitalized as a cost of inventory, included in cost of sales	(81,735		)	(83,579		)	(65,245		)
Capitalized interest in ending inventory	$	192,356		$	184,400		$	176,348

Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered. Interest that is expensed as incurred is included in other income, net on the consolidated statements of operations.

Real Estate Inventory Impairments and Land Option Abandonments

Real estate inventory impairments and land option abandonments consisted of the following (in thousands):



	Year Ended December 31,
	2019		2018		2017
Real estate inventory impairments	$	10,078	$	—	$	854
Land and lot option abandonments and pre-acquisition costs	14,797		5,085		1,199
Total	$	24,875	$	5,085	$	2,053

During the year ended December 31, 2019, we recorded real estate inventory impairment charges of $10.1 million, of which $7.0 million related to one held for future development community for TRI Pointe Homes in Sacramento, California, and $3.1 million related to three communities for Trendmaker Homes in Houston, Texas. The discount rates used to calculate fair value were 16% for the TRI Pointe Homes community and 10% to 12% for the three Trendmaker Homes communities. We considered both market risk and community specific risk to arrive at a discount rate appropriate for the level of total risk associated with each community.

In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.

Real estate inventory impairments and land option abandonments are recorded in cost of home sales in the consolidated statements of operations.