Note 21 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

12 Months Ended

Oct. 31, 2014

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

21. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital. Our homebuilding joint ventures are generally entered into with third-party investors to develop land and construct homes that are sold directly to third-party home buyers. Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

	October 31, 2014
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$22,415		$205		$22,620
Inventories	208,620		16,194		224,814
Other assets	11,986		-		11,986
Total assets	$243,021		$16,399		$259,420
Liabilities and equity:
Accounts payable and accrued liabilities	$27,175		$1,039		$28,214
Notes payable	45,506		5,650		51,156
Total liabilities	72,681		6,689		79,370
Equity of:
Hovnanian Enterprises, Inc.	59,106		2,990		62,096
Others	111,234		6,720		117,954
Total equity	170,340		9,710		180,050
Total liabilities and equity	$243,021		$16,399		$259,420
Debt to capitalization ratio	21	%	37	%	22	%

	October 31, 2013
(Dollars in thousands)	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$30,102		$639		$30,741
Inventories	101,735		11,080		112,815
Other assets	6,868		-		6,868
Total assets	$138,705		$11,719		$150,424
Liabilities and equity:
Accounts payable and accrued liabilities	$28,016		$4,047		$32,063
Notes payable	23,904		-		23,904
Total liabilities	51,920		4,047		55,967
Equity of:
Hovnanian Enterprises, Inc.	44,141		2,703		46,844
Others	42,644		4,969		47,613
Total equity	86,785		7,672		94,457
Total liabilities and equity	$138,705		$11,719		$150,424
Debt to capitalization ratio	22	%	0	%	20	%

As of October 31, 2014 and 2013, we had advances outstanding of approximately $1.8 million and $4.6 million, respectively, to these unconsolidated joint ventures, which were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Consolidated Balance Sheets our “Investments in and advances to unconsolidated joint ventures” amounted to $63.9 million and $51.4 million at October 31, 2014 and 2013, respectively.

	For The Twelve Months Ended October 31, 2014
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$173,126		$7,888		$181,014
Cost of sales and expenses	(158,233	)	(7,313	)	(165,546	)
Joint venture net income	$14,893		$575		$15,468
Our share of net income	$7,710		$287		$7,997

	For The Twelve Months Ended October 31, 2013
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$307,993		$14,659		$322,652
Cost of sales and expenses	(276,795	)	(9,396	)	(286,191	)
Joint venture net income	$31,198		$5,263		$36,461
Our share of net income	$9,581		$2,631		$12,212

	For The Twelve Months Ended October 31, 2012
(Dollars in thousands)	Homebuilding		Land Development		Total
Revenues	$323,177		$11,531		$334,708
Cost of sales and expenses	(300,892	)	(9,318	)	(310,210	)
Joint venture net income	$22,285		$2,213		$24,498
Our share of net income	$4,763		$1,108		$5,871

“Income from unconsolidated joint ventures” in the accompanying Consolidated Statements of Operations reflects our proportionate share of the loss or income of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures (discussed below) and the deferral of income for lots purchased by us from certain joint ventures. To compensate us for the administrative services we provide as the manager of certain joint ventures we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled $7.5 million, $13.2 million and $15.2 million for the years ended October 31, 2014, 2013 and 2012, respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Consolidated Statement of Operations.

In determining whether or not we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. The amount of financing is generally targeted to be no more than 50% of the joint venture’s total assets. For our more recent joint ventures, obtaining financing has become challenging, therefore, some of our joint ventures are capitalized only with equity. Including the impact of impairments recorded by the joint ventures, the total debt to capitalization ratio of all our joint ventures is currently 22%. Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing. In some instances, the joint venture entity is considered a VIE under ASC 810-10 “Consolidation – Overall” due to the returns being capped to the equity holders; however, in these instances, we have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.