REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. As of September 30, 2014, the Company owned and consolidated 141 communities in 10 states plus the District of Columbia totaling 40,477 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2014 and December 31, 2013 (dollars in thousands):



	September 30, 2014			December 31, 2013
Land and land improvements	$	1,955,007		$	1,847,127
Depreciable property — held and used:
Building, improvements, and furniture, fixtures and equipment	6,151,677			5,876,717
Under development:
Land and land improvements	47,038			110,769
Building, improvements, and furniture, fixtures and equipment	274,569			356,644
Real estate held for disposition:
Land and land improvements	—			10,751
Building, improvements, and furniture, fixtures and equipment	—			5,969
Real estate owned	8,428,291			8,207,977
Accumulated depreciation	(2,379,033		)	(2,208,794		)
Real estate owned, net	$	6,049,258		$	5,999,183

During the nine months ended September 30, 2014, the Company sold six communities with a total of 1,904 apartment homes, an adjacent parcel of land, and one operating property for gross proceeds of $237.7 million, resulting in net proceeds of $233.9 million and a total gain (net of tax) of $82.4 million. A portion of the sale proceeds was designated for tax-deferred exchanges under Section 1031 of the Internal Revenue Code and was used to fund acquisitions of real estate as discussed below. Gains (net of tax) of $82.3 million are included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations. The remaining gains (net of tax) of $0.1 million related to the sale of one operating property, which was classified as held for disposition prior to the Company’s adoption of ASU 2014-08 (as described in Note 2, Significant Accounting Policies and Note 4, Discontinued Operations), and, therefore, was included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations.

In January 2014, the Company acquired a fully-entitled land parcel for future development located in Huntington Beach, California for $77.8 million. In the third quarter of 2014, the Company acquired two communities, located in Seattle, Washington and Kirkland, Washington, with a total of 358 apartment homes for $45.5 million and $75.2 million, respectively. The three acquisitions during the nine months ended September 30, 2014 were accomplished through tax-deferred exchanges under Section 1031 of the Internal Revenue Code.

There were no sales during the nine months ended September 30, 2013.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, were $1.7 million and $7.2 million for the three and nine months ended September 30, 2014, respectively, and $2.4 million and $8.5 million for the three and nine months ended September 30, 2013, respectively. Total interest capitalized was $5.2 million and $15.4 million for the three and nine months ended September 30, 2014, respectively, and $6.6 million and $23.2 million for the three and nine months ended September 30, 2013, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.

In October 2012, Hurricane Sandy hit the East Coast, affecting three of the Company’s operating communities located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Company had insurance policies that provided coverage for property damage and business interruption, subject to applicable retentions.

During the three and nine months ended September 30, 2013, the Company recorded $6.5 million and $12.3 million, respectively, of insurance recoveries related to the business interruption and other losses associated with Hurricane Sandy. In 2014, the Company recorded a $500,000 casualty-related loss for one property damaged during an earthquake in California. These recoveries/charges are included in Casualty-related (recoveries)/charges, net on the Consolidated Statements of Operations.