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 June 30, 2015, the Company owned and consolidated 136 communities in 10 states plus the District of Columbia totaling 39,404 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of June 30, 2015 and December 31, 2014 (dollars in thousands):



	June 30, 2015			December 31, 2014
Land and land improvements	$	1,919,597		$	1,980,221
Depreciable property — held and used:
Building, improvements, and furniture, fixtures and equipment	6,413,037			6,225,406
Under development:
Land and land improvements	78,085			24,584
Building, improvements, and furniture, fixtures and equipment	14,560			153,048
Real estate owned	8,425,279			8,383,259
Accumulated depreciation	(2,557,949		)	(2,434,772		)
Real estate owned, net	$	5,867,330		$	5,948,487

In February 2015, the Company acquired an office building in Highlands Ranch, Colorado, for total consideration of approximately $24.0 million, which was comprised of assumed debt. The Company's corporate offices, as well as other leased office space, are located in the acquired building. The building consists of approximately 120,000 square feet, of which UDR occupies approximately 44,000 square feet. All existing leases were assumed by the Company at the time of acquisition.

During the six months ended June 30, 2015, the Company sold three communities with a total of 812 apartment homes for gross proceeds of $109.9 million, resulting in net proceeds of $90.5 million and a total gain, net of tax, of $79.0 million. A portion of the sale proceeds were designated as a tax-deferred exchange related to a 2014 acquisition under Section 1031 of the Internal Revenue Code.

In June 2015, the Company and the Operating Partnership entered into a definitive agreement with an affiliate of Lone Star Funds (“Lone Star”) and Home Properties, L.P. (“Home”) to acquire up to six communities valued at $908.0 million in exchange for a combination of partnership units of a newly formed operating partnership ("UDR DownREIT Units"), cash and the assumption of debt.

The agreement provides that each Home unitholder will have the option to elect to receive cash from Lone Star, UDR DownREIT Units, or a combination of cash and UDR DownREIT Units. The number of UDR DownREIT Units and the amount of cash will be determined at the closing of the consent solicitation of the Home unitholders, which we anticipate to be completed by mid-August, 2015. If all Home unitholders elect to receive UDR DownREIT Units, the transaction would be funded through the issuance of approximately $753.0 million of UDR DownREIT Units at $35 per unit, the assumption of $90.0 million of debt and $65.0 million in cash, inclusive of transfer taxes and loan assumption fees. Based upon the level of Home unitholders electing to receive UDR DownREIT Units, UDR will have the option to either acquire less than six properties or to acquire some of the properties through a Section 1031 exchange pursuant to the Internal Revenue Code. The closing of the transaction is subject to certain customary closing conditions, including, among others, the satisfaction (or waiver) of certain closing conditions to the merger between Lone Star and Home, and is anticipated to occur during the fourth quarter of 2015.

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 $1.6 million and $2.1 million for the three months ended June 30, 2015 and 2014, respectively, and $3.8 million and $5.5 million for the six months ended June 30, 2015 and 2014, respectively. Total interest capitalized was $3.8 million and $4.9 million for the three months ended June 30, 2015 and 2014, respectively, and $8.6 million and $10.2 million for the six months ended June 30, 2015 and 2014, 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.