18.	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.

In November 2015, the Company entered into a new joint venture to which the company contributed a land parcel that had been mothballed by the company, but on which construction by the joint venture has now begun. Upon formation of the joint venture, the Company received $25.7 million of cash proceeds for the contributed land. In addition, during the third quarter of 2016, we entered into a new joint venture by contributing eight communities we owned and our option to buy one community to the joint venture. As a result of the formation of the joint venture, the Company received $29.8 million of cash in return for the land and option contributions

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.

(Dollars in thousands)	July 31, 2016
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$39,129		$860		$39,989
Inventories	504,730		12,299		517,029
Other assets	24,832		-		24,832
Total assets	$568,691		$13,159		$581,850

Liabilities and equity:
Accounts payable and accrued liabilities	$50,686		$1,222		$51,908
Notes payable	209,868		2,864		212,732
Total liabilities	260,554		4,086		264,640
Equity of:
Hovnanian Enterprises, Inc.	80,747		3,309		84,056
Others	227,390		5,764		233,154
Total equity	308,137		9,073		317,210
Total liabilities and equity	$568,691		$13,159		$581,850
Debt to capitalization ratio	41	%	24	%	40	%

(Dollars in thousands)	October 31, 2015
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$27,856		$1,755		$29,611
Inventories	314,814		11,767		326,581
Other assets	11,225		-		11,225
Total assets	$353,895		$13,522		$367,417

Liabilities and equity:
Accounts payable and accrued liabilities	$29,994		$669		$30,663
Notes payable	112,554		3,774		116,328
Total liabilities	142,548		4,443		146,991
Equity of:
Hovnanian Enterprises, Inc.	57,336		3,122		60,458
Others	154,011		5,957		159,968
Total equity	211,347		9,079		220,426
Total liabilities and equity	$353,895		$13,522		$367,417
Debt to capitalization ratio	35	%	29	%	35	%

As of July 31, 2016 and October 31, 2015, we had advances outstanding of $0.9 million and $0.8 million, respectively, to these unconsolidated joint ventures, which were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to $88.0 million and $61.2 million at July 31, 2016 and October 31, 2015, respectively.

	For the Three Months Ended July 31, 2016
(In thousands)	Homebuilding		Land Development		Total

Revenues	$31,145		$1,219		$32,364
Cost of sales and expenses	(37,245	)	(1,143	)	(38,388	)
Joint venture net (loss) income	$(6,100	)	$76		$(6,024	)
Our share of net (loss) income	$(2,418	)	$38		$(2,380	)

	For the Three Months Ended July 31, 2015
(In thousands)	Homebuilding		Land Development		Total

Revenues	$27,459		$1,394		$28,853
Cost of sales and expenses	(29,705	)	(1,296	)	(31,001	)
Joint venture net (loss) income	$(2,246	)	$98		$(2,148	)
Our share of net (loss) income	$(488	)	$49		$(439	)

	For the Nine Months Ended July, 2016
(In thousands)	Homebuilding		Land Development		Total

Revenues	$77,171		$2,836		$80,007
Cost of sales and expenses	(92,904	)	(2,462	)	(95,366	)
Joint venture net (loss) income	$(15,733	)	$374		$(15,359	)
Our share of net (loss) income	$(5,267	)	$187		$(5,080	)

	For the Nine Months Ended July 31, 2015
(In thousands)	Homebuilding		Land Development		Total

Revenues	$91,300		$4,009		$95,309
Cost of sales and expenses	(53,821	)	(4,103	)	(57,924	)
Joint venture net income (loss)	$37,479		$(94	)	$37,385
Our share of net income (loss)	$728		$(47	)	$681

“(Loss) income from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss 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 Condensed Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures 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 $1.2 million for both the three months ended July 31, 2016 and 2015, and $3.1 million and $3.6 million for the nine months ended July 31, 2016 and 2015, respectively, are recorded in “Homebuilding: Selling, general and administrative” on the Condensed 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 some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. The total debt to capitalization ratio of all our joint ventures is currently 40%. 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.