17.	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.

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 transferred land. In addition, during the

third

quarter of fiscal

2016,

we entered into a new joint venture by transferring

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 transfers. During the

first

quarter of fiscal

2017,

we expanded this joint venture by transferring

one

community we owned and our option to buy

three

communities to the joint venture, resulting in our receiving

$11.2

million of net cash.

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)	January 31, 2017
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$39,100		$446		$39,546
Inventories	594,106		11,199		605,305
Other assets	29,202		-		29,202
Total assets	$662,408		$11,645		$674,053

Liabilities and equity:
Accounts payable and accrued liabilities	$84,920		$943		$85,863
Notes payable	265,561		2,159		267,720
Total liabilities	350,481		3,102		353,583
Equity of:
Hovnanian Enterprises, Inc.	97,074		3,330		100,404
Others	214,853		5,213		220,066
Total equity	311,927		8,543		320,470
Total liabilities and equity	$662,408		$11,645		$674,053
Debt to capitalization ratio	46	%	20	%	46	%

(Dollars in thousands)	October 31, 2016
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$48,542		$1,478		$50,020
Inventories	516,947		11,010		527,957
Other assets	25,865		-		25,865
Total assets	$591,354		$12,488		$603,842

Liabilities and equity:
Accounts payable and accrued liabilities	$72,302		$1,812		$74,114
Notes payable	214,911		2,261		217,172
Total liabilities	287,213		4,073		291,286
Equity of:
Hovnanian Enterprises, Inc.	88,379		3,220		91,599
Others	215,762		5,195		220,957
Total equity	304,141		8,415		312,556
Total liabilities and equity	$591,354		$12,488		$603,842
Debt to capitalization ratio	41	%	21	%	41	%

As of

January

31,

2017

and

October

31,

2016,

we had advances and a note receivable outstanding of

$10.9

million and

$8.9

million, respectively, to these unconsolidated joint ventures. These amounts 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

$111.4

million and

$100.5

million at

January

31,

2017

and

October

31,

2016,

respectively.

	For the Three Months Ended January 31, 2017
(In thousands)	Homebuilding		Land Development		Total

Revenues	$64,937		$1,202		$66,139
Cost of sales and expenses	(67,226	)	(982	)	(68,208	)
Joint venture net (loss) income	$(2,289	)	$220		$(2,069	)
Our share of net (loss) income	$(1,681	)	$110		$(1,571	)

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

Revenues	$20,266		$1,096		$21,362
Cost of sales and expenses	(24,179	)	(1,223	)	(25,402	)
Joint venture net loss	$(3,913	)	$(127	)	$(4,040	)
Our share of net loss	$(1,496	)	$(64	)	$(1,560	)

“(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

$2.2

million and

$0.8

million for the

three

months ended

January

31,

2017

and

2016,

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

46%.

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

“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.