Real Estate Development

9 Months Ended

Jul. 31, 2022

Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands):


	July 31, 2022		October 31, 2021

East Area I - Retained Property	$	13,633	$	13,335
East Area II	9,598		9,493

	$	23,231	$	22,828

5. Real Estate Development (continued)

East Area I, Retained Property and East Area II

In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. In November 2015 (the “Transaction Date”), the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (“LLCB”) as the development entity, contributed its East Area I property to LLCB and sold a 50% interest in LLCB to Lewis for $20,000,000.

The Company and LLCB also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, LLCB transferred certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. The balance in Retained Property and East Area II includes estimated costs incurred by and reimbursable to LLCB of $5,771,000 at July 31, 2022 and October 31, 2021, which is included in payables to related parties.

In January 2018, LLCB entered into a $45,000,000 unsecured Line of Credit Loan Agreement and Promissory Note (the “Loan”) with Bank of America, N.A. to fund early development activities. The Loan, as modified and extended, matures February 22, 2023. The interest rate on the Loan is LIBOR plus 2.85% and is payable monthly. The Loan contains certain customary default provisions and LLCB may prepay any amounts outstanding under the Loan without penalty. The Loan had an outstanding balance of $2,500,000 as of July 31, 2022. The Loan has a one year extension option through February 22, 2024 subject to terms and conditions as defined in the Loan agreement, with the maximum borrowing amount reduced to $35,000,000 during the extension period.

In February 2018, the Company and certain principals from Lewis guaranteed the obligations under the Loan. The guarantors are jointly and severally liable for all Loan obligations in the event of default by LLCB. The guarantee continues in effect until all of the Loan obligations are fully paid. The $1,080,000 estimated value of the guarantee was recorded in the Company’s consolidated balance sheets and is included in other long-term liabilities with a corresponding value in equity in investments. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company, which provides for unpaid liabilities of LLCB to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in LLCB.

Through July 31, 2022, LLCB has closed sales of initial residential lots representing 586 residential units.

In September 2022, the Company entered into an agreement with LLCB to sell its East Area 1 - Retained Property to potentially develop additional residential units. The Company expects to close the transaction in the fourth quarter of fiscal year 2022, receive approximately $8,000,000 in cash proceeds and record an estimated gain of approximately $4,700,000.

Other Real Estate Development Projects

In fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $2,700,000, which is expected to close in calendar year 2022. After transaction and other costs, the Company expects to receive cash proceeds of approximately $2,670,000. During the third quarter of fiscal year 2022, the Company incurred additional costs to prepare the asset for sale, of which $127,000 were capitalized and $153,000 were recorded in loss on disposal of assets. The carrying value of the property at July 31, 2022 and October 31, 2021, was $2,670,000 and $2,543,000, respectively, and classified as held for sale and included in prepaid expenses and other current assets.

In December 2017, the Company sold its Centennial property with a net book value of $2,983,000 for $3,250,000. The Company received cash and a $3,000,000 promissory note secured by the property for the balance of the purchase. The promissory note was originally scheduled to mature in December 2019, but was periodically extended with principal payments totaling $400,000 received through October 31, 2021. In November 2021, the promissory note was further extended to June 30, 2022 upon making a principal paydown of $250,000, which was paid in November 2021, and revising the interest rate to 4.00% per annum. In April 2022, the $2,350,000 net carrying value of the promissory note was paid in full and the deferred gain of $161,000 was recognized in the second quarter of fiscal year 2022.