8. Investments in and Advances to Unconsolidated Real Estate Joint Ventures

As of December 31, 2022, the Company had equity interests in and advances to unconsolidated real estate joint ventures involved in the development of multifamily rental apartment communities, as well as single-family master planned for sale housing communities. In addition, the Company owned a 50% equity interest in the Altman Companies, a developer and manager of multifamily apartment communities.

Investments in unconsolidated real estate joint ventures are accounted for as unconsolidated VIEs under the equity method of accounting.

Investments in and advances to unconsolidated real estate joint ventures consisted of the following (in thousands):

Unconsolidated Variable Interest Entities

In accordance with the applicable accounting guidance for the consolidation of VIEs, the Company analyzes its investments in real estate joint ventures to determine if such entities are VIEs, and to the extent that such entities are VIEs, if the Company is the primary beneficiary. Based on the Company’s analysis of the forecasted cash flows and structure of these ventures, including the respective operating agreements governing these entities and any relevant financial agreements, such as financing arrangements, the Company has determined that its real estate joint ventures are VIEs in which the Company is not the primary beneficiary, and therefore, the Company accounts for its investments in the real estate joint ventures under the equity method of accounting. The Company’s conclusion that it is not the primary beneficiary of these entities is primarily based on the determination that the Company does not have the power to direct activities of the entities that most significantly affect their economic performance. In certain joint ventures, the Company is not the operating manager and has limited protective rights under the operating agreements, while in other joint ventures, the investors share decision-making authority in a manner that prevents any individual investor from exercising control over such entities.

The Company’s maximum exposure to loss in its unconsolidated real estate joint ventures was $49.4 million as of December 31, 2022.

Basis Differences

The aggregate difference between the Company’s investments in unconsolidated real estate joint ventures and its underlying equity in the net assets of such ventures was $2.0 million and $2.5 million as of December 31, 2022 and 2021, respectively, which includes (i) $2.3 million associated with the Company’s investment in the Altman Companies for both periods presented and (ii) $0.8 million and $1.2 million associated with the capitalization of interest on real estate development projects for the respective periods, partially offset by (iii) $1.0 million of impairments for both periods presented, as described below.

Equity in Net Earnings and Distributions of Certain Unconsolidated Real Estate Joint Ventures

For the years ended December 31, 2022, 2021, and 2020, the Company’s equity in net earnings of unconsolidated real estate joint ventures was $38.4 million, $18.2 million, and $0.5 million, respectively.

Equity earnings for the year ended December 31, 2022 includes (i) $8.7 million and $14.0 million of equity earnings from the Altis Little Havana and Altis Miramar East/West joint ventures, respectively, which includes BBXRE’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities and (ii) $12.6 million of equity earnings from the Marbella joint venture, which includes BBXRE’s share of net income from the sale of single family homes by the venture. Equity earnings for the year ended December 31, 2022 also includes a net gain of $7.3 million recognized upon BBXRE’s sale of its equity interest in the Bayview joint venture to its joint venture partner. 

Equity earnings for the year ended December 31, 2021 includes (i) $5.2 million and $5.0 million of equity earnings from the Altis Promenade and Altis Grand at Preserve joint ventures, respectively, which includes BBXRE’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities and (ii) $6.2 million of equity earnings from the Altis Grand Central joint venture, which reflects the recapitalization of its ownership interest in its multifamily apartment community.

Equity earnings for the year ended  December 31, 2020 includes $1.1 million and $0.8 million of equity earnings from the Altis Boca Raton and Altis Wiregrass joint ventures, respectively, which includes BBXRE’s share of gains recognized by the ventures upon the sale of their respective multifamily apartment communities.

Altis Ludlam Trail Joint Venture

As of December 31, 2019, BBXRE had invested $1.1 million in the Altis Ludlam Trail joint venture to acquire land, obtain entitlements, and fund predevelopment costs for a potential multifamily apartment development in Miami, Florida. In June 2020, the joint venture obtained entitlements, closed on development financing, and commenced development of a 312 unit multifamily apartment community with 7,500 square feet of retail space. In connection with the closing, BBXRE received a $0.5 million distribution from the joint venture as a reimbursement of predevelopment costs and invested an additional $8.5 million in the joint venture as preferred equity. Pursuant to the applicable operating agreement for the Altis Ludlam Trail joint venture, distributions from the joint venture are required to be paid to BBXRE on account of its preferred equity interest until it receives its $8.5 million investment and a preferred return of 11.9% per annum (subject to a minimum payment of $11.9 million). Following such payment, all remaining distributions will be paid to the other members, including the managing member in which BBXRE holds an interest. Further, BBXRE’s preferred interest is required to be redeemed by the joint venture for a cash amount equal to its preferred return and initial investment in December 2023, although the joint venture has the option to extend the redemption for three one-year periods, subject to certain conditions. As BBXRE’s preferred membership interest in the joint venture is mandatorily redeemable, the Company is accounting for its preferred interest in the joint venture as a loan receivable from the Altis Ludlam Trail joint venture, while the Company’s remaining investment in the managing member of the joint venture is being accounted for under the equity method of accounting. BBXRE’s preferred interest, including the preferred return, in the joint venture was $11.6 million and $10.3 million as of December 31, 2022 and 2021, respectively.

The Altman Companies, LLC

In November 2018, BBXRE acquired a 50% equity interest in the Altman Companies, a joint venture between BBXRE and Joel Altman engaged in the development, construction, and management of multifamily apartment communities, for cash consideration of $14.6 million, including $2.3 million in transaction costs.

The Altman Companies owns 100% of the membership interests in Altman Development Company and Altman Management Company and 60% of the membership interests in Altman-Glenewinkel Construction and generates revenues from the performance of development, general contractor, leasing, and property management services to joint ventures that are formed to invest in development projects originated by the Altman Companies. Further, pursuant to the operating agreement between BBXRE and Mr. Altman, the parties invested in the managing member of such joint ventures based on their relative ownership percentages in the Altman Companies. Under the terms of the operating agreement between BBXRE and Mr. Altman, the venture was being jointly managed by BBXRE and Mr. Altman, with the partners sharing decision making authority for all significant operating and financing decisions. To the extent that the parties could not reach consensus on a matter, the operating agreement generally provided that a third party will resolve such matter; however, for certain decisions, the operating agreement provided that the venture could not proceed with such matters without approval from both parties.

From November 2018 through January 2023, the Company accounted for its investment in the Altman Companies under the equity method of accounting. However, on the Acquisition Date, BBXRE acquired the remaining equity interests in the Altman Companies, and as a result, the Company will consolidate the Altman Companies in its consolidated financial statements as of and subsequent to the Acquisition Date. See Note 3 for additional information related to the consolidation of the Altman Companies.

BBXRE and Mr. Altman have also each contributed $4.8 million to ABBX Guaranty, LLC ("ABBX"), a joint venture established to provide guarantees on the indebtedness and construction cost overruns of new real estate joint ventures formed by the Altman Companies. Under the terms of the operating agreement of ABBX, BBXRE and Mr. Altman will retain their respective 50% equity interests in the joint venture until such time that the joint venture is no longer providing guarantees related to development joint ventures originated prior to the Acquisition Date. At such time that ABBX is no longer providing guarantees related to such development joint ventures, BBXRE will generally acquire Mr. Altman’s equity interest in ABBX based on his then outstanding capital in ABBX.

Impairment Testing

As described in Note 2, the Company evaluates its equity method investments for impairment when events or changes in circumstances indicate that the fair values of the investments may be below the carrying values. When a decline in the fair value of an investment is determined to be other-than-temporary, an impairment loss is recorded to reduce the carrying amount of the investment to its fair value. The Company’s determination of whether an other-than-temporary impairment has occurred requires significant judgment in which the Company evaluates, among other factors, the fair value of an investment, general market conditions, the duration and extent to which the fair value of an investment is less than cost, and the Company’s intent and ability to hold an investment until it recovers. The Company also considers specific adverse conditions related to the financial health and business outlook of the investee, including industry and market performance and expected future operating and financing cash flows.

During the years ended December 31, 2022, 2021 and 2020, as a result of economic and market conditions, including disruptions and uncertainty in the U.S. and global economies that arose in 2020 as a result of, among other things, the COVID-19 pandemic and disruptions in global supply chains, as well as the more recent inflationary environment and rising interest rates, the Company evaluated various factors, including asset-specific factors, overall economic and market conditions, and the excess of the expected profits associated with BBXRE’s real estate assets in relation to their carrying amounts, and concluded that, except as discussed below, there had not been a significant decline in the fair value of most of BBXRE’s real estate assets, including its investments in unconsolidated real estate joint ventures, that should be recognized as an impairment loss. As part of this evaluation, the Company considered, among other things, sales at its single-family home developments and sales of its multifamily apartment communities. Further, as a result of the impact of market conditions on the Altman Companies’ pipeline of prospective development projects in December 2022, the Company estimated the fair value of its investment in the Altman Companies utilizing a discounted cash flow methodology which estimated the present value of the projected future cash flows expected to be generated by the Altman Companies, including the generation of development, management, and general contractor fees and profits from investments in the managing member of prospective development projects. As a result of this analysis, the Company determined that the estimated fair value of its investment in the Altman Companies was greater than the carrying amount of its investment as of  December 31, 2022.

During the year ended December 31, 2020, the Company recognized $2.2 million of impairment losses related to a decline in the estimated fair values of certain of BBXRE’s investments in unconsolidated real estate joint ventures, including (i) a joint venture that was developing an office tower, as the market for commercial office space during the year ended December 31, 2020 had been more significantly impacted by the COVID-19 pandemic compared to the single-family and multifamily markets in which BBXRE primarily invests, and (ii) a joint venture invested in a multifamily apartment community in which BBXRE purchased its interest following the stabilization of the underlying asset at a purchase price calculated based on assumptions related to the timing and pricing of the sale of the asset, both of which were adversely impacted by the COVID-19 pandemic. The Company estimated the fair value of these investments utilizing a discounted cash flow methodology which estimated the present value of the projected future cash flows expected to be generated from such investments. During the years ended December 31, 2022 and 2021, the Company did not record any impairment charges related to its equity method investments.

Summarized Financial Information of Certain Unconsolidated Real Estate Joint Ventures

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altman Companies joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Marbella joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Little Havana joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Miramar East/West joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Promenade joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Grand Central joint venture (in thousands):

The tables below set forth financial information, including condensed statements of financial condition and operations, related to the Altis Grand at the Preserve joint venture (in thousands):