v3.22.2.2
Investment in Joint Venture Arrangements (Notes)
9 Months Ended
Sep. 30, 2022
Schedule of Equity Method Investments [Line Items]  
Equity Method Investments and Joint Venture Arrangements Disclosure [Text Block]
Investment in Joint Venture Arrangements
In order to minimize our investment and risk of land exposure in a single location, we have periodically partnered with other land developers or homebuilders to share in the land investment and development of a property through joint ownership and development agreements, joint ventures, and other similar arrangements. As of September 30, 2022 and December 31, 2021, our investment in such joint venture arrangements totaled $51.7 million and $57.1 million, respectively, and was reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. The $5.4 million decrease during the nine-month period ended September 30, 2022 was driven primarily by lot distributions from our joint venture arrangements of $20.8 million and return of capital from joint venture arrangements of $2.0 million, offset, in part, by our cash contributions to our joint venture arrangements during the first nine months of 2022 of $17.4 million.
The majority of our investment in joint venture arrangements for both September 30, 2022 and December 31, 2021 consisted of joint ownership and development agreements for which a special purpose entity was not established (“JODAs”). In these JODAs, we own the property jointly with partners which are typically other builders, and land development activities are funded jointly until the developed lots are subdivided for separate ownership by the partners in accordance with the JODA and the approved site plan. As of September 30, 2022 and December 31, 2021, the Company had $46.2 million and $50.6 million, respectively, invested in JODAs.
The remainder of our investment in joint venture arrangements was comprised of joint venture arrangements where a special purpose entity was established to own and develop the property. For these joint venture arrangements, we generally enter into limited liability company or similar arrangements (“LLCs”) with the other partners. These entities typically engage in land development activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. As of September 30, 2022 and December 31, 2021, the Company had $5.5 million and $6.5 million, respectively, of equity invested in LLCs. The Company’s percentage of ownership in these LLCs as of both September 30, 2022 and December 31, 2021 ranged from 25% to 50%.
We use the equity method of accounting for investments in LLCs and other joint venture arrangements, including JODAs, over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share of the LLCs’ earnings or loss, if any, is included in our Unaudited Condensed Consolidated Statements of Income. The Company did not have any share of losses from its LLCs for the three months ended September 30, 2022; however, the Company’s share of losses from its LLCs was $0.1 million for the three months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, the Company’s equity in income relating to earnings from its LLCs was less than $0.1 million and $0.1 million, respectively. Our share of the profit relating to lots we purchase from our LLCs is deferred until homes are delivered by us and title passes to a homebuyer.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of September 30, 2022 was the amount invested of $51.7 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 2021 Form 10-K for additional information regarding the Company’s methodology for evaluating entities for consolidation.
Land Option Agreements
In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices.  In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are variable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary, as further described in Note 1, “Summary of
Significant Accounting Policies - Land Option Agreements” in the 2021 Form 10-K. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and liabilities in our Consolidated Inventory Not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both September 30, 2022 and December 31, 2021, we concluded that we were not the primary beneficiary of any VIEs from which we are purchasing land under option or purchase agreements.