Initial commitment for mezzanine loan

[Table of](#ia143979d54ef4089bc700f871e6b0e92_7) [Contents](#ia143979d54ef4089bc700f871e6b0e92_7)Company used third party pricing or internal models for the value of the land, a valuation model for the value of the building, and an internal model to determine the fair value of the remaining real estate assets and in-place leases. Given the heterogeneous nature of multifamily real estate, the fair values for the land, debt, real estate assets and in-place leases incorporated significant unobservable inputs and therefore are considered to be Level 3 prices within the fair value hierarchy.  
Structured Investment Program  
In April 2022, the Company established its Structured Investment Program (the “SIP”), a new investment platform through which the Company provides mezzanine loans or preferred equity to third-party multifamily developers. During the three months ended June 30, 2022, the Company entered into the first commitments under the SIP. The initial commitments are for two mezzanine loans of up to $79,575,000, in the aggregate, to fund multifamily development projects in Denver, CO, and Pleasant Hill, CA. At June 30, 2022, the Company had funded $6,055,000 of these commitments.  
The Company evaluates each commitment under the SIP to determine the classification as a loan or an investment in a real estate development project. As of June 30, 2022, all of the commitments under the SIP are classified as loans. The Company includes amounts outstanding under the SIP as a component of prepaid expenses and other assets on the accompanying Condensed Consolidated Balance Sheets. The Company evaluates the credit risk for each loan on an ongoing basis, estimating the reserve for credit losses using relevant available information from internal and external sources. Market-based historical credit loss data provides the basis for the estimation of expected credit losses, with adjustments, if necessary, for differences in current loan-specific risk characteristics, such as the amount of equity capital provided by a borrower, nature of the real estate being developed or other factors.  
For the two existing loans, interest is recognized as earned over the life as interest income, included as a component of interest expense, net, on the accompanying Condensed Consolidated Statements of Comprehensive Income.  
Expensed Transaction, Development and Other Pursuit Costs  
The Company capitalizes pre-development costs incurred in pursuit of new development opportunities when future development is probable ("Development Rights"). Future development of these Development Rights is dependent upon various factors, including zoning and regulatory approval, rental market conditions, construction costs and the availability of capital. Costs incurred for pursuits for which future development is not yet considered probable are expensed as incurred. In addition, if the status of a Development Right changes, making future development by the Company no longer probable, any non-recoverable capitalized pre-development costs are expensed. The Company expensed $2,364,000 and $1,653,000 for the three months ended June 30, 2022 and 2021, respectively, and $3,351,000 and $1,483,000 for the six months ended June 30, 2022 and 2021, respectively, for costs related to development pursuits not yet considered probable for development and the abandonment of Development Rights, as well as costs incurred in pursuing the acquisition or disposition of assets for which such acquisition and disposition activity did not occur. These costs are included in expensed transaction, development and other pursuit costs, net of recoveries on the accompanying Condensed Consolidated Statements of Comprehensive Income. These costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.  
Casualty and Impairment of Long-Lived Assets  
The Company evaluates its real estate and other long-lived assets for impairment when potential indicators of impairment exist. Such assets are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of an asset may not be recoverable, the Company assesses its recoverability by comparing the carrying amount of the asset to its estimated undiscounted future cash flows. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Company recognizes an impairment loss to the extent the carrying amount exceeds the estimated fair value of the asset. Based on periodic tests of recoverability of long-lived assets, the Company did not recognize any impairment losses for the three and six months ended June 30, 2022 and 2021. During the three and six months ended June 30, 2021, the Company recognized a casualty loss of $1,177,000 for the property and casualty damages resulting from a fire at a wholly-owned community, reported as casualty and impairment loss on the accompanying Condensed Consolidated Statements of Comprehensive Income.  
The Company evaluates its for-sale condominium inventory for potential indicators of impairment, considering whether the fair value of the individual for-sale condominium units exceeds the carrying value of those units. For-sale condominium inventory is stated at the lower of cost or fair value. The Company determines the fair value of its for-sale condominium inventory as the estimated sales price less direct costs to sell. For the three and six months ended June 30, 2022 and 2021, the Company did not recognize any impairment losses on its for-sale condominium inventory.  
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