Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our audited consolidated financial statements and accompanying notes included elsewhere in this Report.

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contained herein may include opinions formed based upon general observations, anecdotal evidence and industry experience, but that are not supported by specific investigation or analysis. These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements in this annual report include statements regarding: our belief that the housing market is continuing its slow and steady recovery, and the drivers behind such recovery; our expectation that demand will continue to build and come to the market over the next few years and that it should drive increased production; our expectation that we will see lower margins in 2017 compared to 2016; our expectation that we plan to continue to identify and invest in land opportunities that we expect will drive our future growth and profitability; our belief that our main driver of earnings will continue to be our Homebuilding and Lennar Financial Services operations; our belief that we are currently positioned to deliver between 28,500 and 29,000 homes in fiscal 2017; our expectation regarding the Lennar Multifamily segment’s development pipeline, and plans regarding the Multifamily Venture; our expectation regarding variability in our quarterly results; our expectations regarding the renewal or replacement of our warehouse facilities; our belief regarding draws upon our bonds or letters of credit, and our belief regarding the impact to the Company if there were such a draw; our expectation that substantially all homes currently in backlog will be delivered in fiscal year 2017; our belief that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity; our belief regarding legal proceedings in which we are involved, and, in particular, our belief that the Court’s decision in the Settlers Crossing case is contrary to applicable law; our expectations regarding the WCI Communities, Inc. ("WCI") transaction, including our expectation that a meeting of the WCI stockholders to vote on the transaction will be held in February 2017, and, if the transaction is approved by the WCI stockholders, will close promptly after the stockholders vote; and our estimates regarding certain tax and accounting matters, including our expectations regarding the result of anticipated settlements with various taxing authorities and our expectations regarding the energy efficient home and solar energy property tax credits.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: our ability to acquire land and pursue real estate opportunities at anticipated prices; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance, and our ability to manage our cost structure, both in our Homebuilding and Lennar Multifamily businesses; unfavorable outcomes in legal proceedings that substantially exceed our expectations, including an unfavorable outcome in the Settlers Crossing case; with respect to the WCI transaction, that WCI terminates the Merger Agreement to accept what its Board deems to be a superior proposal or that the WCI transaction is not approved by WCI’s stockholders; a slowdown in the recovery of real estate markets across the nation, or any downturn in such markets; changes in general economic and financial conditions, and demographic trends, in the U.S. leading to decreased demand for our services and homes, lower profit margins and reduced access to credit; the possibility that we will incur nonrecurring costs that may not have a material adverse effect on our business or financial condition, but may have a material adverse effect on our condensed consolidated financial statements for a particular reporting period; decreased demand for our Lennar Multifamily rental properties, and our ability to successfully sell our rental properties; the ability of our Lennar Financial Services segment to maintain or increase its capture rate and benefit from Lennar home deliveries; our ability to successfully execute our strategies, including strategies related to our soft-pivot and reinvigorating technologies in our business; increased competition for home sales from other sellers of new and resale homes; conditions in the capital, credit and financial markets, including mortgage lending standards, the availability of mortgage financing and mortgage foreclosure rates; changes in interest and unemployment rates, and inflation; a decline in the value of the land and home inventories we maintain or possible future write-downs of the carrying value of our real estate assets; our ability to successfully develop multifamily assets in the Multifamily Venture; our inability to maintain anticipated pricing levels and our inability to predict the effect of interest rates on demand; the ability and willingness of the participants in various joint ventures to honor their commitments; our ability to successfully and timely obtain land-use entitlements and construction financing, and address issues that arise in connection with the use and development of our land; natural disasters and other unforeseen damage for which our insurance may not provide adequate coverage; our inability to successfully grow our ancillary businesses; the inability of Rialto to sell mortgages it originates into securitizations on favorable terms; potential liability under environmental

or construction laws, or other laws or regulations affecting our business; regulatory changes that adversely affect the profitability of our businesses; our ability to comply with the terms of our debt instruments, our ability to refinance our debt on terms that are acceptable to us; and our ability to successfully estimate the impact of certain regulatory, accounting and tax matters, including whether we will continue to benefit from the energy efficient home and solar energy property tax credits.

Please see "Item 1A-Risk Factors" of this Annual Report for a further discussion of these and other risks and uncertainties which could affect our future results. We undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.

Outlook

As we look ahead to 2017, we expect to see a similar economic environment as in 2016 with some potential upside from the new administration in Washington. These expectations derive from the following general views. Even with the now clear upward movement in interest rates mapped out by the Federal Reserve and the many questions around taxes and the regulatory environment raised by our incoming new President, we expect to see a continued slow but steady, though sometimes erratic, positive homebuilding market. Lower unemployment, modest wage growth and consumer confidence should increase household formation, which drives families to purchase homes and to rent apartments. We believe the new home market continues to have significant pent-up demand, though stronger in some markets than in others, and we expect that demand will continue to drive increased production as the deficit in the housing stock ultimately needs to be replenished. We expect the first time homebuyer will continue to come back to the market as stronger economic conditions should drive purchasers to the market, with this demand being partially offset by marginally higher monthly payments. Nevertheless, land and labor shortages will continue to be limiting factors and will constrain supply and restrict the ability to quickly respond to growing demand, while the mortgage market and higher rents will continue to limit that demand due to potential homebuyers having less disposable income and limited ability to finance a new home purchase. We expect that these conditions will continue to result in slow but steady, though sometimes erratic growth throughout the industry.

Fiscal 2016 was another excellent year for Lennar, with revenues and net earnings attributable to Lennar increasing 16% and 14%, respectively, from 2015. Our core homebuilding business continued to produce strong operating results as gross margins and operating margins were 23.0% and 13.6%, respectively. Our home deliveries and new orders both increased 9% compared to fiscal 2015. Our efficient Everything’s Included® manufacturing model helped mitigate the impact of a tight labor market and our focus on digital marketing and higher volume helped to improve our S,G&A leverage. In addition, we ended the year with a strong sales backlog, up 15% in homes and 17% in dollar value, which gives us a strong start for fiscal 2017.

Complementing our homebuilding business, we also had strong performances from our other businesses during fiscal 2016. Our Financial Services segment produced $163.6 million of pretax earnings compared to $127.8 million in 2015. The increase in profitability was primarily due to increased transactions and higher profit per transaction in the segment's mortgage and title operations.

Our Multifamily rental business continued to grow during fiscal 2016, as it sold seven completed rental properties.

In fiscal 2017, our principal focus in our homebuilding operations will continue to be 1) on our soft-pivot strategy, we plan to continue to identify and invest in unique and enticing land opportunities with shorter term land that we expect will drive our future growth and profitability; 2) lower targeted growth rate to maximize our net operating margin though we expect to continue to see lower margins in 2017 compared to 2016 due to cost increases outpacing sales price increases and competitive pressures; and 3) heavy focus on SG&A by using innovative strategies to reduce customer acquisition costs.

We expect that our Company’s main driver of earnings will continue to be our homebuilding and financial services operations as we believe we are currently positioned to deliver between 28,500 and 29,000 homes in fiscal 2017. We are also focused on our multiple platforms including Rialto and Multifamily, as such ancillary businesses continue to mature and expand their franchises providing opportunities that we expect will enhance shareholder value. Overall, we believe we are on track to achieve another year of substantial profitability in fiscal 2017.

Results of Operations

Overview

Our net earnings attributable to Lennar were $911.8 million, or $3.93 per diluted share ($4.13 per basic share) in 2016, $802.9 million, or $3.46 per diluted share ($3.87 per basic share) in 2015, and $638.9 million, or $2.80 per diluted share ($3.12 per basic share) in 2014.

The following table sets forth financial and operational information for the years indicated related to our operations.

	Years Ended November 30,
(Dollars in thousands)	2016				2015			2014
Lennar Homebuilding revenues:
Sales of homes	$	9,558,517			8,335,904			6,839,642
Sales of land	182,820				131,041			185,488
Total Lennar Homebuilding revenues	9,741,337				8,466,945			7,025,130
Lennar Homebuilding costs and expenses:
Costs of homes sold	7,362,853				6,332,850			5,103,409
Costs of land sold	138,111				100,939			143,797
Selling, general and administrative	898,917				831,050			714,823
Total Lennar Homebuilding costs and expenses	8,399,881				7,264,839			5,962,029
Lennar Homebuilding operating margins	1,341,456				1,202,106			1,063,101
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities	(49,275		)		63,373			(355	)
Lennar Homebuilding other income, net	57,377				18,616			7,526
Other interest expense	(4,626		)		(12,454	)		(36,551	)
Lennar Homebuilding operating earnings	$	1,344,932			1,271,641			1,033,721
Lennar Financial Services revenues	$	687,255			620,527			454,381
Lennar Financial Services costs and expenses	523,638				492,732			374,243
Lennar Financial Services operating earnings	$	163,617			127,795			80,138
Rialto revenues	$	233,966			221,923			230,521
Rialto costs and expenses	229,769				222,875			249,114
Rialto equity in earnings from unconsolidated entities	18,961				22,293			59,277
Rialto other income (expense), net	(39,850		)		12,254			3,395
Rialto operating earnings (loss)	$	(16,692	)		33,595			44,079
Lennar Multifamily revenues	287,441				164,613			69,780
Lennar Multifamily costs and expenses	301,786				191,302			95,227
Lennar Multifamily equity in earnings from unconsolidated entities	85,519				19,518			14,454
Lennar Multifamily operating earnings (loss)	$	71,174			(7,171	)		(10,993	)
Total operating earnings	$	1,563,031			1,425,860			1,146,945
Corporate general and administrative expenses	232,562				216,244			177,161
Earnings before income taxes	$	1,330,469			1,209,616			969,784
Net earnings attributable to Lennar	$	911,844			802,894			638,916
Gross margin as a % of revenue from home sales	23.0		%		24.0	%		25.4	%
S,G&A expenses as a % of revenues from home sales	9.4		%		10.0	%		10.5	%
Operating margin as a % of revenues from home sales	13.6		%		14.1	%		14.9	%
Average sales price	$	361,000			344,000			326,000

2016 versus 2015

Revenues from home sales increased 15% in the year ended November 30, 2016 to $9.6 billion from $8.3 billion in 2015. Revenues were higher primarily due to a 9% increase in the number of home deliveries, excluding unconsolidated entities, and a 5% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 26,481 homes in the year ended November 30, 2016 from 24,209 homes last year. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other. This includes an increase in home deliveries in Homebuilding Central despite a slight decrease in home deliveries in our former Homebuilding Houston segment, which is now aggregated into our Homebuilding Central segment as it no longer meets the reportable segment criteria. The increase in the number of deliveries was primarily driven by an increase in active communities over the last year and by higher demand as the number of deliveries per active community increased. The decrease in home deliveries in Houston was primarily due to less demand in the higher-priced communities driven by volatility in the energy sector. The average sales price of homes delivered increased to $361,000 in the year ended November 30, 2016 from $344,000 in the year ended November 30, 2015, primarily due to product mix (selling at different price points) and increased pricing in certain of our markets due to favorable market conditions. Sales incentives offered to homebuyers were $22,500 per home delivered in the year ended November 30, 2016, or 5.9% as a percentage of home sales revenue, compared to $21,400 per home delivered in the year ended November 30, 2015, or 5.9% as a percentage of home sales revenue.

Gross margins on home sales were $2.2 billion, or 23.0%, in the year ended November 30, 2016, compared to $2.0 billion, or 24.0%, in the year ended November 30, 2015. Gross margin percentage on home sales decreased compared to the year ended November 30, 2015 primarily due to an increase in land costs per home, partially offset by an increase in the average sales price of homes delivered.

Selling, general and administrative expenses were $898.9 million in the year ended November 30, 2016, compared to $831.1 million in the year ended November 30, 2015. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.4% in the year ended November 30, 2016, from 10.0% in the year ended November 30, 2015 due to improved operating leverage as a result of an increase in home deliveries and benefits from our focus on digital marketing.

Gross profits on land sales were $44.7 million in the year ended November 30, 2016, compared to $30.1 million in the year ended November 30, 2015.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was ($49.3) million in the year ended November 30, 2016, compared to $63.4 million in the year ended November 30, 2015. In the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties. In the year ended November 30, 2015, Lennar Homebuilding equity in earnings from unconsolidated entities included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites and a commercial property to third parties, sales of homesites to another joint venture in which we have a 50% investment, and a gain on debt extinguishment.

Lennar Homebuilding other income, net, totaled $57.4 million in the year ended November 30, 2016, compared to $18.6 million in the year ended November 30, 2015. In the year ended November 30, 2016, other income, net, included management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures and gains on the sale of several clubhouses during the year ended November 30, 2016. In the year ended November 30, 2015, other income, net included $10.2 million aggregate gains on sales of an operating property and a clubhouse.

Lennar Homebuilding interest expense was $245.1 million in the year ended November 30, 2016 ($235.1 million was included in costs of homes sold, $5.3 million in costs of land sold and $4.6 million in other interest expense), compared to $220.1 million in the year ended November 30, 2015 ($205.2 million was included in costs of homes sold, $2.5 million in costs of land sold and $12.5 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Operating earnings for our Lennar Financial Services segment were $163.6 million in the year ended November 30, 2016, compared to $127.8 million in the year ended November 30, 2015. The increase in profitability was primarily due to increased transactions and higher profit per transaction in the segment's mortgage and title operations.

Operating earnings for our Rialto segment were $2.1 million in the year ended November 30, 2016 (which included a $16.7 million operating loss and an add back of $18.8 million of net loss attributable to noncontrolling interests). Operating earnings in the year ended November 30, 2015 were $28.8 million (which included $33.6 million of operating earnings, partially offset by $4.8 million of net earnings attributable to noncontrolling interests).

Rialto revenues were $234.0 million in the year ended November 30, 2016, compared to $221.9 million in the year ended November 30, 2015. Revenues increased primarily due to an increase in Rialto Mortgage Finance ("RMF") securitization revenues due to higher securitization margins.

Rialto expenses were $229.8 million in the year ended November 30, 2016, compared to $222.9 million in the year ended November 30, 2015. Expenses increased primarily due to an increase in loan impairments and general and administrative expenses.

Rialto equity in earnings from unconsolidated entities was $19.0 million and $22.3 million in the years ended November 30, 2016 and 2015, respectively, related to Rialto's share of earnings from its real estate funds (the "Funds").

Rialto other income (expense), net, was ($39.9) million in the year ended November 30, 2016, compared to $12.3 million in the year ended November 30, 2015. The decrease in other income (expense), net, was primarily attributable to a $16.0 million write-off of uncollectible receivables related to a hospital, which was acquired through the resolution of one of Rialto's loans from a 2010 portfolio, a decrease in net realized gains on the sale of real estate owned ("REO"), and an increase in REO impairments. The hospital is managed by a third party management company.

Operating earnings for our Lennar Multifamily segment were $71.2 million in the year ended November 30, 2016, compared to an operating loss of $7.2 million in the year ended November 30, 2015. The increase in profitability was primarily due to the segment's $91.0 million share of gains as a result of the sale of seven operating properties by Lennar Multifamily's unconsolidated entities. In the year ended November 30, 2015, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by the segment's $22.2 million share of gains as a result of the sale of two operating properties by Lennar Multifamily's unconsolidated entities, management fee income and general contractor income, net.

Corporate general and administrative expenses were $232.6 million, or 2.1% as a percentage of total revenues, in the year ended November 30, 2016, compared to $216.2 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2015. As a percentage of total revenues, corporate general and administrative expenses improved due to increased operating leverage.

Net earnings attributable to noncontrolling interests were $1.2 million and $16.3 million in the years ended November 30, 2016 and 2015, respectively. Net earnings attributable to noncontrolling interests during the year ended November 30, 2016 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures, partially offset by a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC. Net earnings attributable to noncontrolling interests during the year ended November 30, 2015 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures and net earnings related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC.

In the years ended November 30, 2016 and 2015, we had a tax provision of $417.4 million and $390.4 million, respectively. Our overall effective income tax rates were 31.40% and 32.72% for the years ended November 30, 2016 and 2015, respectively. The reduction is primarily the result of the reversal of an accrual due to a settlement with the IRS in the year ended November 30, 2016, which reduced our effective tax rate by (1.02%). During the year ended November 30, 2016, tax legislation was passed extending the new energy efficient home credit through 2016, as well as extending the 30% investment tax credit for solar energy property through 2022. For the years ended November 30, 2016 and 2015, the impact of these tax credits was (3.46%) and (1.92%), respectively. However, the new energy efficient home credit expired in December 2016 and will not benefit our effective tax rate in 2017 and future years unless extending legislation is enacted.

2015 versus 2014

Revenues from home sales increased 22% in the year ended November 30, 2015 to $8.3 billion from $6.8 billion in 2014. Revenues were higher primarily due to a 15% increase in the number of home deliveries, excluding unconsolidated entities, and a 6% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 24,209 homes in the year ended November 30, 2015 from 20,971 homes in the year ended November 30, 2014. There was an increase in home deliveries in all of our Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $344,000 in the year ended November 30, 2015 from $326,000 in the year ended November 30, 2014, primarily due to increased pricing in many of our markets due to favorable market conditions. Sales incentives offered to homebuyers were $21,400 per home delivered in the year ended November 30, 2015, or 5.9% as a percentage of home sales revenue, compared to $21,400 per home delivered in the year ended November 30, 2014, or 6.2% as a percentage of home sales revenue.

Gross margins on home sales were $2.0 billion, or 24.0%, in the year ended November 30, 2015, compared to $1.7 billion, or 25.4%, in the year ended November 30, 2014. Gross margin percentage on home sales decreased compared to the year ended November 30, 2014, primarily due to an increase in land costs, partially offset by an increase in the average sales price of homes delivered and a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales.

Selling, general and administrative expenses were $831.1 million in the year ended November 30, 2015, compared to $714.8 million in the year ended November 30, 2014. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 10.0% in the year ended November 30, 2015, from 10.5% in the year ended November 30, 2014 primarily due to improved operating leverage as a result of an increase in home deliveries.

Gross profits on land sales were $30.1 million in the year ended November 30, 2015, compared to $41.7 million in the year ended November 30, 2014.

Lennar Homebuilding equity in earnings (loss) from unconsolidated entities was $63.4 million in the year ended November 30, 2015, compared to ($0.4) million in the year ended November 30, 2014. In the year ended November 30, 2015, Lennar Homebuilding equity in earnings from unconsolidated entities primarily related to $82.8 million of equity in earnings from one of our unconsolidated entities, due to the sale of homesites and a commercial property to third parties, the sale of approximately 800 homesites to a joint venture in which we have a 50% investment, and a gain on debt extinguishment. In the year ended November 30, 2014, Lennar Homebuilding equity in loss from unconsolidated entities primarily related to our share of net operating losses from various Lennar Homebuilding unconsolidated entities, which included $4.6 million of our share of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities.

Lennar Homebuilding other income, net, totaled $18.6 million in the year ended November 30, 2015, compared to $7.5 million in the year ended November 30, 2014. In the year ended November 30, 2015, other income, net included $10.2 million aggregate gains on sales of an operating property and a clubhouse.

Lennar Homebuilding interest expense was $220.1 million in the year ended November 30, 2015 ($205.2 million was included in costs of homes sold, $2.5 million in costs of land sold and $12.5 million in other interest expense), compared to $201.5 million in the year ended November 30, 2014 ($161.4 million was included in costs of homes sold, $3.6 million in costs of land sold and $36.6 million in other interest expense). Interest expense included in costs of homes sold increased primarily due to an increase in our outstanding debt and home deliveries.

Operating earnings for our Lennar Financial Services segment were $127.8 million in the year ended November 30, 2015, compared to operating earnings of $80.1 million in the year ended November 30, 2014. The increase in profitability was primarily due to an increase in mortgage originations driven by a stronger refinance market and an increase in purchase volume for both Lennar and non-Lennar homebuyers, and an increase in capture rate. The increase in volume also benefited the title operations.

Operating earnings for our Rialto segment were $28.8 million in the year ended November 30, 2015 (which included $33.6 million of operating earnings, partially offset by $4.8 million of net earnings attributable to noncontrolling interests), compared to operating earnings of $66.6 million in the year ended November 30, 2014 (which included $44.1 million of operating earnings and an add back of $22.5 million of net loss attributable to noncontrolling interests).

Rialto revenues were $221.9 million in the year ended November 30, 2015, compared to $230.5 million in the year ended November 30, 2014. Revenues decreased primarily due to a decrease in interest income as a result of a decrease in the portfolio of loans Rialto owns because of loan collections, resolutions and REO foreclosures and because Rialto no longer recognized interest income under the accretable yield method. Instead, interest income is recognized to the extent that loan collections exceed their carrying value. This decrease was partially offset by an increase in securitization revenue and interest income from RMF. In addition, in the years ended November 30, 2015 and 2014, revenues included $20.0 million and $34.7 million, respectively, of advance distributions with regard to Rialto's carried interests in its Funds in order to cover income tax obligations resulting from the allocations of taxable income to Rialto’s carried interests in these funds.

Rialto expenses were $222.9 million in the year ended November 30, 2015, compared to $249.1 million in the year ended November 30, 2014. Expenses decreased primarily due to a $46.8 million decrease in loan impairments, partially offset by an increase in RMF securitization expenses, general and administrative expenses and interest expense.

Rialto equity in earnings from unconsolidated entities was $22.3 million and $59.3 million in the years ended November 30, 2015 and 2014, respectively, primarily related to the segment's share of net earnings from its Funds. The decrease in equity in earnings was primarily related to smaller net increases in the fair value of certain assets in the Rialto Funds in the year ended November 30, 2015 than in the year ended November 30, 2014.

In the year ended November 30, 2015, Rialto other income, net was $12.3 million, which consisted primarily of $35.2 million of net realized gains on the sale of REO and rental income, net, partially offset by expenses related to owning and maintaining REO and $12.4 million of impairments on REO. In the year ended November 30, 2014, Rialto other income, net was $3.4 million, which consisted primarily of $43.7 million of net realized gains on the sale of REO and rental income, net, partially offset by expenses related to owning and maintaining REO and $19.3 million of impairments on REO.

Operating loss for our Lennar Multifamily segment was $7.2 million in the year ended November 30, 2015, compared to $11.0 million in the year ended November 30, 2014. In the year ended November 30, 2015, the operating loss in Lennar Multifamily primarily related to general and administrative expenses, partially offset by the segment's $22.2 million share of

gains as a result of the sale of two operating properties by Lennar Multifamily's unconsolidated entities, management fee income and general contractor income, net. In the year ended November 30, 2014, the operating loss primarily related to general and administrative expenses, partially offset by the segment's $14.7 million share of gains as a result of the sale of two operating properties by Lennar Multifamily unconsolidated entities and management fee income.

Corporate general and administrative expenses were $216.2 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2015, compared to $177.2 million, or 2.3% as a percentage of total revenues, in the year ended November 30, 2014.

Net earnings (loss) attributable to noncontrolling interests were $16.3 million and ($10.2) million in the years ended November 30, 2015 and 2014, respectively. Net earnings attributable to noncontrolling interests in the year ended November 30, 2015 were primarily attributable to earnings related to Lennar Homebuilding consolidated joint ventures and the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC. Net loss attributable to noncontrolling interests in the year ended November 30, 2014 was primarily due to a net loss related to the FDIC's interest in the portfolio of real estate loans that we acquired in partnership with the FDIC, partially offset by a strategic transaction by one of Lennar Homebuilding's consolidated joint ventures that impacted noncontrolling interests by $5.6 million.

During the years ended November 30, 2015 and 2014, we had a tax provision of $390.4 million and $341.1 million, respectively. Our overall effective tax rates were 32.72% and 34.80% for the years ended November 30, 2015 and 2014, respectively. The effective tax rate for the year ended November 30, 2015 included tax benefits for the domestic production activities deduction and energy tax credits, offset primarily by state income tax expense and accruals for uncertain tax positions. The reduction was primarily from tax credits related to our increased investment in solar energy systems in 2015 compared with 2014, and the retroactive enactment of the new energy efficient home credit. For the year ended November 30, 2015, the impact of the solar energy credit on our effective tax rate was (0.91%). In addition, the new energy efficient home credit for homes delivered in 2014 was retroactively restored and extended in December 2014. We were eligible for this tax credit to the extent our homes meet the energy efficiency standards required under the tax code. The impact of this legislation on the Company’s effective tax rate for the year ended November 30, 2015 was (1.01%).

Homebuilding Segments

Our Homebuilding operations construct and sell homes primarily for first-time, move-up and active adult homebuyers primarily under the Lennar brand name. In addition, our homebuilding operations purchase, develop and sell land to third parties. In certain circumstances, we diversify our operations through strategic alliances and attempt to minimize our risks by investing with third parties in joint ventures.

As of and for the year ended November 30, 2016, we have aggregated our homebuilding activities into three reportable segments, which we refer to as Homebuilding East, Homebuilding Central, and Homebuilding West, based primarily upon similar economic characteristics, geography, and product type. Information about homebuilding activities in states that do not have economic characteristics that are similar to those in other states in the same geographic area is grouped under "Homebuilding Other," which is not a reportable segment. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to homebuilding segments are to those three reportable segments.

During the fourth quarter of 2016, we evaluated all of our reportable segments and as the Houston operating division, which previously had been reported a separate reportable segment, did not meet the reportable criteria set forth in Accounting Standards Codification ("ASC") 280, Segment Reporting ("ASC 280"), we aggregated this operating division into the Homebuilding Central reportable segment as this division exhibits similar economic characteristics, geography and product type as the other divisions in Homebuilding Central.

In addition, during the first quarter of 2016, we made the decision to divide the Southeast Florida operating division into two operating segments to maximize operational efficiencies given the continued growth of the division. As a result of this change in management structure, we re-evaluated our reportable segments and determined that neither operating segment met the reportable criteria set forth in ASC 280. We aggregated these operating segments into the Homebuilding East reportable segment as these divisions exhibit similar economic characteristics, geography and product type as the other divisions in Homebuilding East.

All prior year segment information has been restated to conform with the 2016 presentation. The changes in the reportable segments have no effect on our consolidated financial position, results of operations or cash flows for the periods presented.

At November 30, 2016 our reportable homebuilding segments and Homebuilding Other consisted of homebuilding divisions located in:

East: Florida, Georgia, Maryland, New Jersey, North Carolina, South Carolina and Virginia

Central: Arizona, Colorado and Texas

West: California and Nevada

Other: Illinois, Minnesota, Oregon, Tennessee and Washington

The following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated:

Selected Financial and Operational Data

	Years Ended November 30,
(In thousands)	2016				2015			2014
Homebuilding revenues:
East:
Sales of homes	$	3,887,217			3,524,691			2,915,463
Sales of land	54,119				38,987			25,116
Total East	3,941,336				3,563,678			2,940,579
Central:
Sales of homes	2,218,590				1,888,126			1,584,122
Sales of land	64,989				56,186			65,931
Total Central	2,283,579				1,944,312			1,650,053
West:
Sales of homes	2,704,670				2,338,652			1,761,762
Sales of land	52,988				26,867			34,613
Total West	2,757,658				2,365,519			1,796,375
Other:
Sales of homes	748,040				584,435			578,295
Sales of land	10,724				9,001			59,828
Total Other	758,764				593,436			638,123
Total homebuilding revenues	$	9,741,337			8,466,945			7,025,130

	Years Ended November 30,
(In thousands)	2016				2015			2014
Operating earnings:
East:
Sales of homes	$	578,207			578,185			500,412
Sales of land	22,035				10,448			9,160
Equity in earnings (loss) from unconsolidated entities	(230		)		118			1,678
Other income (expense), net (1)	20,579				(1,615	)		5,185
Other interest expense	(3,416		)		(6,273	)		(14,364	)
Total East	617,175				580,863			502,071
Central:
Sales of homes (2)	245,103				196,372			180,248
Sales of land (3)	2,038				13,595			17,113
Equity in earnings (loss) from unconsolidated entities	401				75			(10	)
Other income (expense), net	(1,393		)		775			(7,172	)
Other interest expense	(174		)		(2,119	)		(6,972	)
Total Central	245,975				208,698			183,207
West:
Sales of homes	396,696				358,054			286,393
Sales of land	16,689				446			11,851
Equity in earnings (loss) from unconsolidated entities (4)	(49,731		)		62,960			(1,647	)
Other income, net (5)	33,728				17,564			7,652
Other interest expense	(1,036		)		(3,206	)		(11,530	)
Total West	396,346				435,818			292,719
Other:
Sales of homes	76,741				39,393			54,357
Sales of land	3,947				5,613			3,567
Equity in earnings (loss) from unconsolidated entities	285				220			(376	)
Other income, net	4,463				1,892			1,861
Other interest expense	—				(856	)		(3,685	)
Total Other	85,436				46,262			55,724
Total homebuilding operating earnings	$	1,344,932			1,271,641			1,033,721

(1)	Other income, net, for the year ended November 30, 2016, included gains of $14.5 million on the sales of three clubhouses. Other expense, net, for the year ended November 30, 2015 primarily related to a loss on a strategic sale of an operating property from one of our consolidated joint ventures, partially offset by noncontrolling interests.

(2)	Sales of homes for the year ended November 30, 2014 included a $12.0 million insurance recovery and other nonrecurring items.

(3)	Sales of land for the year ended November 30, 2016 included $6.3 million of valuation adjustments to land we intend to sell or have sold to third parties.

(4)

Equity in loss from unconsolidated entities for the year ended November 30, 2016 included our share of costs associated with the FivePoint combination and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million, partially offset by $12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties. Equity in earnings from unconsolidated entities for the year ended November 30, 2015 included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to the sale of a commercial property and homesites to third parties and a gain on debt extinguishment. Equity in loss from unconsolidated entities for the year ended November 30, 2014 included our share of operating losses from various unconsolidated entities, which included $4.3 million of our share of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities, partially offset by $4.7 million of equity in earnings as a result of third-party land sales by one unconsolidated entity.

(5)	Other income, net, for the year ended November 30, 2016 included $30.1 million of management fee income and a profit participation related to Lennar Homebuilding's strategic joint ventures. Other income, net, for the year ended November 30, 2015 included a $6.5 million gain on the sale of an operating property.

Summary of Homebuilding Data

Deliveries:

	Years Ended November 30,
	Homes
	2016			2015			2014
East	12,483			11,515			9,910
Central	6,788			6,171			5,638
West	5,734			5,245			4,141
Other	1,558			1,361			1,314
Total	26,563			24,292			21,003

Of the total homes delivered listed above, 82, 83 and 32 represent home deliveries from unconsolidated entities for the years ended November 30, 2016, 2015 and 2014, respectively.

	Years Ended November 30,
	Dollar Value (In thousands)										Average Sales Price
	2016				2015			2014			2016				2015			2014
East	$	3,890,405			3,527,612			2,921,080			$	312,000			306,000			295,000
Central	2,218,590				1,888,127			1,584,122			327,000				306,000			281,000
West	2,757,112				2,383,432			1,775,587			481,000				454,000			429,000
Other	748,040				584,435			578,295			480,000				429,000			440,000
Total	$	9,614,147			8,383,606			6,859,084			$	362,000			345,000			327,000

Of the total dollar value of home deliveries listed above, $55.6 million, $47.7 million and $19.4 million represent the dollar value of home deliveries from unconsolidated entities for the years ended November 30, 2016, 2015 and 2014, respectively. The home deliveries from unconsolidated entities had an average sales price of $678,000, $575,000 and $608,000 for the years ended November 30, 2016, 2015 and 2014, respectively.

Sales Incentives (1):

	Years Ended November 30,
	(In thousands)
	2016				2015			2014
East	$	278,979			258,594			231,255
Central	183,921				153,173			134,468
West	101,337				80,617			59,148
Other	32,062				25,679			24,286
Total	$	596,299			518,063			449,157

	Years Ended November 30,
	Average Sales Incentives Per Home Delivered										Sales Incentives as a % of Revenue
	2016				2015			2014			2016			2015			2014
East	$	22,400			22,500			23,400			6.7	%		6.8	%		7.4	%
Central	27,100				24,800			23,900			7.7	%		7.5	%		7.8	%
West	17,900				15,600			14,300			3.6	%		3.3	%		3.2	%
Other	20,600				18,900			18,500			4.1	%		4.2	%		4.0	%
Total	$	22,500			21,400			21,400			5.9	%		5.9	%		6.2	%

(1)	Sales incentives relate to home deliveries during the period, excluding deliveries by unconsolidated entities.

New Orders (2):

	Years Ended November 30,
	Homes
	2016			2015			2014
East	12,764			11,579			10,123
Central	7,041			6,448			6,116
West	5,910			5,608			4,516
Other	1,657			1,471			1,274
Total	27,372			25,106			22,029

Of the total new orders listed above, 23, 105 and 95 represent new orders from unconsolidated entities for the years ended November 30, 2016, 2015 and 2014, respectively.

	Years Ended November 30,
	Dollar Value (In thousands)										Average Sales Price
	2016				2015			2014			2016				2015			2014
East	$	3,977,605			3,570,496			2,989,452			$	312,000			308,000			295,000
Central	2,354,618				2,037,339			1,742,292			334,000				316,000			285,000
West	2,832,993				2,617,393			1,956,157			479,000				467,000			433,000
Other	788,721				663,247			522,411			476,000				451,000			410,000
Total	$	9,953,937			8,888,475			7,210,312			$	364,000			354,000			327,000

Of the total dollar value of new orders listed above, $9.2 million, $70.2 million and $56.8 million represent the dollar value of new orders from unconsolidated entities for the years ended November 30, 2016, 2015 and 2014, respectively. The new orders from unconsolidated entities had an average sales price of $401,000, $669,000 and $598,000 for the years ended November 30, 2016, 2015 and 2014, respectively.

(2)	New orders represent the number of new sales contracts executed with homebuyers, net of cancellations, during the years ended November 30, 2016, 2015 and 2014.

Backlog:

	November 30,
	Homes
	2016			2015			2014
East (3)	3,243			2,852			2,788
Central	2,321			2,068			1,791
West	1,530			1,354			991
Other (4)	529			372			262
Total	7,623			6,646			5,832

Of the total homes in backlog listed above, 30, 89 and 67 represent homes in backlog from unconsolidated entities at November 30, 2016, 2015 and 2014, respectively.

	November 30,
	Dollar Value (In thousands)										Average Sales Price
	2016				2015			2014			2016				2015			2014
East	$	1,065,425			928,098			886,810			$	329,000			325,000			318,000
Central	821,608				685,750			536,463			354,000				332,000			300,000
West	748,488				671,524			437,492			489,000				496,000			441,000
Other	256,017				192,379			113,563			484,000				517,000			433,000
Total	$	2,891,538			2,477,751			1,974,328			$	379,000			373,000			339,000

Of the total dollar value of homes in backlog listed above, $16.0 million, $62.4 million and $39.8 million represent the dollar value of homes in backlog from unconsolidated entities at November 30, 2016, 2015 and 2014, respectively. The homes in backlog from unconsolidated entities had an average sales price of $533,000, $701,000 and $595,000 at November 30, 2016, 2015 and 2014, respectively.

(3)	During the year ended November 30, 2016, we acquired 110 homes in backlog.

(4)	During the year ended November 30, 2016, we acquired 58 homes in backlog.

Backlog represents the number of homes under sales contracts. Homes are sold using sales contracts, which are generally accompanied by sales deposits. In some instances, purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances. We do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners.

We experienced cancellation rates in our homebuilding segments and Homebuilding Other as follows:

	Years Ended November 30,
	2016			2015			2014
East	14	%		15	%		16	%
Central	20	%		21	%		21	%
West	15	%		13	%		14	%
Other	11	%		11	%		13	%
Total	16	%		16	%		17	%

Active Communities:

	November 30,
	2016			2015			2014
East	303			284			265
Central	199			206			195
West	135			119			111
Other	58			56			54
Total	695			665			625

Of the total active communities listed above, two communities represent active communities being developed by unconsolidated entities as of November 30, 2016. Of the total active communities listed above, three communities represent active communities being constructed by unconsolidated entities as of both November 30, 2015 and 2014.

The following table details our gross margins on home sales for the years ended November 30, 2016, 2015 and 2014 for each of our reportable homebuilding segments and Homebuilding Other:

	Years Ended November 30,
(Dollars in thousands)	2016				2015			2014
East:
Sales of homes	$	3,887,217			3,524,691			2,915,463
Costs of homes sold	2,935,921				2,599,855			2,112,474
Gross margins on home sales	951,296			24.5%	924,836		26.2%	802,989		27.5%
Central:
Sales of homes	2,218,590				1,888,126			1,584,122
Costs of homes sold	1,752,781				1,485,243			1,225,638
Gross margins on home sales	465,809			21.0%	402,883		21.3%	358,484		22.6%
West:
Sales of homes	2,704,670				2,338,652			1,761,762
Costs of homes sold	2,086,480				1,773,651			1,305,208
Gross margins on home sales	618,190			22.9%	565,001		24.2%	456,554		25.9%
Other:
Sales of homes	748,040				584,435			578,295
Costs of homes sold	587,671				474,101			460,089
Gross margins on home sales	160,369			21.4%	110,334		18.9%	118,206		20.4%
Total gross margins on home sales	$	2,195,664		23.0%	2,003,054		24.0%	1,736,233		25.4%

2016 versus 2015

Homebuilding East: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in all the states in the segment, except Virginia and Georgia, and an increase in the average sales price of homes delivered in all the states in the segment, except Florida. The increase in the number of deliveries was primarily driven by an increase in active communities over the last year primarily in Florida and/or driven by higher demand as the number of deliveries per active community increased. The decrease in home deliveries in Virginia and Georgia was primarily driven by a decrease in active communities that had a high volume of home deliveries in 2015. The increase in the average sales price of homes delivered was primarily due to a change in product mix as there was an increase in home deliveries in higher-priced communities in 2016 compared to the same period last year and/or because we have been able to increase the sales price in certain of our communities due to favorable market conditions. The decrease in average sales price of homes delivered in Florida was primarily driven by a change in product mix due to closing out the remaining homes in higher-priced communities in prior year and opening lower-priced communities in 2016. In addition, we have also been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales decreased compared to the same period last year primarily due to an increase in land and direct construction costs per home, partially offset by an increase in average sales price of homes delivered.

Homebuilding Central: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries and in the average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries was primarily driven by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily due to a change in product mix driven by an increase in home deliveries in higher-priced close out communities in 2016 compared to the same period last year and/or because we have been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales slightly decreased compared to the same period last year primarily due to an increase in land costs per home, partially offset by an increase in the average sales price of homes delivered.

Homebuilding West: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in California, partially offset by a decrease in the number of home deliveries in Nevada and an increase in the average sales price of homes delivered in all the states in the segment. The increase in the number of deliveries in California was primarily driven by an increase in active communities over the last year and/or by higher demand as the number of deliveries per active community increased. The decrease in the number of deliveries in Nevada was primarily driven by lower demand as the number of deliveries per active community decreased due to a change in product mix (selling at different price points) from the same period last year. The increase in the average sales price of homes delivered was primarily due to a change in product mix (selling at different price points) and/or because we have been able to increase the sales prices in certain of our communities due to favorable market conditions. Gross margin percentage on home sales decreased compared to the same period last year primarily due to an increase in land costs per home and an increase in sales incentives offered to homebuyers as a percentage of revenues from home sales, partially offset by an increase in the average sales price of homes delivered.

Homebuilding Other: Revenues from home sales increased in 2016 compared to 2015, primarily due to an increase in the number of home deliveries in all the states in Homebuilding Other and an increase in the average sales price of homes delivered in all states in Homebuilding Other, except Minnesota. The increase in the number of deliveries was primarily driven by an increase in active communities over the last year and/or by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily due to an increase in home deliveries in higher-priced communities in 2016 compared to the same period last year. The decrease in the average sales price of homes delivered in Minnesota was primarily due to the lower average sales price of the homes acquired in backlog. Gross margin percentage on home sales increased compared to the same period last year primarily due to an increase in the average sales price of homes delivered and a decrease in construction and land costs per home (prior year's land costs per home included a valuation adjustment of $9.6 million in our Northeast Urban operations).

2015 versus 2014

Homebuilding East: Revenues from home sales increased in 2015 compared to 2014 primarily due to an increase in the number of home deliveries and average sales price of homes delivered in all the states of the segment. The increase in the number of deliveries was primarily driven by an increase in active communities over 2014 and/or driven by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily because we have been able to increase the sales price of homes delivered and/or reduce sales incentives in certain of our communities due to favorable market conditions. Gross margin percentage on homes decreased compared to 2014 primarily due to an increase in direct construction and land costs per home, partially offset by an increase in the average sales price of homes delivered and a decrease in sales incentives offered to homebuyers as a percentage of revenues from home sales.

Homebuilding Central: Revenues from home sales increased in 2015 compared to 2014 primarily due to an increase in the number of home deliveries in all the states of the segment, except Arizona, and an increase in the average sales price of homes delivered in all the states of the segment. The increase in the number of deliveries was primarily driven by an increase in active communities over 2014 and/or driven by higher demand as the number of deliveries per active community increased. The decrease in the number of homes delivered in Arizona was primarily due to the timing of deliveries in certain of our communities. The increase in the average sales price of homes delivered was primarily because we have been able to increase the sales price of homes delivered and/or we have been able to reduce sales incentives in certain of our communities due to favorable market conditions. Gross margin percentage on homes decreased compared to 2014 primarily due to an increase in land costs per home and because 2014 included $11.9 million of insurance recoveries and other nonrecurring items, which increased the gross margin percentage in 2014 by 70 basis points.

Homebuilding West: Revenues from home sales increased in 2015 compared to 2014 primarily due to an increase in the number of home deliveries and in the average sales price of homes delivered in all the states of the segment. The increase in the number of deliveries was primarily driven by an increase in active communities over 2014 and/or driven by higher demand as the number of deliveries per active community increased. The increase in the average sales price of homes delivered was primarily because we have been able to increase the sales price of homes delivered in certain of our communities due to favorable market conditions. Gross margin percentage on homes decreased compared to 2014 primarily due to an increase in land costs per home, which included a valuation adjustment of $5.8 million in California, partially offset by an increase in the average sales price of homes delivered.

Homebuilding Other: Revenues from home sales increased in 2015 compared to 2014 primarily due to an increase in the number of homes delivered in Tennessee, Oregon and Washington driven by higher demand as the number of deliveries per active community increased. This was partially offset by a decrease in the average sales price of homes delivered in Tennessee and in our Northeast Urban operations primarily as a result of a change in product mix due to timing of deliveries in certain communities. Gross margin percentage on homes sales decreased compared to 2014 primarily due to an increase in land costs per home, which included a valuation adjustment of $9.6 million in our Northeast Urban operations primarily related to a strategic decision to move forward on an inactive asset and an increase in sales incentives offered to homebuyers as a percentage of revenues from home sales.

Lennar Financial Services Segment

Our Lennar Financial Services reportable segment provides mortgage financing, title insurance and closing services for both buyers of our homes and others. Our Lennar Financial Services segment sells substantially all of the loans it originates within a short period in the secondary mortgage market, the majority of which are sold on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements.

The following table sets forth selected financial and operational information related to our Lennar Financial Services segment:

	Years Ended November 30,
(Dollars in thousands)	2016				2015			2014
Revenues	$	687,255			620,527			454,381
Costs and expenses	523,638				492,732			374,243
Operating earnings	$	163,617			127,795			80,138
Dollar value of mortgages originated	$	9,343,000			8,877,000			5,950,000
Number of mortgages originated	33,500				32,600			23,300
Mortgage capture rate of Lennar homebuyers	82		%		82	%		78	%
Number of title and closing service transactions	116,000				108,600			90,700
Number of title policies issued	298,900				263,500			220,400

Rialto Segment

Our Rialto reportable segment is a commercial real estate investment, investment management, and finance company focused on raising, investing and managing third-party capital, originating and selling into securitizations commercial mortgage loans as well as investing our own capital in real estate related mortgage loans, properties and related securities. Rialto utilizes its vertically-integrated investment and operating platform to underwrite, diligence, acquire, manage, workout and add value to diverse portfolios of real estate loans, properties and securities as well as providing strategic real estate capital. Rialto's primary focus is to manage third-party capital and to originate and sell into securitizations commercial mortgage loans. Rialto has continued the workout and/or oversight of billions of dollars of real estate assets across the United States, including commercial

and residential real estate loans and properties as well as mortgage backed securities with the objective of generating superior, risk-adjusted returns. To date, many of the investment and management opportunities have arisen from the dislocation in the United States real estate markets and the restructuring and recapitalization of those markets.

Rialto's operating earnings (loss) were as follows:

	Years Ended November 30,
(In thousands)	2016				2015			2014
Revenues	$	233,966			221,923			230,521
Costs and expenses (1)	229,769				222,875			249,114
Rialto equity in earnings from unconsolidated entities	18,961				22,293			59,277
Rialto other income (expense), net	(39,850		)		12,254			3,395
Operating earnings (loss) (2)	$	(16,692	)		33,595			44,079

(1)	Costs and expenses included loan impairments of $18.2 million, $10.4 million and $57.1 million for the years ended November 30, 2016, 2015 and 2014, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests).

(2)	Operating earnings (loss) for the years ended November 30, 2016, 2015 and 2014 included net earnings (loss) attributable to noncontrolling interests of ($18.8) million, $4.8 million and ($22.5) million, respectively.

The following is a detail of Rialto other income (expense), net:

	Years Ended November 30,
(In thousands)	2016				2015			2014
Realized gains on REO sales, net	$	17,495			35,242			43,671
Unrealized losses on transfer of loans receivable to REO and impairments, net	(23,087		)		(13,678	)		(26,107	)
REO and other expenses	(54,008		)		(57,740	)		(58,067	)
Rental and other income (1)	19,750				48,430			43,898
Rialto other income (expense), net	$	(39,850	)		12,254			3,395

(1)	Rental and other income for the year ended November 30, 2016, included a $16.0 million write-off of uncollectible receivables related to the hospital.

Rialto Mortgage Finance

RMF originates and sells into securitizations five, seven and ten year commercial first mortgage loans, generally with principal amounts between $2 million and $75 million, which are secured by income producing properties. This business has become a significant contributor to Rialto's revenues.

During the year ended November 30, 2016, RMF originated loans with a total principal balance of $1.8 billion, of which $1.7 billion were recorded as loans held-for-sale and $81.2 million as accrual loans within loans receivable, net, and sold $1.9 billion of loans into 11 separate securitizations. During the year ended November 30, 2015, RMF originated loans with a total principal balance of $2.7 billion and sold $2.4 billion of loans into 12 separate securitizations. As of November 30, 2016 and 2015, originated loans with an unpaid principal balance of $199.8 million and $151.8 million, respectively, were sold into a securitization trust but not settled and thus were included as Rialto's receivables, net.

Loans Receivable

In 2010, our Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies ("LLCs") in partnership with the FDIC, which retained 60% equity interests in the LLCs, for approximately $243 million (net of transaction costs and a $22 million working capital reserve). The LLCs held performing and non-performing loans formerly owned by 22 failed financial institutions and when our Rialto segment acquired its interests in the LLCs, the two portfolios consisted of approximately 5,500 distressed residential and commercial real estate loans. If the LLCs exceed expectations and meet certain internal rate of returns and distribution thresholds, our equity interest in the LLCs could be reduced from 40% down to 30%, with a corresponding increase to the FDIC’s equity interest from 60% up to 70%. As these thresholds have not been met, distributions continue being shared 60% / 40% with the FDIC. During the years ended November 30, 2016 and 2015, the LLCs distributed $108.2 million and $149.7 million, respectively, of which $64.9 million and $89.8 million, respectively, was distributed to the FDIC and $43.3 million and $59.9 million, respectively, was distributed to Rialto, the parent company.

The LLCs met the accounting definition of variable interest entities ("VIEs") and since we were determined to be the primary beneficiary, we consolidated the LLCs. We were determined to be the primary beneficiary because we have the power to direct the activities of the LLCs that most significantly impact the LLCs’ performance through Rialto's management and

servicer contracts. At November 30, 2016, these consolidated LLCs had total combined assets and liabilities of $213.8 million and $10.3 million, respectively. At November 30, 2015, these consolidated LLCs had total combined assets and liabilities of $355.2 million and $11.3 million, respectively.

Also, in 2010, our Rialto segment acquired approximately 400 distressed residential and commercial real estate loans and over 300 REO properties from three financial institutions. We paid $310 million for the distressed real estate and real estate related assets of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions for which the maturity was subsequently extended. The remaining balance of $30.3 million, which was due in December 2016, was fully paid off as of November 30, 2016.

Investments

Rialto is the sponsor of and an investor in private equity vehicles that invest in and manage real estate related assets and other related investments. These include:

Private Equity Vehicle	Inception Year	Commitment
Rialto Real Estate Fund, LP	2010	$700 million (including $75 million by us)
Rialto Real Estate Fund II, LP	2012	$1.3 billion (including $100 million by us)
Rialto Mezzanine Partners Fund, LP	2013	$300 million (including $34 million by us)
Rialto Capital CMBS Funds	2014	$119 million (including $52 million by us)
Rialto Real Estate Fund III	2015	$1.3 billion (including $100 million by us)
Rialto Credit Partnership, LP	2016	$220 million (including $20 million by us)

Rialto also earns fees for its role as a manager of these vehicles and for providing asset management and other services to those vehicles and other third parties.

At November 30, 2016 and 2015, the carrying value of Rialto's non-investment grade commercial mortgage-backed securities ("CMBS") was $71.3 million and $25.6 million, respectively. These securities were purchased at discount rates ranging from 39% to 72% with coupon rates ranging from 1.3% to 4.0%, stated and assumed final distribution dates between November 2020 and November 2026, and stated maturity dates between November 2048 and March 2059. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity.

In 2014, the Rialto segment invested $18 million in a private commercial real estate services company. The investment was carried at cost at both November 30, 2016 and 2015 and is included in Rialto's other assets.

Lennar Multifamily Segment

We have been actively involved, primarily through unconsolidated entities, in the development, construction and property management of multifamily rental properties. Our Lennar Multifamily segment focuses on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets.

As of November 30, 2016 and 2015, our balance sheet had $526.1 million and $415.4 million, respectively, of assets related to our Lennar Multifamily segment, which included investments in unconsolidated entities of $318.6 million and $250.9 million, respectively. Our net investment in the Lennar Multifamily segment as of November 30, 2016 and 2015 was $412.9 million and $348.4 million, respectively. During the year ended November 30, 2016, our Lennar Multifamily segment sold seven operating properties through its unconsolidated entities resulting in the segment's $91.0 million share of gains. During the years ended November 30, 2015 and 2014, our Lennar Multifamily segment sold two operating properties through its unconsolidated entities each year resulting in the segment's $22.2 million and $14.7 million share of gains, respectively. In addition, during the year ended November 30, 2016, our Lennar Multifamily segment sold land to third parties generating gross profit of $5.6 million.

Our Lennar Multifamily segment had equity investments in 28 and 29 unconsolidated entities (including the Lennar Multifamily Venture, the "Venture") as of November 30, 2016 and 2015, respectively. As of November 30, 2016, our Lennar Multifamily segment had interests in 53 communities with development costs of $4.8 billion, of which five communities were completed and operating, 13 communities were partially completed and leasing, 24 communities were under construction and the remaining communities were either owned or under contract. As of November 30, 2016, our Lennar Multifamily segment also had a pipeline of potential future projects totaling $2.8 billion in assets across a number of states that would be developed primarily by future unconsolidated entities.

In 2015, the Lennar Multifamily segment completed the initial closing of the Venture for the development, construction and property management of class-A multifamily assets and in October 2016, the Lennar Multifamily segment finalized the fund raising for the Venture with commitments totaling $2.2 billion, including a $504 million co-investment commitment by us.

Financial Condition and Capital Resources

At November 30, 2016, we had cash and cash equivalents related to our homebuilding, financial services, Rialto and multifamily operations of $1.3 billion, compared to $1.2 billion and $1.3 billion at November 30, 2015 and 2014, respectively.

We finance all of our activities including Homebuilding, financial services, Rialto, multifamily and general operating needs primarily with cash generated from our operations, debt issuances and equity offerings as well as cash borrowed under our warehouse lines of credit and our credit facility.

Operating Cash Flow Activities

During 2016, 2015 and 2014, cash provided by (used in) operating activities totaled $507.8 million, ($419.6) million and ($788.5) million, respectively. During 2016, cash provided by operating activities was positively impacted by our net earnings, a net decrease in loans held-for-sale primarily related to RMF due to the timing of the securitizations and an increase in accounts payable and other liabilities, partially offset by a smaller increase in inventories than in previous years due to our soft-pivot strategy, and an increase in receivables and other assets. For the year ended November 30, 2016, distributions of earnings from unconsolidated entities were (1) $1.7 million from Lennar Homebuilding unconsolidated entities, (2) $14.0 million from Rialto unconsolidated entities, and (3) $86.3 million from Lennar Multifamily unconsolidated entities.

During 2015, cash used in operating activities was impacted by an increase in inventories due to strategic land purchases and land development costs, an increase of $213.5 million in Rialto loans held-for-sale related to RMF and an increase of $105.2 million in Lennar Financial Services loans held-for-sale, partially offset by our net earnings and an increase in accounts payable and other liabilities. For the year ended November 30, 2015, distributions of earnings from unconsolidated entities were (1) $26.3 million from Lennar Homebuilding unconsolidated entities, (2) $13.3 million from Rialto unconsolidated entities, and (3) $21.1 million from Lennar Multifamily unconsolidated entities.

During 2014, cash used in operating activities was impacted by an increase in inventories due to strategic land purchases and land development costs, an increase of $326.1 million in Lennar Financial Services loans held-for-sale due to increased home deliveries towards the end of 2014 and an increase in receivables, partially offset by our net earnings and an increase in accounts payable and other liabilities. For the year ended November 30, 2014, distributions of earnings from unconsolidated were (1) $5.3 million from Lennar Homebuilding unconsolidated entities, (2) $2.5 million from Rialto unconsolidated entities, and (3) $14.5 million from Lennar Multifamily unconsolidated entities.

Investing Cash Flow Activities

During 2016, 2015 and 2014, cash (used in) provided by investing activities totaled ($85.8) million, ($98.4) million and $438.4 million, respectively. During 2016, our cash used in investing activities was primarily impacted by cash contributions to unconsolidated entities of (1) $198.2 million to Lennar Multifamily unconsolidated entities primarily related to contributions to the Venture (2) $184.2 million to Lennar Homebuilding unconsolidated entities primarily for working capital, and (3) $43.4 million to Rialto unconsolidated entities comprised of $28.8 million contributed to the Rialto Capital CMBS Funds ("CMBS Funds"), $7.2 million contributed to Rialto Real Estate Fund III ("Fund III"), $5.7 million contributed to the Rialto Credit Partnership, LP ("RCP") and $1.7 million contributed to other investments. In addition, cash used in investing activities was impacted by purchases of CMBS by our Rialto segment and origination of loans receivable primarily related to floating rate loans originated by RMF. This was partially offset by distributions of capital from unconsolidated entities of (1) $251.2 million from Lennar Multifamily unconsolidated entities, of which $193.7 million was distributed by the Venture, (2) $44.6 million from Lennar Homebuilding unconsolidated entities, and (3) $27.4 million from Rialto unconsolidated entities comprised of $12.8 million distributed by Rialto Real Estate Fund II, LP (" Fund II"), $11.7 million distributed by the Rialto Mezzanine Partners Fund, LP ("Mezzanine Fund") and $2.9 million distributed by the CMBS Funds; by the receipt of $97.9 million of proceeds from the sales of REO; and $84.4 million of receipts of principal payments on loans receivable and settlement of accrual loans.

During 2015, our cash used in investing activities was primarily impacted by cash contributions to unconsolidated entities of (1) $210.7 million to Lennar Homebuilding unconsolidated entities primarily for working capital, (2) $63.0 million to Rialto unconsolidated entities comprised of $41.7 million contributed to Fund II, $13.3 million contributed to the Mezzanine Fund and $8.0 million contributed to the CMBS Funds, and (3) $41.3 million to Lennar Multifamily unconsolidated entities primarily for working capital. In addition, cash used in investing activities was impacted by purchases of investment securities and loans held-for-investments. This was partially offset by the receipt of $73.7 million of proceeds from the sale of a Lennar Homebuilding operating property, $155.3 million of proceeds from the sales of REO and by distributions of capital from

unconsolidated entities of (1) $118.0 million from Lennar Homebuilding unconsolidated entities, (2) $78.1 million from Lennar Multifamily unconsolidated entities, of which $55.3 million was distributed by the Venture, and (3) $22.9 million from Rialto unconsolidated entities comprised of $16.9 million distributed by Fund II, $3.4 million distributed by the Mezzanine Fund and $2.6 million distributed by the CMBS Funds.

During 2014, our cash provided by investing activities was primarily related to the receipt of $269.7 million of proceeds from the sale of REO, $43.9 million of proceeds from the sale of a Lennar Homebuilding operating property and $51.9 million of proceeds from the sale of Lennar Homebuilding investments available-for-sale. In addition, cash provided by investing activities increased due to distributions of capital from unconsolidated entities of (1) $143.5 million from Lennar Homebuilding unconsolidated entities, (2) $66.9 million from Lennar Multifamily unconsolidated entities, and (3) $68.9 million from Rialto unconsolidated entities comprised of $32.5 million distributed by Rialto Real Estate Fund, LP, $9.0 million distributed by Fund II, $16.5 million distributed by the Mezzanine Fund and $10.9 million distributed by the CMBS Funds. This was partially offset by $21.3 million for purchases of Lennar Homebuilding investments available-for-sale and by cash contributions to unconsolidated entities of (1) $87.5 million to Lennar Homebuilding unconsolidated entities primarily for working capital, (2) $41.5 million to Rialto unconsolidated entities comprised of $7.6 million contributed to Fund II, $18.1 million contributed to the Mezzanine Fund and $15.8 million contributed to the CMBS Funds, and (3) $30.8 million to Lennar Multifamily unconsolidated entities primarily for working capital.

Financing Cash Flow Activities

During 2016, 2015 and 2014, our cash (used in) provided by financing activities totaled ($250.9) million, $394.7 million and $661.4 million, respectively. During 2016, our cash used in financing activities was primarily impacted by (1) the redemption of $250 million aggregate principal amount of our 6.50% senior notes due April 2016 (the "6.50% Senior Notes"), (2) $234.0 million of cash payments in connection with exchanges or conversions of our 2.75% convertible senior notes due December 2020 (the "2.75% Convertible Senior Notes"), (3) $211.0 million of principal payments on other borrowings, (4) $111.3 million of net repayments under our Rialto's warehouse repurchase facilities, and (5) $127.4 million of payments related to noncontrolling interests. The cash used in financing activities was partially offset by the receipt of proceeds of the sale of $500 million aggregate principal amount of our 4.750% senior notes due 2021 (the "4.750% Senior Notes") and $218.8 million of net borrowings under our Lennar Financial Services' warehouse repurchase facilities.

During 2015, our cash provided by financing activities was primarily attributed to the receipt of proceeds related to the sale of (1) $400 million aggregate principal amount of 4.875% senior notes due 2023, (2) an additional $250 million aggregate principal amount of our 4.50% senior notes due November 2019, and (3) $500 million aggregate principal amount of our 4.750% senior notes due 2025; proceeds of $101.6 million from other borrowings; and net borrowings of $366.3 million under our Lennar Financial Services' and Rialto's warehouse repurchase facilities. This cash provided by financing activities was partially offset by the redemption of $500 million principal amount of our 5.60% senior notes due 2015, exchanges and conversions of $212.1 million principal amount of our 2.75% Convertible Senior Notes, principal payments of $258.1 million on other borrowings, and payments of $133.4 million related to noncontrolling interests.

During 2014, our cash provided by financing activities was primarily attributed to the receipt of proceeds related to the sale of (1) $500 million aggregate principal amount of our 4.500% senior notes due June 2019, (2) $350 million aggregate principal amount of our 4.50% senior notes due November 2019, and (3) an additional $100 million aggregate principal amount of Rialto's 7.00% senior notes due 2018 (the "7.00% Senior Notes"); proceeds of $94.4 million related to the issuance of Rialto's structured note offerings (the "Structured Notes"); and net borrowings of $389.5 million under our Lennar Financial Services' and Rialto's warehouse repurchase facilities. The cash provided by financing activities was partially offset by the redemption of $250 million principal amount of our 5.50% senior notes due 2014, principal payments of $299.7 million on other borrowings, and payments of $155.6 million related to noncontrolling interests.

Debt to total capital ratios are financial measures commonly used in the homebuilding industry and are presented to assist in understanding the leverage of our Lennar Homebuilding operations. Lennar Homebuilding debt to total capital and net Lennar Homebuilding debt to total capital were calculated as follows:

	November 30,
(Dollars in thousands)	2016				2015
Lennar Homebuilding debt	$	4,575,977			5,025,130
Stockholders’ equity	7,026,042				5,648,944
Total capital	$	11,602,019			10,674,074
Lennar Homebuilding debt to total capital	39.4		%		47.1	%
Lennar Homebuilding debt	$	4,575,977			5,025,130
Less: Lennar Homebuilding cash and cash equivalents	1,050,138				893,408
Net Lennar Homebuilding debt	$	3,525,839			4,131,722
Net Lennar Homebuilding debt to total capital (1)	33.4		%		42.2	%

(1)

Net Lennar Homebuilding debt to total capital is a non-GAAP financial measure defined as net Lennar Homebuilding debt (Lennar Homebuilding debt less Lennar Homebuilding cash and cash equivalents) divided by total capital (net Lennar Homebuilding debt plus stockholders' equity). We believe the ratio of net Lennar Homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in our Lennar Homebuilding operations. However, because net Lennar Homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results.

At November 30, 2016, Lennar Homebuilding debt to total capital was lower compared to the prior year period, primarily as a result of an increase in stockholder’s equity primarily related to our net earnings and the conversion of all of our 3.25% convertible senior notes due 2021 (the "3.25% Convertible Senior Notes") to stockholder's equity and a decrease in Lennar Homebuilding debt.

We are continually exploring various types of transactions to manage our leverage and liquidity positions, take advantage of market opportunities and increase our revenues and earnings. These transactions may include the issuance of additional indebtedness, the repurchase of our outstanding indebtedness for cash or equity, the acquisition of homebuilders and other companies, the purchase or sale of assets or lines of business, the issuance of common stock or securities convertible into shares of common stock, and/or pursuing other financing alternatives. In connection with some of our more recently formed businesses, such as Rialto and Lennar Multifamily, we may also consider other types of transactions such as restructurings, joint ventures, spin-offs or initial public offerings. If any of these transactions are implemented, they could materially impact the amount and composition of our indebtedness outstanding, increase our interest expense, dilute our existing stockholders and/or affect the net book value of our assets. At November 30, 2016, we had no agreements or understandings regarding any significant transactions other than an agreement to acquire WCI.

On September 22, 2016, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with WCI under which we will acquire WCI through a merger for a combination of our Class A common stock and cash totaling $23.50 per share of WCI common stock. It is currently anticipated that the merger consideration payable to WCI stockholders will be $11.75 in cash and $11.75 in Class A common stock, with the Class A common stock valued at the average of its volume weighted average price on the New York Stock Exchange ("NYSE") on each of the ten NYSE trading days before closing. For example, if the merger consideration is paid half in cash and half on our Class A common stock, based on the volume weighted average price of our Class A common stock on the ten NYSE trading days ended January 11, 2017, which was approximately $43.50 per share, a WCI stockholder would receive approximately 0.27 shares of our Class A common stock (as well as $11.75 in cash) with regard to each share of WCI common stock. However, we have the right to reduce the portion of the merger consideration that will be Class A common stock and increase the portion that will be cash, including the right to make the entire merger consideration cash. WCI can terminate the Merger Agreement to engage in a transaction that its Board of Directors deems to be more favorable to its stockholders than the transaction with the Company, unless the Company will match the deemed more favorable transaction. However, if WCI terminates the Merger Agreement to engage in another transaction, it will have to pay the Company a termination fee of $22.5 million. The Merger Agreement contains customary representations and warranties by the parties, and is subject to closing conditions, including the need for approval by the holders of WCI’s common stock. It is anticipated that a meeting of WCI stockholders to vote on the transaction will be held in February 2017, and, if the transaction is approved by the WCI stockholders, it will close promptly after the stockholder vote.

The following table summarizes our Lennar Homebuilding senior notes and other debts payable:

	November 30,
(Dollars in thousands)	2016				2015
12.25% senior notes due 2017	$	398,232			396,252
4.75% senior notes due December 2017	398,479				397,736
6.95% senior notes due 2018	248,474				247,632
4.125% senior notes due December 2018	273,889				273,319
4.500% senior notes due 2019	498,002				497,210
4.50% senior notes due 2019	597,474				596,622
4.750% senior notes due 2021	496,547				—
4.750% senior notes due 2022	568,404				567,325
4.875% senior notes due December 2023	394,170				393,545
4.750% senior notes due 2025	496,226				495,784
6.50% senior notes due 2016	—				249,905
2.75% convertible senior notes due 2020	—				233,225
3.25% convertible senior notes due 2021	—				398,194
Mortgages notes on land and other debt	206,080				278,381
	$	4,575,977			5,025,130

Our Lennar Homebuilding average debt outstanding was $5.1 billion with an average rate for interest incurred of 5.1% for the year ended November 30, 2016, compared to $5.2 billion with an average rate for interest incurred of 4.9% for the year ended November 30, 2015. Interest incurred related to Lennar Homebuilding debt for the year ended November 30, 2016 was $281.4 million, compared to $288.5 million in 2015. The majority of our short-term financing needs, including financings for land acquisition and development activities and general operating needs, are met with cash generated from operations, proceeds from debt as well as borrowings under our Credit Facility.

The terms of each of our senior notes outstanding at November 30, 2016 were as follows:

Senior Notes Outstanding (1)		Principal Amount				Net Proceeds (2)				Price			Dates Issued
(Dollars in thousands)
12.25% senior notes due 2017		$	400,000			$	386,700			98.098	%		April 2009
4.75% senior notes due December 2017		400,000				395,900				100	%		July 2012, August 2012
6.95% senior notes due 2018		250,000				243,900				98.929	%		May 2010
4.125% senior notes due December 2018		275,000				271,718				99.998	%		February 2013
4.500% senior notes due 2019		500,000				495,725				(3)			February 2014
4.50% senior notes due 2019		600,000				595,801				(4)			November 2014, February 2015
4.750% senior notes due 2021		500,000				495,974				100	%		March 2016
4.750% senior notes due 2022		575,000				567,585				(5)			October 2012, February 2013, April 2013
4.875% senior notes due December 2023		400,000				393,622				99.169	%		November 2015
4.750% senior notes due 2025		500,000				495,528				100	%		April 2015

(1)	Interest is payable semi-annually for each of the series of senior notes. The senior notes are unsecured and unsubordinated, but are guaranteed by substantially all of the our 100% owned homebuilding subsidiaries.

(2)	We generally uses the net proceeds for working capital and general corporate purposes, which can include the repayment or repurchase of other outstanding senior notes.

(3)	We issued $400 million aggregate principal amount at a price of 100% and $100 million aggregate principal amount at a price of 100.5%.

(4)	We issued $350 million aggregate principal amount at a price of 100% and $250 million aggregate principal amount at a price of 100.25%.

(5)	We issued $350 million aggregate principal amount at a price of 100%, $175 million aggregate principal amount at a price of 98.073% and $50 million aggregate principal amount at a price of 98.250%.

In March 2016, we retired our 6.50% Senior Notes for 100% of the $250 million outstanding principal amount, plus accrued and unpaid interest.

During the year ended November 30, 2016, all of the $400 million aggregate principal amount of the 3.25% Convertible Senior Notes were converted or redeemed for 17.0 million shares of Class A common stock, plus accrued and unpaid interest through the date of the conversions/redemptions and small cash premiums. The 3.25% Convertible Senior Notes were converted or redeemed at the initial conversion rate of 42.5555 shares of Class A common stock per $1,000 principal amount of the 3.25% Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $23.50 per share of Class A common stock.

During the year ended November 30, 2016, all of the remaining $234 million in aggregate outstanding principal amount of the 2.75% Convertible Senior Notes were converted or exchanged by the holders for approximately $234 million in cash and 5.2 million shares of Class A common stock, plus accrued and unpaid interest with respect to the exchanges. The 2.75% Convertible Senior Notes were convertible into cash, shares of Class A common stock or a combination of both, at our election. However, we settled the face value of the 2.75% Convertible Senior Notes in cash. Holders converted or exchanged the 2.75% Convertible Senior Notes at the initial conversion rate of 45.1794 shares of Class A common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $22.13 per share of Class A common stock.

Subsequent to November 30, 2016, we issued $600 million aggregate principal amount of 4.125% senior notes due 2022 (the "4.125% Senior Notes") at a price of 100%. Proceeds from the offering, after underwriting fees but before expenses, are estimated to be $596.1 million. We will use the net proceeds from the sales of the 4.125% Senior Notes to fund all or a portion of the cash consideration for our acquisition of WCI, to pay costs and expenses related to the acquisition of WCI and/or for general corporate purposes, which may include the repayment or repurchase of our debt. Interest on the 4.125% Senior Notes is due semi-annually beginning July 15, 2017. The 4.125% Senior Notes are unsecured and unsubordinated, but are guaranteed by substantially all of our 100% owned homebuilding subsidiaries.

Currently, substantially all of our 100% owned homebuilding subsidiaries are guaranteeing all of our senior notes (the "Guaranteed Notes"). The guarantees are full and unconditional. The principal reason our 100% owned homebuilding subsidiaries are guaranteeing the Guaranteed Notes is so holders of the Guaranteed Notes will have rights at least as great with regard to those subsidiaries as any other holders of a material amount of our unsecured debt. Therefore, the guarantees of the Guaranteed Notes will remain in effect with regard to a guarantor subsidiary only while it guarantees a material amount of the debt of Lennar Corporation, as a separate entity, to others. At any time when a guarantor subsidiary is no longer guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes, either directly or by guaranteeing other subsidiaries’ obligations as guarantors of Lennar Corporation’s debt, the guarantor subsidiary’s guarantee of the Guaranteed Notes will be suspended. Therefore, if the guarantor subsidiaries cease guaranteeing Lennar Corporation’s obligations under our Credit Facility and our letter of credit facilities and are not guarantors of any new debt, the guarantor subsidiaries’ guarantees of the Guaranteed Notes will be suspended until such time, if any, as they again are guaranteeing at least $75 million of Lennar Corporation’s debt other than the Guaranteed Notes.

If our guarantor subsidiaries are guaranteeing revolving credit lines totaling at least $75 million, we will treat the guarantees of the Guaranteed Notes as remaining in effect even during periods when Lennar Corporation’s borrowings under the revolving credit lines are less than $75 million. A subsidiary will be released from its guarantee and any other obligations it may have regarding the senior notes if all or substantially all its assets, or all of its capital stock, are sold or otherwise disposed of.

In June 2016, we amended our Credit Facility to increase the maximum borrowings from $1.6 billion to $1.8 billion. The maturity for $1.3 billion of the Credit Facility was extended from June 2019 to June 2020, with the remaining $160 million maturing in June 2018. As of November 30, 2016, the Credit Facility included a $298 million accordion feature, subject to additional commitments, with certain financial institutions. The proceeds available under the Credit Facility, which are subject to specified conditions for borrowing, may be used for working capital and general corporate purposes. The credit agreement also provides that up to $500 million in commitments may be used for letters of credit. As of both November 30, 2016 and 2015, we had no outstanding borrowings under the Credit Facility. We may from time to time, borrow and repay amounts under the Credit Facility. Consequently, the amount outstanding under the Credit Facility at the end of the period may not be reflective of the total amounts outstanding during the period. In addition, we had $320 million letter of credit facilities with different financial institutions at November 30, 2016.

Under the amended Credit Facility agreement executed in June 2016 (the "Credit Agreement"), as of the end of each fiscal quarter, we are required to maintain minimum consolidated tangible net worth of approximately $1.5 billion plus the sum of 50% of the cumulative consolidated net income from February 29, 2012, if positive, and 50% of the net cash proceeds from any equity offerings from and after February 29, 2012 minus the lesser of 50% of the amount paid after June 24, 2016 to repurchase common stock and $100 million. We are required to maintain a leverage ratio that shall not exceed 65% and may be reduced by 2.5% per quarter if our interest coverage ratio is less than 2.25:1.00 for two consecutive fiscal calendar quarters. The

leverage ratio will have a floor of 60%. If our interest coverage ratio subsequently exceeds 2.25:1.00 for two consecutive fiscal calendar quarters, the leverage ratio we will be required to maintain will be increased by 2.5% per quarter to a maximum of 65%. As of the end of each fiscal quarter, we are also required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio equal to or greater than 1.50:1.00 for the last twelve months then ended. We believe that we were in compliance with our debt covenants at November 30, 2016

The following summarizes our required debt covenants and our actual levels or ratios with respect to those covenants as calculated per the Credit Agreement as of November 30, 2016:

(Dollars in thousands)	Covenant Level				Level Achieved as of November 30, 2016
Minimum net worth test	$	3,000,798			5,769,195
Maximum leverage ratio	65.0		%		35.4	%
Liquidity test (1)	1.00				3.87

(1)	We are only required to maintain either (1) liquidity in an amount equal to or greater than 1.00x consolidated interest incurred for the last twelve months then ended or (2) an interest coverage ratio of equal to or greater than 1.50:1.00 for the last twelve months then ended. Although we are in compliance with our debt covenants for both calculations, we have only disclosed our liquidity test.

The terms minimum net worth test, maximum leverage ratio, liquidity test and interest coverage ratio used in the Credit Agreement are specifically calculated per the Credit Agreement and differ in specified ways from comparable GAAP or common usage terms.

Our performance letters of credit outstanding were $270.8 million and $236.5 million at November 30, 2016 and 2015, respectively. Our financial letters of credit outstanding were $210.3 million and $216.7 million at November 30, 2016 and 2015, respectively. Performance letters of credit are generally posted with regulatory bodies to guarantee the performance of certain development and construction activities. Financial letters of credit are generally posted in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2016, we had outstanding surety bonds of $1.4 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds including $223.4 million related to pending litigation.

Our Lennar Financial Services segment's warehouse facilities at November 30, 2016 were as follows:

(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures December 2016 (1)(2)	$	400,000
364-day warehouse repurchase facility that matures June 2017 (3)	600,000
364-day warehouse repurchase facility that matures September 2017	300,000
Total	$	1,300,000

(1)	Maximum aggregate commitment includes an uncommitted amount of $250 million.

(2)	Subsequent to November 30, 2016, the warehouse repurchase facility maturity date was extended to December 2017.

(3)	In accordance with the amended warehouse repurchase facility agreement, the maximum aggregate commitment will be decreased to $400 million in the first quarter of fiscal 2017 and will be increased to $600 million in the second quarter of fiscal 2017.

Our Lennar Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and the proceeds are collected. The facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature. Borrowings under the facilities and their prior year predecessors were $1.1 billion and $858.3 million, at November 30, 2016 and 2015, respectively, and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $1.1 billion and $916.9 million, at November 30, 2016 and 2015, respectively. The combined effective interest rate on the facilities at November 30, 2016 was 2.9%. If the facilities are not renewed or replaced, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Lennar Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

At November 30, 2016, RMF warehouse facilities were as follows:

(In thousands)	Maximum Aggregate Commitment
364-day warehouse repurchase facility that matures April 2017 (1)(2)	$	500,000
364-day warehouse repurchase facility that matures January 2017 (1)	250,000
Warehouse repurchase facility that matures December 2017 (1)	200,000
Warehouse repurchase facility that matures August 2018 (two - one year extensions) (3)	100,000
Totals	$	1,050,000

(1)	RMF uses these facilities to finance its loan origination and securitization business.

(2)	The warehouse repurchase facility has the option of an additional six month extension.

(3)	Rialto uses this warehouse repurchase facility to finance the origination of floating rate accrual loans which are reported as accrual loans within loans receivable, net. Borrowings under this facility were $43.3 million and $36.3 million as of November 30, 2016 and 2015, respectively.

Borrowings under the facilities that finance RMF's loan originations and securitization activities were $180.2 million and $317.1 million as of November 30, 2016 and 2015, respectively and were secured by a 75% interest in the originated commercial loans financed. The facilities require immediate repayment of the 75% interest in the secured commercial loans when the loans are sold in a securitization and the proceeds are collected. These warehouse repurchase facilities are non-recourse to us and are expected to be renewed or replaced with other facilities when they mature.

As of November 30, 2016 and 2015, the carrying amount, net of debt issuance costs, of Rialto's 7.00% Senior Notes was $348.7 million and $347.9 million, respectively. Under the indenture, Rialto is subject to certain covenants limiting, among other things, Rialto’s ability to incur indebtedness, to make investments, to make distributions to, or enter into transactions with Lennar or to create liens, subject to certain exceptions and qualifications. Rialto also has quarterly and annual reporting requirements, similar to an SEC registrant, to holders of the 7.00% Senior Notes. We believe Rialto was in compliance with its debt covenants at November 30, 2016.

As of November 30, 2016 and 2015, the outstanding amount, net of debt issuance costs, related to Rialto's Structured Notes was $23.9 million and $31.3 million, respectively. The estimated final payment date is December 15, 2017.

In November 2016, Rialto paid the remaining outstanding principal amount of $30.3 million related to a $124 million 5-year senior unsecured note provided by one of the selling institutions in the 2010 acquisition of a portfolio of distressed residential and commercial real estate loans and REO properties acquired from three financial institutions.

Changes in Capital Structure

We have a stock repurchase program adopted in 2001, which originally authorized us to purchase up to 20 million shares of our outstanding common stock. During the years ended November 30, 2016, 2015 and 2014, there were no share repurchases of common stock under the stock repurchase program. As of November 30, 2016, the remaining authorized shares that can be purchased under the stock repurchase program were 6.2 million shares of common stock.

During the years ended November 30, 2016 and 2015, treasury stock increased by 0.1 million shares and 0.3 million shares, respectively, of Class A common stock primarily due to activity related to our equity compensation plan.

During the years ended November 30, 2016, 2015 and 2014, our Class A and Class B common stockholders received a per share annual dividend of $0.16.

Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of activity.

Off-Balance Sheet Arrangements

Lennar Homebuilding - Investments in Unconsolidated Entities

At November 30, 2016, we had equity investments in 38 homebuilding and land unconsolidated entities (of which 2 had recourse debt, 9 had non-recourse debt and 27 had no debt), compared to 34 homebuilding and land unconsolidated entities at November 30, 2015. Historically, we have invested in unconsolidated entities that acquired and developed land (1) for our homebuilding operations or for sale to third parties or (2) for the construction of homes for sale to third-party homebuyers. Through these entities, we have primarily sought to reduce and share our risk by limiting the amount of our capital invested in land, while obtaining access to potential future homesites and allowing us to participate in strategic ventures. The use of these entities also, in some instances, has enabled us to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Participants in these joint ventures have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to homesites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partner. Each joint venture is governed by an executive committee consisting of members from the partners.

Although the strategic purposes of our joint ventures and the nature of our joint ventures partners vary, the joint ventures are generally designed to acquire, develop and/or sell specific assets during a limited life-time. The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture. In many cases, our risk is limited to our equity contribution and potential future capital contributions. Additionally, most joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of their communities. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, capital calls relating to the repayment of joint venture debt under payment guarantees generally is required.

Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentage. Some joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return). Lennar Homebuilding equity in earnings (loss) from unconsolidated entities excludes our pro-rata share of joint ventures’ earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our costs of purchasing the land from the joint ventures or reduce the investment in certain cost sharing unconsolidated entities. This in effect defers recognition of our share of the joint ventures’ earnings related to these sales until we deliver a home and title passes to a third-party homebuyer.

In many instances, we are designated as the manager of a venture under the direction of a management committee that has shared power among the partners of the unconsolidated entity and we receive fees for such services. In addition, we often enter into option and purchase contracts to acquire properties from our joint ventures, generally for market prices at specified dates in the future. Option contracts generally require us to make deposits using cash or irrevocable letters of credit toward the exercise price. These option deposits are generally negotiated on a case by case basis.

We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. Joint ventures in which we have investments may be subject to a variety of financial and non-financial debt covenants related primarily to equity maintenance, fair value of collateral and minimum homesite takedown or sale requirements. We monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment.

Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business.

As discussed above, the joint ventures in which we invest generally supplement equity contributions with third-party debt to finance their activities. In some instances, the debt financing is non-recourse, thus neither we nor the other equity partners are a party to the debt instruments. In other cases, we and the other partners agree to provide credit support in the form of repayment guarantees.

Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us, or another of the joint venture participants, who supply the necessary facilities and employee services in exchange for market-

based management fees. However, they do enter into management contracts with the participants who manage them. Some joint ventures also enter into agreements with developers, which may be us or other joint venture participants, to develop raw land into finished homesites or to build homes.

The joint ventures often enter into option or purchase agreements with buyers, which may include us or other joint venture participants, to deliver homesites or parcels in the future at market prices. Option deposits are recorded by the joint ventures as liabilities until the exercise dates at which time the deposit and remaining exercise proceeds are recorded as revenue. Any forfeited deposit is recognized as revenue at the time of forfeiture. Our unconsolidated joint ventures generally do not enter into off-balance sheet arrangements.

As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition and development of properties. As the properties are completed and sold, cash generated is available to repay debt and for distribution to the joint venture’s members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle.

We track our share of cumulative earnings and cumulative distributions of our joint ventures. For purposes of classifying distributions received from joint ventures in our statements of cash flows, cumulative distributions are treated as returns on capital to the extent of cumulative earnings and included in our consolidated statements of cash flows as cash flow from operating activities. Cumulative distributions in excess of our share of cumulative earnings are treated as returns of capital and included in our consolidated statements of cash flows as cash flows from investing activities.

Summarized financial information on a combined 100% basis related to Lennar Homebuilding’s unconsolidated entities that are accounted for by the equity method was as follows:

Statements of Operations and Selected Information

	Years Ended November 30,
(Dollars in thousands)	2016				2015			2014
Revenues	$	439,874			1,309,517			263,395
Costs and expenses	578,831				969,509			291,993
Other income	—				49,343			—
Net earnings (loss) of unconsolidated entities	$	(138,957	)		389,351			(28,598	)
Lennar Homebuilding equity in earnings (loss) from unconsolidated entities	$	(49,275	)		63,373			(355	)
Lennar Homebuilding cumulative share of net earnings - deferred at November 30	$	41,495			42,651			6,593
Lennar Homebuilding investments in unconsolidated entities	$	811,723			741,551			656,837
Equity of the unconsolidated entities	$	3,765,336			2,692,360			2,278,941
Lennar Homebuilding investment % in the unconsolidated entities (1)	22		%		28	%		29	%

(1)	Our share of profit and cash distributions from the sales of land could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return or cash flow milestones are achieved.

For the year ended November 30, 2016, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the FivePoint combination (discussed in the following page) and operational net losses from the new FivePoint unconsolidated entity, totaling $42.6 million. This was partially offset by $12.7 million of equity in earnings primarily due to sales of homesites to third parties by one of our unconsolidated entities.

For the year ended November 30, 2015, Lennar Homebuilding equity in earnings included $82.8 million of equity in earnings from one of our unconsolidated entities primarily due to (1) sales of approximately 800 homesites to a joint venture in which we have a 50% investment and for which our portion of the gross profit from the sale was deferred, (2) sales of approximately 700 homesites and a commercial property to third parties and (3) a gain on debt extinguishment. In addition, for the year ended November 30, 2015, net earnings of unconsolidated entities included sales of approximately 300 homesites to us by one of our unconsolidated entities that resulted in $49.3 million of gross profit, of which our portion was deferred.

For the year ended November 30, 2014, Lennar Homebuilding equity in loss from unconsolidated entities related primarily to our share of operating losses from various Lennar Homebuilding unconsolidated entities, which included $4.6 million of valuation adjustments related to assets of Lennar Homebuilding's unconsolidated entities, partially offset by $4.7 million of equity in earnings as a result of third-party land sales by one unconsolidated entity.

Balance Sheets

	November 30,
(In thousands)	2016				2015
Assets:
Cash and cash equivalents	$	221,334			248,980
Inventories	3,889,795				3,059,054
Other assets	1,338,302				465,404
	$	5,449,431			3,773,438
Liabilities and equity:
Accounts payable and other liabilities	$	791,245			288,192
Debt	892,850				792,886
Equity	3,765,336				2,692,360
	$	5,449,431			3,773,438

On May 2, 2016 (the "Closing Date"), we contributed, or obtained the right to contribute, our investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a FivePoint entity. The fair values of the assets contributed to this FivePoint entity, included within the unconsolidated entities summarized condensed balance sheet presented above, are preliminary and may be adjusted when additional information is obtained during the transaction’s measurement period (a period of up to one year from the Closing Date) that may change the fair value allocation as of the acquisition date. A portion of the assets of one of the three strategic joint ventures was retained by us and our venture partner in a new unconsolidated entity. The transactions did not have a material impact to our financial position or cash flows. We recorded our share of combination costs in equity in loss from unconsolidated entities on our consolidated statement of operations for the year ended November 30, 2016.

As of November 30, 2016 and 2015, our recorded investments in Lennar Homebuilding unconsolidated entities were $811.7 million and $741.6 million, respectively, while the underlying equity in Lennar Homebuilding unconsolidated entities partners’ net assets as of November 30, 2016 and 2015 was $1.2 billion and $839.5 million, respectively. The basis difference is primarily as a result of us contributing our investment in three strategic joint ventures with a higher fair value than book value for an investment in the FivePoint entity and deferring equity in earnings on land sales to us.

During the year ended November 30, 2015, one of our unconsolidated entities sold approximately 800 homesites to a joint venture, in which we have a 50% investment, for $472 million of which $320 million was financed through a non-recourse note. This transaction resulted in $157.4 million of gross profit, of which our portion was deferred. In addition, this transaction resulted in an increase in inventory, other assets and debt of the Lennar Homebuilding unconsolidated entities reflected in the summarized condensed financial information presented in the previous table for the year ended November 30, 2015.

The Lennar Homebuilding unconsolidated entities in which we have investments usually finance their activities with a combination of partner equity and debt financing. In some instances, we and our partners have guaranteed debt of certain unconsolidated entities.

Debt to total capital of the Lennar Homebuilding unconsolidated entities in which we have investments was calculated as follows:

	November 30,
(Dollars in thousands)	2016				2015
Debt	$	892,850			792,886
Equity	3,765,336				2,692,360
Total capital	$	4,658,186			3,485,246
Debt to total capital of our unconsolidated entities	19.2		%		22.7	%

Our investments in Lennar Homebuilding unconsolidated entities by type of venture were as follows:

	November 30,
(In thousands)	2016				2015
Land development	$	787,138			691,850
Homebuilding	24,585				49,701
Total investments	$	811,723			741,551

Indebtedness of an unconsolidated entity is secured by its own assets. Some unconsolidated entities own multiple properties and other assets. There is no cross collateralization of debt of different unconsolidated entities. We also do not use our investment in one unconsolidated entity as collateral for the debt of another unconsolidated entity or commingle funds among Lennar Homebuilding unconsolidated entities.

In connection with loans to a Lennar Homebuilding unconsolidated entity, we and our partners often guarantee to a lender, either jointly and severally or on a several basis, any or all of the following: (i) the completion of the development, in whole or in part, (ii) indemnification of the lender from environmental issues, (iii) indemnification of the lender from "bad boy acts" of the unconsolidated entity (or full recourse liability in the event of an unauthorized transfer or bankruptcy) and (iv) that the loan to value and/or loan to cost will not exceed a certain percentage (maintenance or remargining guarantee) or that a percentage of the outstanding loan will be repaid (repayment guarantee).

In connection with loans to an unconsolidated entity where there is a joint and several guarantee, we sometimes have a reimbursement agreement with our partner. The reimbursement agreement provides that neither party is responsible for more than its proportionate share of the guarantee. However, if our joint venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, we may be liable for more than our proportionate share, up to our maximum exposure, which is the full amount covered by the joint and several guarantee.

The total debt of Lennar Homebuilding unconsolidated entities in which we have investments, including Lennar's maximum recourse exposure, were as follows:

	November 30,
(Dollars in thousands)	2016				2015
Non-recourse bank debt and other debt (partner’s share of several recourse)	$	48,945			50,411
Non-recourse land seller debt and other debt (1)	323,995				324,000
Non-recourse debt with completion guarantees	147,100				146,760
Non-recourse debt without completion guarantees	320,372				260,734
Non-recourse debt to the Lennar	840,412				781,905
Lennar’s maximum recourse exposure (2)	52,438				10,981
Total debt	$	892,850			792,886
Lennar’s maximum recourse exposure as a % of total JV debt	6		%		1	%

(1)	Non-recourse land seller debt and other debt as of both November 30, 2016 and 2015, included a $320 million non-recourse note related to a transaction between one of our unconsolidated entities and another unconsolidated joint venture, described previously, which was settled subsequent to November 30, 2016.

(2)	As of November 30, 2016, the increase in our maximum recourse exposure was primarily related to us providing a repayment guarantee on an unconsolidated entity's debt.

During the year ended November 30, 2016, our maximum recourse exposure related to indebtedness of Lennar Homebuilding unconsolidated entities increased by $41.5 million, as a result of us providing a repayment guarantee of $43.4 million on a Lennar Homebuilding unconsolidated entity's debt, partially offset by $0.9 million of commitment reductions primarily through capital contributions to unconsolidated entities and by $1.0 million primarily related to the joint ventures selling assets.

The recourse debt exposure in the previous table represents our maximum exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay debt or to reimburse us for any payments on our guarantees.

In addition, in most instances in which we have guaranteed debt of a Lennar Homebuilding unconsolidated entity, our partners have also guaranteed that debt and are required to contribute their share of the guarantee payment. In a repayment guarantee, we and our venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral.

In connection with many of the loans to Lennar Homebuilding unconsolidated entities, we and our joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, the guarantee generally is limited to completing only the phases as to which construction has already commenced and for which loan proceeds were used.

If we are required to make a payment under any guarantee, the payment would generally constitute a capital contribution or loan to the Lennar Homebuilding unconsolidated entity and increase our share of any funds the unconsolidated entity distributes.

As of November 30, 2016 and 2015, the fair values of the repayment and completion guarantees were not material. We believe that as of November 30, 2016, in the event we become legally obligated to perform under a guarantee of the obligation of a Lennar Homebuilding unconsolidated entity due to a triggering event under a guarantee, the collateral is expected to be sufficient to repay at least a significant portion of the obligation or we and our partners would contribute additional capital into the venture. In certain instances, we have placed performance letters of credit and surety bonds with municipalities for our joint ventures (see Note 6 of the notes to our consolidated financial statements).

In view of credit market conditions during the past several years, it is not uncommon for lenders and/or real estate developers, including joint ventures in which we have interests, to assert non-monetary defaults (such as failure to meet construction completion deadlines or declines in the market value of collateral below required amounts) or technical monetary defaults against the real estate developers. In most instances, those asserted defaults are resolved by modifications of the loan terms, additional equity investments or other concessions by the borrowers. In addition, in some instances, real estate developers, including joint ventures in which we have interests, are forced to request temporary waivers of covenants in loan documents or modifications of loan terms, which are often, but not always obtained. However, in some instances developers, including joint ventures in which we have interests, are not able to meet their monetary obligations to lenders, and are thus declared in default. Because we sometimes guarantee all or portions of the obligations to lenders of joint ventures in which we have interests, when these joint ventures default on their obligations, lenders may or may not have claims against us. Normally, we do not make payments with regard to guarantees of joint venture obligations while the joint ventures are contesting assertions regarding sums due to their lenders. When it is determined that a joint venture is obligated to make a payment that we have guaranteed and the joint venture will not be able to make that payment, we accrue the amounts probable to be paid by us as a liability. Although we generally fulfill our guarantee obligations within a reasonable time after we determine that we are obligated with regard to them, at any point in time it is possible that we will have some balance of unpaid guarantee liability. At both November 30, 2016 and 2015, we had no liabilities accrued for unpaid guarantees of joint venture indebtedness on our consolidated balance sheets.

The following table summarizes the principal maturities of our Lennar Homebuilding unconsolidated entities ("JVs") debt as per current debt arrangements as of November 30, 2016 and it does not represent estimates of future cash payments that will be made to reduce debt balances. Many JV loans have extension options in the loan agreements that would allow the loans to be extended into future years.

		Principal Maturities of Unconsolidated JVs by Period
(In thousands)		Total JV Debt				2017			2018			2019			Thereafter			Other Debt (1)
Maximum recourse debt exposure to Lennar		$	52,438			9,015			—			38,136			5,287			—
Debt without recourse to Lennar		840,412				79,719			148,868			214,846			72,984			323,995
Total		$	892,850			88,734			148,868			252,982			78,271			323,995

(1)	Represents land seller debt and other debt of which $320 million was due and settled in December 2016.

The table below indicates the assets, debt and equity of our 10 largest Lennar Homebuilding unconsolidated joint venture investments as of November 30, 2016:

(Dollars in thousands)	Lennar’s Investment				Total JV Assets			Maximum Recourse Debt Exposure to Lennar			Total Debt Without Recourse to Lennar			Total JV Debt			Total JV Equity			JV Debt to Total Capital Ratio
Top Ten JVs (1):
FivePoint (2)	$	255,649			2,126,717			—			69,303			69,303			1,520,563			4	%
Heritage Fields El Toro	146,091				1,494,232			—			9,703			9,703			1,309,979			1	%
Heritage Hills Irvine (3)	63,304				511,328			—			—			—			171,878			—
Runkle Canyon	45,163				134,633			—			42,861			42,861			90,326			32	%
Treasure Island Community Development	42,216				147,600			—			54,177			54,177			84,464			39	%
Ballpark Village	29,112				100,535			—			25,235			25,235			60,225			30	%
Krome Groves Land Trust	21,366				89,733			9,015			19,240			28,255			59,049			32	%
MS Rialto Residential Holdings	20,448				83,280			—			—			—			80,816			—
Fifth Wall Ventures SPV I	20,359				20,365			—			—			—			20,361			—
Willow Springs Properties	19,017				34,212			—			—			—			32,301			—
10 largest JV investments	662,725				4,742,635			9,015			220,519			229,534			3,429,962			6	%
Other JVs	148,998				706,796			43,423			295,898			339,321			335,374			50	%
Total	$	811,723			5,449,431			52,438			516,417			568,855			3,765,336			13	%
Land seller debt and other debt (3)								—			323,995			323,995
Total JV debt								52,438			840,412			892,850

(1)

The 10 largest joint ventures presented above represent the majority of total JVs assets and equity and 17% of total JV maximum recourse debt exposure to Lennar and 43% of total JV debt without recourse to Lennar. In addition, all of the joint ventures presented in the table above operate in our Homebuilding West segment except for Krome Groves Land Trust, which operates in our Homebuilding East segment and Willow Springs Properties, which operates in our Homebuilding Central segment.

(2)	The amounts presented above for FivePoint are preliminary and may be adjusted when additional information is obtained during the transaction's measurement period (a period of up to one year from the FivePoint combination).

(3)	The Heritage Hills Irvine JV has a $320 million non-recourse note payable to Heritage Fields El Toro that was settled subsequent to November 30, 2016, which is included in land seller debt and other debt line item in the table.

Rialto - Investments in Unconsolidated Entities

The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments:

															November 30, 2016				November 30, 2016				November 30, 2015
(In thousands)	Inception Year		Equity Commitments				Equity Commitments Called				Commitment to Fund by the Company				Funds Contributed by the Company				Investment
Rialto Real Estate Fund, LP	2010		$	700,006			$	700,006			$	75,000			$	75,000			$	58,116			68,570
Rialto Real Estate Fund II, LP	2012		1,305,000				1,305,000				100,000				100,000				96,192				99,947
Rialto Mezzanine Partners Fund, LP	2013		300,000				300,000				33,799				33,799				23,643				32,344
Rialto Capital CMBS Funds	2014		119,174				119,174				52,474				52,474				50,519				23,233
Rialto Real Estate Fund III	2015		1,289,180				128,871				100,000				7,239				9,093				—
Rialto Credit Partnership, LP	2016		220,000				63,150				19,999				5,741				5,794				—
Other investments																			2,384				775
																			$	245,741			224,869

During the years ended November 30, 2016, 2015, and 2014, Rialto's share of earnings from unconsolidated entities was $19.0 million, $22.3 million and $59.3 million, respectively.

As manager of real estate funds, we are entitled to receive additional revenue through carried interests if the funds meet certain performance thresholds. The amounts presented in the table below are advance distributions received related to Rialto's carried interests in order to cover income tax obligations resulting from allocations of taxable income to its carried interests in its real estate funds. These advance distributions are not subject to clawbacks but will reduce future carried interest payments to which Rialto becomes entitled from the applicable funds and have been recorded as revenues. Advance distributions received during the years ended November 30, 2016 and 2015 were as follows:

	Years Ended November 30,
(In thousands)	2016				2015			2014
Rialto Real Estate Fund, LP	$	7,633			9,588			34,693
Rialto Real Estate Fund II, LP	100				9,383			—
Rialto Mezzanine Partners Fund, LP	750				513			—
Rialto Capital CMBS Funds	1,639				516			—
	$	10,122			20,000			34,693

The following table represents amounts Rialto would have received had the funds ceased operations and hypothetically liquidated all their investments at their estimated fair values on November 30, 2016, both gross and net of amounts already received as advanced tax distributions. The actual amounts Rialto may receive could be materially different from amounts presented in the table below.

(In thousands)	Hypothetical Carried Interest				Paid as Advanced Tax Distribution			Hypothetical Carried Interest, Net
Rialto Real Estate Fund, LP	$	168,925			51,913			117,012
Rialto Real Estate Fund II, LP (1)	33,551				9,484			24,067
	$	202,476			61,397			141,079

(1)	Net of interests of participating employees (refer to paragraph below).

During 2015, Rialto adopted a Carried Interest Incentive Plan (the "Plan"), under which participating employees in the aggregate may receive up to 40% of the equity units of a limited liability company (a "Carried Interest Entity") that is entitled to distributions made by a fund or other investment vehicle (a "Fund") managed by a subsidiary of Rialto. As such, those employees receiving equity units in a Carried Interest Entity may benefit from distributions made by a Fund to the extent the Carried Interest Entity makes distributions to its equity holders. The units issued to employees are equity awards and are subject to vesting schedules and forfeiture or repurchase provisions in the case of termination of employment.

Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

	November 30,
(In thousands)	2016				2015
Assets:
Cash and cash equivalents	$	230,229			188,147
Loans receivable	406,812				473,997
Real estate owned	439,191				506,609
Investment securities	1,379,155				1,092,476
Investments in partnerships	398,535				429,979
Other assets	31,902				30,340
	$	2,885,824			2,721,548
Liabilities and equity:
Accounts payable and other liabilities	$	36,131			29,462
Notes payable	535,130				374,498
Equity	2,314,563				2,317,588
	$	2,885,824			2,721,548

Statements of Operations and Selected Information

	Years Ended November 30,
(In thousands)	2016				2015			2014
Revenues	$	200,346			170,921			150,452
Costs and expenses	96,343				97,162			95,629
Other income, net (1)	49,342				144,941			479,929
Net earnings of unconsolidated entities	$	153,345			218,700			534,752
Rialto equity in earnings from unconsolidated entities	$	18,961			22,293			59,277
Rialto's investments in unconsolidated entities	$	245,741			224,869			175,700
Equity of the unconsolidated entities	$	2,314,563			2,317,588			1,767,912
Rialto's investment % in the unconsolidated entities	11		%		10	%		10	%

(1)	Other income, net, included realized and unrealized gains (losses) on investments.

Lennar Multifamily - Investments in Unconsolidated Entities

At November 30, 2016, Lennar Multifamily had equity investments in 28 unconsolidated entities that are engaged in multifamily residential developments (of which 18 had non-recourse debt and 10 had no debt), compared to 29 unconsolidated entities at November 30, 2015. We invest in unconsolidated entities that acquire and develop land to construct multifamily rental properties. Through these entities, we are focusing on developing a geographically diversified portfolio of institutional quality multifamily rental properties in select U.S. markets. Participants in these joint ventures have been financial partners. Joint ventures with financial partners have allowed us to combine our development and construction expertise with access to our partners’ capital. Each joint venture is governed by an operating agreement that provides significant substantive participating voting rights on major decisions to our partners.

In 2015, the Lennar Multifamily segment completed the initial closing of the Venture for the development, construction and property management of class-A multifamily assets with $1.1 billion of commitments. During the year ended November 30, 2016, the Venture received an additional $1.1 billion of equity commitments, completing the fund raising for the Venture and increasing its total commitments to $2.2 billion, including a $504 million co-investment commitment by us comprised of cash, undeveloped land and preacquisition costs. The Venture is currently seeded with 33 undeveloped multifamily assets that were previously purchased or under contract by the Lennar Multifamily segment totaling approximately 9,800 apartments with projected project costs of $3.4 billion as of November 30, 2016. During the year ended November 30, 2016, $656.1 million in equity commitments were called, of which we contributed our portion of $203.8 million. During the year ended November 30, 2016, we received net distributions of $113.7 million as return of capital from the Venture when bringing new investors into the Venture. As of November 30, 2016, $931.6 million of the $2.2 billion in equity commitments had been called, of which we have contributed $215.8 million representing our pro-rata portion of the called equity, resulting in a remaining equity commitment for us of $288.2 million. As of November 30, 2016 and 2015, the carrying value of our investment in the Venture was $198.2 million and $122.5 million, respectively.

The joint ventures are typically structured through non-corporate entities in which control is shared with our venture partners. Each joint venture is unique in terms of its funding requirements and liquidity needs. We and the other joint venture participants typically make pro-rata cash contributions to the joint venture except for cost over-runs relating to the construction of the project. In all cases, we have been required to provide guarantees of completion and cost over-runs to the lenders and partners. These completion guarantees may require us to complete the improvements for which the financing was obtained. Therefore, our risk is limited to our equity contribution, draws on letters of credit and potential future payments under the guarantees of completion and cost over-runs. In certain instances, payments made under the cost over-run guarantees are considered capital contributions.

Additionally, the joint ventures obtain third-party debt to fund a portion of the acquisition, development and construction costs of the rental projects. The joint venture agreements usually permit, but do not require, the joint ventures to make additional capital calls in the future. However, the joint venture debt does not have repayment or maintenance guarantees. Neither we nor the other equity partners are a party to the debt instruments. In some cases, we agree to provide credit support in the form of a letter of credit provided to the bank.

We regularly monitor the results of our unconsolidated joint ventures and any trends that may affect their future liquidity or results of operations. We also monitor the performance of joint ventures in which we have investments on a regular basis to assess compliance with debt covenants. For those joint ventures not in compliance with the debt covenants, we evaluate and assess possible impairment of our investment. We believe all of the joint ventures were in compliance with their debt covenants at November 30, 2016.

Under the terms of our joint venture agreements, we generally have the right to share in earnings and distributions of the entities on a pro-rata basis based on our ownership percentages. Most joint venture agreements provide for a different allocation of profit and cash distributions if and when the cumulative results of the joint venture exceed specified targets (such as a specified internal rate of return).

In many instances, we are designated as the development manager and/or the general contractor and/or the property manager of the unconsolidated entity and receive fees for such services. In addition, we do not plan to enter into option and purchase contracts to acquire properties from our Lennar Multifamily joint ventures.

Our arrangements with joint ventures generally do not restrict our activities or those of the other participants. However, in certain instances, we agree not to engage in some types of activities that may be viewed as competitive with the activities of these ventures in the localities where the joint ventures do business.

Material contractual obligations of our unconsolidated joint ventures primarily relate to the debt obligations described above. The joint ventures generally do not enter into lease commitments because the entities are managed either by us or the other partners, who supply the necessary facilities and employee services in exchange for market-based management fees. However, they do enter into management contracts with the participants who manage them.

As described above, the liquidity needs of joint ventures in which we have investments vary on an entity-by-entity basis depending on each entity’s purpose and the stage in its life cycle. During formation and development activities, the entities generally require cash, which is provided through a combination of equity contributions and debt financing, to fund acquisition, development and construction of multifamily rental properties. As the properties are completed and sold, cash generated will be available to repay debt and for distribution to the joint venture’s members. Thus, the amount of cash available for a joint venture to distribute at any given time is primarily a function of the scope of the joint venture’s activities and the stage in the joint venture’s life cycle.

Summarized financial information on a combined 100% basis related to Lennar Multifamily’s investments in unconsolidated entities that are accounted for by the equity method was as follows:

Balance Sheets

	November 30,
(In thousands)	2016				2015
Assets:
Cash and cash equivalents	$	43,658			39,579
Operating properties and equipment	2,210,627				1,398,244
Other assets	46,015				25,925
	$	2,300,300			1,463,748
Liabilities and equity:
Accounts payable and other liabilities	$	196,617			179,551
Notes payable	589,397				466,724
Equity	1,514,286				817,473
	$	2,300,300			1,463,748

The following table summarizes the principal maturities of our Lennar Multifamily unconsolidated entities debt as per current debt arrangements as of November 30, 2016 and does not represent estimates of future cash payments that will be made to reduce debt balances.

		Principal Maturities of Lennar Multifamily Unconsolidated JVs by Period
(In thousands)		Total JV Debt				2017			2018			2019			Thereafter
Debt without recourse to Lennar Multifamily		$	589,397			304,220			119,590			90,983			74,604

Statements of Operations and Selected Information

	Years Ended November 30,
(In thousands)	2016				2015			2014
Revenues	$	45,287			16,309			4,855
Costs and expenses	68,976				27,190			7,435
Other income, net	191,385				43,340			35,068
Net earnings of unconsolidated entities	$	167,696			32,459			32,488
Lennar Multifamily equity in earnings from unconsolidated entities (1)	$	85,519			19,518			14,454
Our investments in unconsolidated entities	$	318,559			250,876			105,674
Equity of the unconsolidated entities	$	1,514,286			817,473			426,793
Our investment % in the unconsolidated entities (2)	21		%		31	%		25	%

(1)

During the year ended November 30, 2016, Lennar Multifamily equity in earnings from unconsolidated entities included the segment's $91.0 million share of gains as a result of the sale of seven operating properties by its unconsolidated entities. During the years ended November 30, 2015 and 2014, Lennar Multifamily equity in earnings from unconsolidated entities included the segment's $22.2 million and $14.7 million share of gains, respectively, as a result of the sale of two operating properties each year by its unconsolidated entities.

(2)	Our share of profit and cash distributions from sales of operating properties could be higher compared to our ownership interest in unconsolidated entities if certain specified internal rate of return milestones are achieved.

Option Contracts

We often obtain access to land through option contracts, which generally enable us to control portions of properties owned by third parties (including land funds) and unconsolidated entities until we have determined whether to exercise the options.

The table below indicates the number of homesites owned and homesites to which we had access through option contracts with third parties ("optioned") or unconsolidated JVs (i.e., controlled homesites) at November 30, 2016 and 2015:

	Controlled Homesites
November 30, 2016	Optioned			JVs			Total			Owned Homesites			Total Homesites
East	17,185			482			17,667			51,453			69,120
Central	5,726			1,135			6,861			32,690			39,551
West	2,409			4,899			7,308			35,451			42,759
Other	1,330			—			1,330			6,285			7,615
Total homesites	26,650			6,516			33,166			125,879			159,045

	Controlled Homesites
November 30, 2015	Optioned			JVs			Total			Owned Homesites			Total Homesites
East	21,922			494			22,416			50,212			72,628
Central	7,823			1,135			8,958			31,301			40,259
West	2,172			4,829			7,001			37,934			44,935
Other	1,574			—			1,574			6,467			8,041
Total homesites	33,491			6,458			39,949			125,914			165,863

We evaluate all option contracts for land to determine whether they are VIEs and, if so, whether we are the primary beneficiary of certain of these option contracts. Although we do not have legal title to the optioned land, if we are deemed to be the primary beneficiary or make a significant deposit for optioned land, we may need to consolidate the land under option at the purchase price of the optioned land.

During the year ended November 30, 2016, consolidated inventory not owned increased by $62.2 million with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2016. The increase was primarily related to the consolidation of an option agreement, partially offset by us exercising our option to acquire land under previously consolidated contracts. To reflect the purchase price of the inventory consolidated, we had a net reclass related to option deposits from land under development to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2016. The liabilities related to consolidated

inventory not owned primarily represent the difference between the option exercise prices for the optioned land and our cash deposits.

Our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of our non-refundable option deposits and pre-acquisition costs totaling $85.0 million and $89.2 million at November 30, 2016 and 2015, respectively. Additionally, we had posted $45.1 million and $70.4 million of letters of credit in lieu of cash deposits under certain land and option contracts as of November 30, 2016 and 2015, respectively.

Contractual Obligations and Commercial Commitments

The following table summarizes certain of our contractual obligations at November 30, 2016:

					Payments Due by Period
(In thousands)	Total				Less than 1 year			1 to 3 years			3 to 5 years			More than 5 years
Lennar Homebuilding - Senior notes and other debts payable (1)	$	4,605,330			478,333			2,078,329			523,718			1,524,950
Lennar Financial Services - Notes and other debts payable	1,077,228				1,077,045			183			—			—
Rialto - Notes and other debts payable (2)	624,689				249,186			375,503			—			—
Interest commitments under interest bearing debt (3)	930,940				251,344			340,822			178,627			160,147
Operating leases	148,189				39,607			58,696			33,766			16,120
Other contractual obligations (4)	395,219				250,419			108,800			36,000			—
Total contractual obligations (5)	$	7,781,595			2,345,934			2,962,333			772,111			1,701,217

(1)	The amounts presented in the table above exclude debt issuance costs and any discounts/premiums. Subsequent to November 30, 2016, we issued $600 million aggregate principal amount of 4.125% senior notes due 2022.

(2)	Amounts include notes payable and other debts payable of $351.0 million related to Rialto's 7.00% Senior Notes, $223.5 million related to the Rialto warehouse repurchase facilities and $23.9 million related to Rialto's Structured Notes with an estimated final payment date of December 15, 2017. These amounts exclude debt issuance costs.

(3)	Interest commitments on variable interest-bearing debt are determined based on the interest rate as of November 30, 2016.

(4)	Amounts include $288.2 million remaining equity commitment to fund the Venture for future expenditures related to the construction and development of the projects, $92.8 million of commitments to fund Rialto's Fund III and $14.3 million of commitments to fund Rialto's RCP.

(5)	Total contractual obligations exclude our gross unrecognized tax benefits and accrued interest and penalties totaling $58.3 million as of November 30, 2016, because we are unable to make reasonable estimates as to the period of cash settlement with the respective taxing authorities.

We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our options. This reduces our financial risk associated with land holdings. At November 30, 2016, we had access to 33,166 homesites through option contracts with third parties and unconsolidated entities in which we have investments. At November 30, 2016, we had $85.0 million of non-refundable option deposits and pre-acquisition costs related to certain of these homesites and had posted $45.1 million of letters of credit in lieu of cash deposits under certain land and option contracts.

At November 30, 2016, we had letters of credit outstanding in the amount of $481.1 million (which included the $45.1 million of letters of credit discussed above). These letters of credit are generally posted either with regulatory bodies to guarantee our performance of certain development and construction activities, or in lieu of cash deposits on option contracts, for insurance risks, credit enhancements and as other collateral. Additionally, at November 30, 2016, we had outstanding surety bonds of $1.4 billion including performance surety bonds related to site improvements at various projects (including certain projects of our joint ventures) and financial surety bonds including $223.4 million related to pending litigation. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all of the development and construction activities are completed. As of November 30, 2016, there were approximately $488.9 million, or 42%, of anticipated future costs to complete related to these site improvements. We do not presently anticipate any draws upon these bonds or letters of credit, but if any such draws occur, we do not believe they would have a material effect on our financial position, results of operations or cash flows.

Our Lennar Financial Services segment had a pipeline of loan applications in process of $2.2 billion at November 30, 2016. Loans in process for which interest rates were committed to the borrowers totaled approximately $629.1 million as of November 30, 2016. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these

commitments is expected to expire without being exercised by the borrowers or borrowers may not meet certain criteria at the time of closing, the total commitments do not necessarily represent future cash requirements.

Our Lennar Financial Services segment uses mandatory mortgage-backed securities ("MBS") forward commitments, option contracts, future contracts and investor commitments to hedge our mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk associated with MBS forward commitments, option contracts, future contracts and loan sales transactions is managed by limiting our counterparties to investment banks, federally regulated bank affiliates and other investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At November 30, 2016, we had open commitments amounting to $1.2 billion to sell MBS with varying settlement dates through February 2017 and open future contracts in the amount of $476.0 million with the settlement dates through September 2023.

The following sections discuss market and financing risk, seasonality and interest rates and changing prices that may have an impact on our business:

Market and Financing Risk

We finance our contributions to JVs, land acquisition and development activities, construction activities, financial services activities, Rialto activities, Lennar Multifamily activities and general operating needs primarily with cash generated from operations, debt and equity issuances, as well as borrowings under our Credit Facility and warehouse repurchase facilities. We also purchase land under option agreements, which enables us to control homesites until we have determined whether to exercise the options. We try to manage the financial risks of adverse market conditions associated with land holdings by what we believe to be prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process and, until recent years, limitation of risks by using partners to share the costs of purchasing and developing land as well as obtaining access to land through option contracts. Although we believed our land underwriting standards were conservative, we did not anticipate the severe decline in land values and the sharply reduced demand for new homes encountered in the prior economic downturn.

Seasonality

We historically have experienced, and expect to continue to experience, variability in quarterly results. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second fiscal quarter and increased deliveries in the second half of our fiscal year. However, periods of economic downturn in the industry can alter seasonal patterns.

Interest Rates and Changing Prices

Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates as well as increased material and labor costs, may reduce gross margins. An increase in material and labor costs is particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

New Accounting Pronouncements

See Note 1 of the notes to our consolidated financial statements for a comprehensive list of new accounting pronouncements.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this document. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to our consolidated financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application.

Valuation of Deferred Tax Assets

We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. Interest related to unrecognized tax benefits is recognized in the financial statements as a component of income tax expense.

A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed each reporting period by us based on the consolidation of all available positive and negative evidence using a "more-likely-than-not" standard with respect to whether deferred tax assets will be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, actual earnings, forecasts of future profitability, the duration of statutory carryforward periods, our experience with loss carryforwards not expiring unused and tax planning alternatives.

We believe that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because of the judgment required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results, which may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future events.

Lennar Homebuilding and Lennar Multifamily Operations

Lennar Homebuilding Revenue Recognition

Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowner, the new homeowner’s initial and continuing investment is adequate to demonstrate a commitment to pay for the home, the new homeowner’s receivable is not subject to future subordination and we do not have a substantial continuing involvement with the new home. Revenues from sales of land are recognized when a significant down payment is received, the earnings process is complete, title passes and collectability of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue.

Lennar Multifamily Revenue Recognition

Our Lennar Multifamily segment provides management services with respect to the development, construction and property management of rental projects in joint ventures in which we have investments. As a result, our Lennar Multifamily segment earns and receives fees, which are generally based upon a stated percentage of development and construction costs and a percentage of gross rental collections. These fees are included in Lennar Multifamily revenue and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. In addition, our Lennar Multifamily segment provides general contractor services for the construction of some of its rental projects and recognizes the revenue over the period in which the services are performed under the percentage of completion method. We believe that the accounting policy related to Lennar Multifamily revenue recognition is a critical accounting policy because it represents a significant portion of our Lennar Multifamily's revenues and is expected to continue to grow in the future as the segment builds more rental properties.

Inventories

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes, deposits on land purchase contracts and interest related to development and construction. We review our inventory for indicators of impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development state of the community. There were 693 and 662 active communities, excluding unconsolidated entities, as of November 30, 2016 and 2015, respectively. If the undiscounted cash flows expected to be generated by a community are less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such community to its estimated fair value.

In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the estimated fair

value of the land itself. We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, we identify communities in which to assess if the carrying values exceed their undiscounted cash flows. Although gross margin percentages for the year ended November 30, 2016 have decreased compared to the year ended November 30, 2015 primarily due to an increase in land costs, revenues have increased for all of our homebuilding segments and Homebuilding Other, compared to the year ended November 30, 2015, primarily due to an increase in home deliveries and an increase in the average sales price of homes delivered.

We estimate the fair value of our communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above.

Each of the homebuilding markets in which we operate is unique, as homebuilding has historically been a local business driven by local market conditions and demographics. Each of our homebuilding markets has specific supply and demand relationships reflective of local economic conditions. Our projected cash flows are impacted by many assumptions. Some of the most critical assumptions in our cash flow models are our projected absorption pace for home sales, sales prices and costs to build and deliver our homes on a community by community basis.

In order to arrive at the assumed absorption pace for home sales and the assumed sales prices included in our cash flow model, we analyze our historical absorption pace and historical sales prices in the community and in other comparable communities in the geographical area. In addition, we consider internal and external market studies and place greater emphasis on more current metrics and trends, which generally include, but are not limited to, statistics and forecasts on population demographics and on sales prices in neighboring communities, unemployment rates and availability and sales price of competing product in the geographical area where the community is located as well as the absorption pace realized in our most recent quarters and the sales prices included in our current backlog for such communities.

Generally, if we notice a variation from historical results over a span of two fiscal quarters, we consider such variation to be the establishment of a trend and adjust our historical information accordingly in order to develop assumptions on the projected absorption pace and sales prices in the cash flow model for a community.

In order to arrive at our assumed costs to build and deliver our homes, we generally assume a cost structure reflecting contracts currently in place with our vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Those costs assumed are used in our cash flow models for our communities.

Since the estimates and assumptions included in our cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead to us incurring additional impairment charges in the future.

Using all the available information, we calculate our best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate we believe a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use a discount rate of approximately 20%, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory.

We estimate the fair value of inventory evaluated for impairment based on market conditions and assumptions made by management at the time the inventory is evaluated, which may differ materially from actual results if market conditions or our assumptions change. For example, changes in market conditions and other specific developments or changes in assumptions may cause us to re-evaluate our strategy regarding previously impaired inventory, as well as inventory not currently impaired but for which indicators of impairment may arise if market deterioration occurs, and certain other assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those options contracts.

We also have access to land inventory through option contracts, which generally enables us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our options. A majority of our option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. In determining whether to walk-away from an option contract, we evaluate the option primarily based upon the expected cash flows from the property under option.

Our investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case our investments are written down to fair value. We review option contracts for indicators of impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and development of the optioned property would no longer meet our targeted return on investment with appropriate consideration given to the length of time available to exercise the option. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause us to re-evaluate the likelihood of exercising its land options.

If we intend to walk-away from an option contract, we record a charge to earnings in the period such decision is made for the deposit amount and any related pre-acquisition costs associated with the option contract.

We believe that the accounting related to inventory valuation and impairment is a critical accounting policy because: (1) assumptions inherent in the valuation of our inventory are highly subjective and susceptible to change and (2) the impact of recognizing impairments on our inventory has been and could continue to be material to our consolidated financial statements. Our evaluation of inventory impairment, as discussed above, includes many assumptions. The critical assumptions include the timing of the home sales within a community, management’s projections of selling prices and costs and the discount rate applied to estimate the fair value of the homesites within a community on the balance sheet date. Our assumptions on the timing of home sales are critical because the homebuilding industry has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected sales price, costs to develop the homesites and/or absorption rate in a community. Our assumptions on discount rates are critical because the selection of a discount rate affects the estimated fair value of the homesites within a community. A higher discount rate reduces the estimated fair value of the homesites within the community, while a lower discount rate increases the estimated fair value of the homesites within a community. Because of changes in economic and market conditions and assumptions and estimates required of management in valuing inventory during changing market conditions, actual results could differ materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future.

Product Warranty

Although we subcontract virtually all aspects of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trades, we are primarily responsible to homebuyers to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a critical accounting estimate because the estimate requires a large degree of judgment.

At November 30, 2016, the reserve for warranty costs was $135.4 million, which included $2.1 million of adjustments to pre-existing warranties from changes in estimates during the current year primarily related to specific claims related to certain of our homebuilding communities and other adjustments. While we believe that the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve.

Lennar Homebuilding and Lennar Multifamily Investments in Unconsolidated Entities

We strategically invest in unconsolidated entities that acquire and develop land (1) for our homebuilding operations or for sale to third parties, (2) for construction of homes for sale to third-party homebuyers or (3) for the construction and sale of multifamily rental properties. Our Lennar Homebuilding partners generally are unrelated homebuilders, land owners/developers and financial or other strategic partners. Our Lennar Multifamily partners are all financial partners.

Most of the unconsolidated entities through which we acquire and develop land are accounted for by the equity method of accounting because we are not the primary beneficiary or a de-facto agent, and we have a significant, but less than controlling, interest in the entities. We record our investments in these entities in our consolidated balance sheets as "Lennar Homebuilding or Lennar Multifamily Investments in Unconsolidated Entities" and our pro-rata share of the entities’ earnings or losses in our consolidated statements of operations as "Lennar Homebuilding or Lennar Multifamily Equity in Earnings (Loss) from Unconsolidated Entities," as described in Note 4 and Note 9 of the notes to our consolidated financial statements. For most unconsolidated entities, we generally have the right to share in earnings and distributions on a pro-rata basis based upon ownership percentages. However, certain Lennar Homebuilding unconsolidated entities and all of our Lennar Multifamily unconsolidated entities provide for a different allocation of profit and cash distributions if and when cumulative results of the

joint venture exceed specified targets (such as a specified internal rate of return). Advances to these entities are included in the investment balance.

Management looks at specific criteria and uses its judgment when determining if we are the primary beneficiary of, or have a controlling interest in, an unconsolidated entity. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. The accounting policy relating to the use of the equity method of accounting is a critical accounting policy due to the judgment required in determining whether we are the primary beneficiary or have control or significant influence.

As of November 30, 2016, we believe that the equity method of accounting is appropriate for our investments in unconsolidated entities where we are not the primary beneficiary and we do not have a controlling interest, but rather share control with our partners. At November 30, 2016, the Lennar Homebuilding unconsolidated entities in which we had investments had total assets of $5.4 billion and total liabilities of $1.7 billion. At November 30, 2016, the Lennar Multifamily unconsolidated entities in which we had investments had total assets of $2.3 billion and total liabilities of $0.8 billion.

We evaluate the long-lived assets in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the fair value of our investment in the unconsolidated entity below its carrying amount has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of our investment in unconsolidated entities includes certain critical assumptions: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors.

Our assumptions on the projected future distributions from unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the Lennar Homebuilding unconsolidated entities or operating assets by the Lennar Multifamily unconsolidated entities. Such long-lived assets are also reviewed for potential impairment by the unconsolidated entities. The unconsolidated entities generally also use a discount rate of between 10% and 20% in their reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, our proportionate share is reflected in our Lennar Homebuilding or Lennar Multifamily equity in earnings (loss) from unconsolidated entities with a corresponding decrease to our Lennar Homebuilding or Lennar Multifamily investment in unconsolidated entities. We believe our assumptions on the projected future distributions from the unconsolidated entities are critical because the operating results of the unconsolidated entities from which the projected distributions are derived are dependent on the status of the homebuilding industry, which has historically been cyclical and sensitive to changes in economic conditions such as interest rates, credit availability, unemployment levels and consumer sentiment. Changes in these economic conditions could materially affect the projected operational results of the unconsolidated entities from which the distributions are derived.

Additionally, we evaluate if a decrease in the value of an investment below its carrying amount is other than-temporary. This evaluation includes certain critical assumptions made by management and other factors such as age of the venture, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investments, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners and banks. If the decline in the fair value of the investment is other-than-temporary, then these losses are included in Lennar Homebuilding other income, net or Lennar Multifamily costs and expenses.

We believe our assumptions on discount rates are critical accounting policies because the selection of the discount rates affects the estimated fair value of our investments in unconsolidated entities. A higher discount rate reduces the estimated fair value of our investments in unconsolidated entities, while a lower discount rate increases the estimated fair value of our investments in unconsolidated entities. Because of changes in economic conditions, actual results could differ materially from management’s assumptions and may require material valuation adjustments to our investments in unconsolidated entities to be recorded in the future.

Consolidation of Variable Interest Entities

GAAP requires the consolidation of VIEs in which an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Our variable interest in VIEs may be in the form of (1) equity ownership, (2) contracts to purchase assets, (3) management services and development agreements between us and a VIE, (4) loans provided by us to a VIE or other partner and/or (5) guarantees provided by members to banks and other third parties. We examine specific criteria and use our judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights or voting rights, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

Generally, all major decision making in our joint ventures is shared among all partners. In particular, business plans and budgets are generally required to be unanimously approved by all partners. Usually, management and other fees earned by us are nominal and believed to be at market and there is no significant economic disproportionality between us and other partners. Generally, we purchase less than a majority of the JV’s assets and the purchase prices under our option contracts are believed to be at market.

Generally, our unconsolidated entities become VIEs and consolidate when the other partner(s) lack the intent and financial wherewithal to remain in the entity. As a result, we continue to fund operations and debt paydowns through partner loans or substituted capital contributions. The accounting policy relating to variable interest entities is a critical accounting policy because the determination of whether an entity is a VIE and, if so, whether we are primary beneficiary may require us to exercise significant judgment.

Lennar Financial Services Operations

Revenue Recognition

Title premiums on policies issued directly by us are recognized as revenue on the effective date of the title policies and escrow fees and loan origination revenues are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. Revenues from title policies issued by independent agents are recognized as revenue when notice of issuance is received from the agent, which is generally when cash payment is received by us. Expected gains and losses from the sale of loans and their related servicing rights are included in the measurement of all written loan commitments that are accounted for at fair value through earnings at the time of commitment. Interest income on loans held-for-sale and loans held-for-investment is recognized as earned over the terms of the mortgage loans based on the contractual interest rates. We believe that the accounting policy related to revenue recognition is a critical accounting policy because of the significance of revenue.

Loan Origination Liabilities

Substantially all of the loans our Lennar Financial Services segment originates are sold within a short period in the secondary mortgage market on a servicing released, non-recourse basis. After the loans are sold, we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties related to loan sales. Over the last several years there has been an industry-wide effort by purchasers to defray their losses by purporting to have found inaccuracies related to sellers’ representations and warranties in particular loan sale agreements.

Our mortgage operations have established reserves for possible losses associated with mortgage loans previously originated and sold to investors. We establish reserves for such possible losses based upon, among other things, an analysis of repurchase requests received, an estimate of potential repurchase claims not yet received and actual past repurchases and losses through the disposition of affected loans, as well as previous settlements. While we believe that we have adequately reserved for known losses and projected repurchase requests, given the volatility in the mortgage industry and the uncertainty regarding the ultimate resolution of these claims, if either actual repurchases or the losses incurred resolving those repurchases exceed our expectations, additional recourse expense may be incurred. This allowance requires management’s judgment and estimate. For these reasons, we believe that the accounting estimate related to the loan origination losses is a critical accounting estimate.

Rialto Operations

Management Fee Revenue

Our Rialto segment provides services to a variety of legal entities and investment vehicles such as funds, joint ventures, co-invests, and other private equity structures to manage their respective investments. As a result, Rialto earns and receives management fees, underwriting fees and due diligence fees. These fees are included in Rialto revenues and are recorded over the period in which the services are performed, fees are determinable and collectability is reasonably assured. Rialto receives investment management fees from investment vehicles based on 1) a percentage of committed or called capital during the commitment period and called capital after the commitment period ends and 2) a percentage of invested capital less the portion of such invested capital utilized to acquire investments that have been sold (in whole or in part) or liquidated. Fees earned for underwriting and due diligence services are based on actual costs incurred. In certain situations, Rialto may earn

additional fees when the return on assets managed exceeds contractually established thresholds. Such revenue is only booked when the contract terms are met, the contract is at, or near, completion and the amounts are known and collectability is reasonably assured. Since such revenue is recognized during the latter half of the life of the investment vehicle, after substantially all of the assets have been sold and investment gains and losses realized, the possibility of claw backs is limited. In addition, Rialto may also receive tax distributions in order to cover income tax obligations resulting from allocations of taxable income due to Rialto's carried interests in the Funds. These distributions are not subject to clawbacks and therefore are recorded as revenue when received.

We believe the way we record Rialto management fee revenue is a significant accounting policy because it represents a significant portion of our Rialto segment's revenues and is expected to continue to grow in the future as the segment manages more assets.

Rialto Mortgage Finance - Loans Held-for-Sale

The originated mortgage loans are classified as loans held-for-sale and are recorded at fair value. We elected the fair value option for RMF's loans held-for-sale in accordance with ASC 825, Financial Instruments, which permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. Changes in fair values of the loans are reflected in Rialto revenues in the accompanying consolidated statements of operations. Interest income on these loans is calculated based on the interest rate of the loan and is recorded in Rialto revenues in the accompanying consolidated statements of operations. Substantially all of the mortgage loans originated are sold within a short period of time in securitizations on a servicing released, non-recourse basis; although, we remain liable for certain limited industry-standard representations and warranties related to loan sales. We recognize revenue on the sale of loans into securitization trusts when control of the loans has been relinquished.

We believe this is a critical accounting policy due to the significant judgment involved in estimating the fair values of loans held-for-sale during the period between when the loans are originated and the time the loans are sold and because of its significance to our Rialto segment.

Real Estate Owned

REO represents real estate that our Rialto segment has taken control, or has effective control of, in partial or full satisfaction of loans receivable. At the time of acquisition of a property through foreclosure of a loan, REO is recorded at fair value less estimated costs to sell if classified as held-for-sale or at fair value if classified as held-and-used, which becomes the property’s new basis. The fair values of these assets are determined in part by placing reliance on third-party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party appraisals and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors. Each REO is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular REO, we analyze historical trends, including trends achieved by our local homebuilding operations, if applicable, and current trends in the market and economy impacting the REO. Using available trend information, we then calculate our best estimate of fair value, which can include projected cash flows discounted at a rate we believe a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party appraisals and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by our Rialto segment from disposition of these assets. The amount by which the recorded investment in the loan is less than the REO’s fair value (net of estimated cost to sell if held-for-sale), is recorded as an unrealized gain on foreclosure in our consolidated statement of operations. The amount by which the recorded investment in the loan is greater than the REO’s fair value (net of estimated cost to sell if held-for-sale) is recorded as a provision for loan losses in our consolidated statement of operations.

Subsequent to obtaining REO via foreclosure or directly from a financial institution, management periodically performs valuations using the methodologies described above such that the real estate is carried at the lower of its carrying value or current fair value, less estimated costs to sell if classified as held-for-sale. Held-and-used assets are tested for recoverability whenever changes in circumstances indicate that the carrying value may not be recoverable, and impairment losses are recorded for any amount by which the carrying value exceeds its fair value. Any subsequent impairment losses, operating expenses or income, and gains and losses on disposition of such properties are also recognized in Rialto other income (expense), net. REO assets classified as held-and-used are depreciated using a useful life of forty years for commercial properties and twenty seven and a half years for residential properties. REO assets classified as held-for-sale are not depreciated. Occasionally, an asset will require certain improvements to yield a higher return. Construction costs incurred prior to acquisition or during development of the asset may be capitalized.

We believe that the accounting related to REO is a critical accounting policy because of the significant judgment required in the third-party appraisals and/or internally prepared analyses of recent offers or prices of comparable properties in the proximate vicinity used to estimate the fair value of REOs.

Consolidations of Variable Interest Entities

In 2010, our Rialto segment acquired indirectly 40% managing member equity interests in two LLCs, in partnership with the FDIC. We determined that each of the LLCs met the definition of a VIE and we were the primary beneficiary. In accordance with ASC 810-10-65-2, Consolidations, ("ASC 810-10-65-2"), we identified the activities that most significantly impact the LLCs’ economic performance and determined that we have the power to direct those activities. The economic performance of the LLCs is most significantly impacted by the performance of the LLCs’ portfolios of assets, which consist primarily of distressed residential and commercial mortgage loans. Thus, the activities that most significantly impact the LLCs’ economic performance are the servicing and disposition of mortgage loans and real estate obtained through foreclosure of loans, restructuring of loans, or other planned activities associated with the monetizing of loans.

The FDIC does not have the unilateral power to terminate our role in managing the LLCs and servicing the loan portfolios. While the FDIC has the right to prevent certain types of transactions (i.e., bulk sales, selling assets with recourse back to the selling entity, selling assets with representations and warranties and financing the sales of assets without the FDIC’s approval), the FDIC does not have full voting or blocking rights over the LLCs’ activities, making their voting rights protective in nature, not substantive participating voting rights. Other than as described in the preceding sentence, which are not the primary activities of the LLCs, we can cause the LLCs to enter into both the disposition and restructuring of loans without any involvement of the FDIC. Additionally, the FDIC has no voting rights with regard to the operation/management of the operating properties that are acquired upon foreclosure of loans (e.g. REO) and no voting rights over the business plans of the LLCs. The FDIC can make suggestions regarding the business plans, but we can decide not to follow the FDIC’s suggestions and not to incorporate them in the business plans. Since the FDIC’s voting rights are protective in nature and not substantive participating voting rights, we have the power to direct the activities that most significantly impact the LLCs’ economic performance.

In accordance with ASC 810-10-65-2, we determined that we had an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs or the right to receive benefits from the LLCs that could potentially be significant to the LLCs based on the following factors:

•	Rialto/Lennar owns 40% of the equity of the LLCs and has the power to direct the activities of the LLCs that most significantly impact their economic performance through loan resolutions and the sale of REO.

•	Rialto/Lennar has a management/servicer contract under which we earn a 0.5% servicing fee.

•	Rialto/Lennar has guaranteed, as the servicer, its obligations under the servicing agreement up to $10 million.

We are aware that the FDIC, as the owner of 60% of the equity of each of the LLCs, may also have an obligation to absorb losses of the LLCs that could potentially be significant to the LLCs. However, in accordance with ASC 810-10-25-38A, only one enterprise, if any, is expected to be identified as the primary beneficiary of a VIE.

Since both criteria for consolidation in ASC 810-10-65-2 are met, we consolidated the LLCs. We believe that our assessment that we are the primary beneficiary of the LLCs is a critical accounting policy because of the significant judgment required in evaluating all of the key factors and circumstances in determining the primary beneficiary.