Item 1.  BUSINESS



Overview



History



On December 15, 2016, the Company completed the acquisition of all the outstanding shares of the former BBX Capital Corporation (“BCC”) not previously owned by the Company and following the transaction the Company changed its name from BFC Financial Corporation to BBX Capital Corporation. The acquisition was consummated by the merger of BCC into a wholly owned subsidiary of the Company, BBX Merger Sub, LLC.  As a consequence of the merger, BCC is now a wholly owned subsidiary of BBX Capital.  The merger is described in further detail in Item 8 – Note 3 of this report.



Prior to the acquisition of all the outstanding shares of BCC, the Company had an 82% equity interest in BCC and a direct 54% equity interest in Woodbridge, the parent company of Bluegreen Corporation.  BCC held the remaining 46% interest in Woodbridge. Woodbridge became a wholly owned subsidiary of the Company as a result of the acquisition of all the outstanding shares of BCC by the Company.



BCC’s principal asset until July 31, 2012 was its ownership of BankAtlantic and its subsidiaries (“BankAtlantic”).  BankAtlantic was a federal savings bank headquartered in Fort Lauderdale, Florida.  On July 31, 2012, BCC completed the sale to BB&T Corporation (“BB&T”) of all of the issued and outstanding shares of capital stock of BankAtlantic (the stock sale and related transactions described herein are collectively referred to as the “BankAtlantic Sale” or the “BB&T Transaction”).  Prior to the closing of the BB&T Transaction, BankAtlantic formed two wholly-owned subsidiaries, BBX Capital Asset Management, LLC (“CAM”) and Florida Asset Resolution Group, LLC (“FAR”) and transferred certain non-performing commercial loans, commercial real estate and previously written-off assets to the two wholly owned subsidiaries as described in further detail in Item 8 – Note 1 of this report.



BBX Capital Corporation



BBX Capital Corporation (formerly BFC Financial Corporation) is referred to in this report together with its subsidiaries as “the Company” “we”, “us”, or “our” and is referred to in this report without its subsidiaries as “BBX Capital”. BBX Capital is a Florida-based diversified holding company with investments in Bluegreen Corporation (“Bluegreen”), and in real estate and middle market operating companies.









Our Stra tegies and Objectives



Our objective is to increase shareholder value through investments in diverse industries. In recent years, the Company has focused on providing strategic support to its existing investments with a view to the improved performance of the organization as a whole. Additionally, we have and may in the future invest in operating businesses and in real estate developments and joint ventures for the development of residential and commercial real estate projects, including those in which our affiliates may participate.  The Company’s investments or acquisitions, and the business and investment strategies of the Company’s subsidiaries, may not prove to be successful or even if successful may not initially generate income or may generate income on an irregular basis, and may involve a long term investment. The Company expects to continue to experience losses in its Middle Market Division with an anticipated goal of building long term value.  As a consequence, the Company’s results of operations may vary significantly on a quarterly basis.



The Company’s goal is to build long-term value rather than focus on quarterly or annual earnings.  While capital markets generally encourage short term results, the Company’s objective continues to be long term growth as measured by increases in book value and intrinsic value over time.



The Company may also consider transactions involving the sale of all or a portion of its assets, investments or subsidiaries, including transactions involving Bluegreen.  These may include, among other alternatives, a future sale or spin-off or transactions involving public or private issuances of debt or equity securities which might decrease or dilute the Company’s ownership interest.  See also, “Part II-Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”





Additional Information



The Company’s corporate website is www.bbxcapital.com . The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available free of charge through its website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The Company’s website and the information contained on or connected to it are not incorporated into this Annual Report on Form 10-K.



This document contains forward-looking statements based largely on current expectations of the Company that involve a number of risks and uncertainties. All opinions, forecasts, projections, future plans or other statements, other than statements of historical fact, are forward-looking statements and can be identified by the use of words or phrases such as “plans,” “believes,” “will,” “expects,” “anticipates,” “intends,” “estimates,” “our view,” “we see,” “would” and words and phrases of similar import. The forward looking statements in this document are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve substantial risks and uncertainties. We can give no assurance that such expectations will prove to have been correct. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein. Forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. When considering forward-looking statements, the reader should keep in mind the risks, uncertainties and other cautionary statements made in this report. The reader should not place undue reliance on any forward-looking statement, which speaks only as of the date made. This document also contains information regarding the past performance of the Company, its subsidiaries and their respective investments and operations, and the reader should note that prior or current performance is not a guarantee or indication of future performance. Future results could differ materially as a result of a variety of risks and uncertainties.



Some factors which may affect the accuracy of the forward-looking statements apply generally to the industries in which the Company operates, including the real estate development and construction industry in which BBX Capital Real Estate operates, the resort development and vacation ownership industries in which Bluegreen operates, the home improvement industry in which Renin operates and the sugar and confection industry in which BBX Sweet Holdings operates. 



These risks and uncertainties include, but are not limited to:



W ith respect to Bluegreen, the risks and uncertainties include, but are not limited to:





W ith respect to BBX Capital Real Estate activities, the risks and uncertainties include, but are not limited to:





W ith respect to the Company’s Middle Market activities, the risks and uncertainties include, but are not limited to:





In addition to the risks and factors identified above, reference is also made to the other risks and factors detailed in this report and the other reports filed by the Company with the SEC, including those disclosed in the “Risk Factors” section of this report. The Company cautions that the foregoing factors are not exclusive.





Divisions



The Company currently operates through three divisions: Bluegreen, BBX Capital Real Estate and Middle Market.    



Bluegreen



Overview



Bluegreen Corporation (“Bluegreen”) is a sales, marketing, and management company focused on the vacation ownership industry.  Bluegreen markets, sells and manages VOIs in resorts, which are generally located in popular, high-volume, “drive-to” vacation destinations.  The resorts in which Bluegreen markets, sells or manages VOIs were either developed or acquired by Bluegreen, or were developed and owned by third parties.  Bluegreen earns fees for providing sales and marketing services to third party developers.  Bluegreen also earns fees by providing management services to the Bluegreen Vacation Club and POAs, mortgage servicing, VOI title services, reservation services, and construction design and development services.  In addition, Bluegreen provides financing to FICO ® score-qualified individual purchasers of VOIs, which generates significant interest income.



Strategies



The Company’s strategy to grow Bluegreen’s profitability and long-term value is focused on :





Industry Overview



The resorts component of the leisure industry has historically been serviced primarily by two separate alternatives for overnight accommodations: commercial lodging establishments and vacation ownership resorts. Commercial lodging consists principally of hotels and motels in which a room is rented on a nightly, weekly or monthly basis, or rentals of privately-owned condominium units or homes through both traditional methods of delivery as well as new web portals and applications.  Bluegreen believes that vacation ownership presents an attractive vacation alternative to commercial lodging particularly for families.    



Vacation ownership interests were first introduced in Europe in the mid 1960s . Initially, the vacation ownership industry was highly fragmented, with a large number of local and regional resort developers and operators having small resort portfolios generally of differing quality.  Bluegreen believes that one of the most significant factors contributing to the growth of the vacation ownership industry was the entry into the market of some of the world’s major lodging, hospitality and entertainment companies, such as Marriott Vacations Worldwide Corporation (formerly part of Marriott Hotels), the Walt Disney Company, Hilton Grand Vacations Company (“Hilton”, formerly part of Hilton Hotels Corporation), Vistana Signature Experiences (formerly part of Starwood Hotels and Resorts Worldwide, Inc.), and Wyndham Worldwide Corporation (“Wyndham”).  Although vacation ownership operations in some cases comprise only a portion of these companies’ overall operations, Bluegreen believes that their involvement in the vacation ownership industry has enhanced the industry’s image with the general public .



The purchase of a timeshare property typically entitles the buyer to use and occupy a fully-furnished residence, generally for a stated period or in perpetuity. Typically, the buyer acquires an ownership interest in the vacation residence, which is often held as a tenant-in-common with other buyers of interests in the vacation residence. However, under a points-based vacation club system, such as the Bluegreen Vacation Club, the members purchase a real estate interest in a specific VOI resort, which is deeded on their behalf into a trust and provides the member with beneficial rights, including an annual or biennial allotment of points that can be used to reserve occupancy at participating resorts. See “Products and Services – Vacation Ownership” below for additional information regarding the Bluegreen Vacation Club and Bluegreen’s points-based system.



Bluegreen believes that, in general, the desire exists to take family vacations and that the Bluegreen Vacation Club is positioned to benefit from consumer demand for family vacations.  However, economic conditions and other factors may have an adverse effect on the demand for vacations, the vacation ownership industry specifically, and Bluegreen’s operations.



Products and Services



Vacation Ownership



Bluegreen has been involved in the vacation ownership industry since 1994.  Since Bluegreen’s inception, Bluegreen has generated approximately 582,000 VOI sales transactions, which include over 99,000 VOI sales transactions on behalf of third-parties.  As of December 31, 2016, Bluegreen was selling VOIs in the Bluegreen Vacation Club at 23 sales offices at resorts located in the United States.  VOIs in Bluegreen resorts and those sold by Bluegreen on behalf of third parties typically entitle the buyer to use resort accommodations through an annual or biennial allotment of “points” which represent the buyer’s ownership and beneficial use rights in perpetuity in the Bluegreen Vacation Club (supported by an underlying deeded VOI held in trust for the buyer).  Bluegreen believes the Bluegreen Vacation Club allows its VOI owners to customize their vacation experience in a more flexible manner than traditional fixed-week vacation ownership programs.  Members can use their points to stay in resorts for varying lengths of time starting at a minimum of two nights.  The number of points required for a stay at a resort varies depending on a variety of factors, including the resort location, the size of a unit, the vacation season and the days of the week used.     Under this system, members can select vacations among available resorts according to their schedules, space needs, and available points.  Subject to certain restrictions and fees, members are typically allowed to carry over for one year any unused points and to "borrow" points from the next year.  Bluegreen Vacation Club members may use their points to stay in any of the 66 Bluegreen Vacation Club resorts.  Bluegreen Vacation Club members may also use their points to take advantage of other vacation options, including an exchange program offered by a third-party world-wide vacation ownership exchange network of approximately 4,300 resorts and other vacation experiences such as cruises and hotel stays.  Additionally, through an alliance with Choice Hotels International, Inc. ( “Choice Hotels”), Bluegreen Vacation Club members may enroll in Choice Hotels’ free rewards program, Choice Privileges ®.  For a fee, Bluegreen Vacation Club members can convert their Bluegreen Vacation Club points into Choice Privileges ® points, which can be used for free nights at Choice hotel locations and other rewards such as gift cards.  Additionally, for a fee, members of the Bluegreen Traveler Plus™ program may use their Bluegreen Vacation Club points for stays in Choice Hotels’ Ascend Hotel Collection® properties, a network of historic and boutique hotels in the United States, Canada, Scandinavia and Latin America, subject to the terms and conditions of the program.  See “VOI Exchange Networks, the Bluegreen Traveler Plus™ Program and Other Strategic Alliances” for additional information regarding vacation options available to Bluegreen Vacation Club members in addition to Bluegreen Vacation Club resorts.



The owners of VOIs collectively manage the resort property through nonprofit POAs that are governed by a board of directors or trustees, consisting of representatives of the developer (so long as the developer owns VOIs in the resort or as otherwise provided by law) and owners of VOIs at the resort.  The board of directors hires a management company to which it delegates many of the rights and responsibilities of the POA, including grounds landscaping, security, housekeeping and operating supplies, garbage collection, utilities, insurance procurement, laundry and repairs and

maintenance. Each VOI owner is required to pay a share of the costs of maintaining all of the properties in the Bluegreen Vacation Club system. These charges generally consist of an annual maintenance fee plus applicable real estate taxes and special assessments, which are assessed on an as-needed basis.  If a VOI owner does not pay such charges, the owner’s use rights may be suspended and ultimately terminated, subject to the lender’s first mortgage lien on the VOI, if any.



Capital-Light Business Strategy



In addition to Bluegreen’s traditional vacation ownership operations, Bluegreen has in recent years pursued a business strategy, referred to herein as the “capital-light” business strategy, involving activities that typically do not require the significant costs and capital investments generally associated with the acquisition and development of VOIs under Bluegreen’s traditional vacation ownership business.  Bluegreen believes its capital-light business strategy enables it to utilize its expertise and existing infrastructure in resort management, sales and marketing, mortgage servicing, title services, and construction management to generate recurring revenues from third parties.  As of December 31, 2016, Bluegreen’s capital-light business activities consisted of fee-based sales and marketing arrangements; just-in-time inventory acquisition arrangements; secondary market arrangements; and other fee-based services.  Each of these categories is described below.  



Fee-Based Sales and Marketing Arrangements 



Bluegreen offers sales and marketing services to third-party developers for a fee.  Under these arrangements, Bluegreen sells third-party VOIs as Bluegreen Vacation Club interests through its distribution network of sales offices, typically on a non-committed basis.  Bluegreen seeks to structure its fee for these services to cover its selling and marketing costs, plus an operating profit.  Because the completed VOI was built by a third-party, Bluegreen is not at risk for the development financing of these projects and Bluegreen has little to no capital requirements.  However, these activities subject Bluegreen to the risks of third-party developers of resorts under fee-based sales and marketing arrangements do not deliver the resorts’ VOIs as planned, or do not fulfill their obligation to Bluegreen or to the POAs that maintain the resorts they develop.  Notes receivable originated in connection with Bluegreen’s sale of third party VOIs under commission-based arrangements are held by the third party developer, and in certain cases are serviced by Bluegreen for a fee.  Bluegreen refers to sales made on behalf of third-party developers as “FBS Sales”.



Just-In-Time Inventory Acquisition Arrangements



Bluegreen enters into agreements with third-party developers that allow Bluegreen to buy VOI inventory from time to time in close proximity to the timing of when Bluegreen intends to sell such VOIs.  Bluegreen’s goal is to enter into such arrangements on a non-committed basis, although Bluegreen may engage in committed arrangements under certain circumstances.  Because the completed VOI was owned by a third-party, Bluegreen is not at risk for the development financing of these projects.  However, Bluegreen is at risk if the third-party developers of resorts under fee-based sales and marketing arrangements do not deliver the resorts’ VOIs as planned, or do not fulfill their obligation to Bluegreen or to the POAs that maintain the resorts they develop.  Unlike FBS Sales, receivables originated in connection with sales of just-in-time inventory are held by Bluegreen.  Sales of inventory acquired through these arrangements are sometimes referred to as “Just-In-Time Sales”.



Secondary Market Arrangements



Bluegreen acquires VOI inventory from POAs and other third parties on a non-committed basis, in close proximity to the timing of when Bluegreen intends to sell such VOIs.  Such VOIs are typically obtained by the POAs through foreclosure in connection with maintenance fee defaults, and are generally acquired by Bluegreen at a significant discount.  Sales of inventory acquired through these arrangements are sometimes referred to as “Secondary Market Sales”.



Other Fee-Based Services



Bluegreen also earns fees for providing management services to the Bluegreen Vacation Club and to certain POAs.  In connection with the management services provided to the Bluegreen Vacation Club, Bluegreen manages the club reservation system and provides owner services as well as billing and collection services.  In connection with Bluegreen’s management of POAs, Bluegreen provides day-to-day management services, including contracting for housekeeping services, maintenance, and certain accounting and administrative services.  As of December 31, 2016, Bluegreen provided management services to 47 timeshare resort properties and hotels.  Other fee-based services also include the processing of sales of VOIs through Bluegreen’s wholly-owned title company subsidiary, which earns fees in connection with the closing of the VOI transactions.  Bluegreen also generates fee-based income by providing construction, design and management services, and mortgage servicing.



Bluegreen has over the last several years increased the activities associated with its capital-light business strategy; however, Bluegreen’s efforts to continue to execute its capital-light business strategy may not be successful, and any arrangements entered into may not prove to be profitable.  Further, changes in economic conditions may adversely impact the results of Bluegreen’s fee-based and other capital-light business activities and may make the capital-light business strategy less attractive going forward.



Vacation Club Resort Locations

Bluegreen Vacation Club resorts are primarily “drive-to” resort destinations. Bluegreen believes that 85% of its VOI owners live within a 4 hour drive of at least one of its resorts. Units at most of the Bluegreen Vacation Club resorts typically include a full kitchen, two televisions, and laundry facilities. Many resorts offer guests a clubhouse (with an indoor or outdoor pool, a game room, exercise facilities and a lounge) and hotel-type staff.  Bluegreen manages certain of the resorts either directly or through a subcontract.



The following table lists the Bluegreen Vacation Club resorts:







Future Resorts and Acquisition of Additional Inventory



Bluegreen believes that it currently has adequate timeshare inventory on hand, or available for sale through arrangements with third parties in connection with its capital-light business strategy, to satisfy its projected sales of VOIs for 2017 and a number of years thereafter.  However, Bluegreen may decide to acquire or develop inventory in the future.  It is also expected that development activities will continue at resorts developed by Bluegreen/Big Cedar Vacations and other Bluegreen sites on a limited basis.



VOI Exchange Networks, the Bluegreen Traveler Plus™ Program, and Other Strategic Alliances



Bluegreen believes that its VOIs are made more attractive by its alliance with Choice Hotels, its participation in third-party exchange networks, its Traveler Plus™ program and other strategic affiliations with third-party resort developers.  In 2013, Bluegreen entered into a five-year strategic alliance agreement with Choice Hotels.  Choice Hotels currently franchises approximately 6,400 hotels in more than 40 countries and territories and its brands include the Ascend Hotel Collection®, Comfort Inn®, Comfort Suites ® , Quality ® , Sleep Inn ® , Clarion ® , Cambria ® hotels and suites, MainStay Suites®, Suburban Extended Stay Hotel ® , Econo Lodge ® and Rodeway Inn ® .  Bluegreen’s relationship with Choice Hotels’ impacts several areas of Bluegreen’s business and, while there is no assurance as to the success of the relationship, it includes a sales and marketing alliance component that Bluegreen believes enables it to leverage Choice Hotels’ brands, customer relationships and marketing channels to market Bluegreen’s VOI offerings.  Additionally, subject to the terms and conditions of the agreements, including specified payments to Choice Hotels, Bluegreen Vacation Club resorts may be branded as part of the Ascend Hotel Collection®.  As of December 31, 2016, a total of 29 Bluegreen Vacation Club resorts were branded as part of the Ascend Hotel Collection ® .  Also, Bluegreen Vacation Club members may enroll as members of the Choice Hotels loyalty program, Choice Privileges ® , and for a fee can convert their Bluegreen Vacation Club points into Choice Privileges ® points which can be used for stays at participating Choice Hotels.  Additionally, for a fee, members of the Bluegreen Traveler Plus ™ program may exchange their vacation points for stays at Choice Hotels’ Ascend Hotel Collection ® properties subject to the terms and conditions of the program.



Bluegreen Vacation Club members may also participate in an unaffiliated external exchange network, Resort Condominiums International, LLC (“RCI”).  The RCI exchange network allows an owner to exchange stays in their VOI for occupancy at nearly 4,300 participating resorts located throughout the world in more than 100 countries, based upon availability and the payment of a variable exchange fee.  The annual membership fees of RCI are included in the Bluegreen Vacation Club dues.  In 2016, approximately 9% of Bluegreen Vacation Club members utilized the RCI exchange network for an exchange of two or more nights.  Most of the Bluegreen Vacation Club resorts are rated in one of the two highest categories by RCI (Gold Crown and Silver Crown).  



Bluegreen Vacation Club members, for an additional annual fee, may also participate in the Bluegreen Traveler Plus™ program, which allows them to use their points for a variety of hotel stays, RV site stays within the “Coast to Coast” network, or various cruise vacations.  Also, for a nominal fee, Bluegreen Vacation Club members who purchased or upgraded their VOI since July 1, 2007 and participate in the Bluegreen Traveler Plus ™ program have the ability to use their vacation points to reserve accommodations in 43 additional resort locations through Bluegreen’s alliances with other resort development companies (“Direct Exchange”).



No assurance can be given that Bluegreen’s resorts will continue to participate in the RCI or Direct Exchange networks, or that Bluegreen’s customers will continue to be satisfied with these networks or the Bluegreen Traveler Plus ™ program.  In addition, Bluegreen’s relationship with Choice Hotels may not be received favorably by Choice’s or Bluegreen’s customers and may not have a positive impact on Bluegreen’s operating results or financial condition.  If Bluegreen does not continue to participate in qualified exchange networks or maintain other strategic alliances, including if Bluegreen’s resorts are not included in such networks or alliances, or if such networks or other strategic alliances do not operate effectively, Bluegreen’s financial condition, results and business could be materially adversely affected.



Marketing and Sale of Inventory



Bluegreen uses a variety of methods to attract prospective purchasers of VOIs, including selling discount vacation packages either face-to-face or through telemarketing efforts to consumers Bluegreen meets in connection with various marketing alliances (as discussed in greater detail below) and other arrangements, and referrals of prospective purchasers from existing VOI owners.  Bluegreen sometimes provides hotel accommodations or accommodations in one of Bluegreen’s resorts to prospective purchasers at reduced rates in exchange for their touring one of Bluegreen’s resorts.



Additionally, Bluegreen offers a sampler program which allows purchasers of this product to enjoy substantially the same accommodations offered to Bluegreen Vacation Club members during a trial period, which is generally one or two years.  Bluegreen believes that it benefits from the sampler program as it gives Bluegreen an opportunity to market its VOIs to customers when they use their trial memberships at a Bluegreen resort and to recapture a portion of the costs incurred in connection with the initial marketing to prospective customers.



In addition to attracting new customers, Bluegreen seeks to sell VOIs to its existing VOI owners (“owner sales”).  Owner sales generally have lower marketing costs and typically result in relatively higher operating margins than sales generated through other marketing channels.  During 2016, owner sales accounted for 46% of Bluegreen’s system-

wide sales.  However, Bluegreen has recently increased, and expects to continue to increase, its marketing efforts to new customers as compared to existing owners as it believes that its ability to continue to sell VOIs to its current existing owner base could diminish over time without continued sales to new customers.  Accordingly, Bluegreen expects that its marketing expenses may increase in the future.



Bluegreen uses both “permission” marketing and branding programs.  “Permission” marketing methods involve obtaining the prospective purchasers’ permission, directly or indirectly, to contact them in the future regarding an offer to purchase a product or service.  Branding involves forming alliances with third-party entities that possess what Bluegreen believes to be a nationally or regionally known brand name, a good reputation and a customer base with similar demographic characteristics to Bluegreen’s target market.



One of Bluegreen’s wholly-owned subsidiaries has an arrangement with Big Cedar, LLC (“Big Cedar”), an affiliate of Bass Pro, Inc. (“Bass Pro”), pursuant to which, Bluegreen’s subsidiary owns 51% of Bluegreen/Big Cedar Vacations and Big Cedar owns the remaining 49%.  Bluegreen/Big Cedar Vacations develops, markets, and sells VOIs at the Bluegreen Wilderness Club at Big Cedar, a wilderness-themed resort adjacent to the Big Cedar Lodge, a luxury hotel resort owned by Big Cedar, on the shores of Table Rock Lake in Ridgedale, Missouri.  Bluegreen/Big Cedar Vacations also develops, markets, and sells timeshare interests in The Cliffs at Long Creek and Paradise Point Resort.  Bluegreen/Big Cedar Vacations pays Big Cedar a fee upon sales of certain timeshare interests for promotional, marketing and advertising services.



Bluegreen also has an exclusive marketing agreement with Bass Pro, a privately-held retailer of fishing, marine, hunting, camping and sports gear.  Pursuant to the agreement, Bluegreen has the right to market VOIs at each of Bass Pro’s retail locations.  As of December 31, 2016, Bluegreen marketed VOIs in 68 of Bass Pro’s stores.  These marketing efforts include offers for the sale of discounted vacation packages which require the purchaser to attend a timeshare sales presentation, where permitted by law .  Under the agreement, Bluegreen also has the right to market VOIs in Bass Pro’s catalogs and on its website, and Bluegreen has access to Bass Pro’s customer lists.  In exchange, Bluegreen compensates Bass Pro based on the overall success of these marketing activities.  The amount of compensation is dependent on the level of additional marketing efforts required by Bluegreen to convert the prospect into a sale and a defined time frame for such marketing efforts.  No compensation is paid to Bass Pro under the marketing agreement on sales made by Bluegreen/Big Cedar Vacations of VOIs owned by Bluegreen/Big Cedar Vacations.  In accordance with the agreement, Bluegreen makes an annual prepayment to Big Cedar by February of each year.  The prepayment is an advance payment for anticipated commissions estimated to be generated during the upcoming year, as determined by Bluegreen and Big Cedar, not to exceed $5.0 million.  No additional commissions are paid to Big Cedar during any year until the annual prepayment for that year has been fully earned.  During 2016, sales of VOIs to prospects and leads generated by the marketing arrangement with Bass Pro accounted for approximately 16% of Bluegreen’s VOI sales volume.  Bluegreen’s marketing agreement with Bass Pro is for a term expiring in January 2025, subject to early termination in whole or in part under certain circumstances.  There is no assurance that Bluegreen will be able to maintain, extend or renew its marketing relationship with Bass Pro, and Bluegreen’s sales would be materially and adversely impacted if Bluegreen’s relationship with Bass Pro ended.



As previously described, Bluegreen entered into a five-year strategic relationship with Choice Hotels in 2013.  This relationship impacts several areas of Bluegreen’s business and, while there is no assurance as to the success of the relationship, it includes a sales and marketing alliance component which Bluegreen believes enables Bluegreen to leverage Choice Hotels’ brands, customer relationships and marketing channels to market Bluegreen’s VOI offerings.  Choice Hotels’ obligations under the agreements are subject to Bluegreen making specified payments to Choice Hotels and certain other terms and conditions.



Typically, Bluegreen’s sales offices are located adjacent to certain of its resorts and are staffed with sales representatives and sales managers, all of whom are Bluegreen employees.  Bluegreen sponsors ongoing training for its personnel.



It is Bluegreen’s policy to require its sales staff to provide each VOI customer with a written disclosure statement prior to the time the customer signs a purchase agreement.  The purpose of this disclosure statement is to provide relevant information regarding VOI ownership at the resort and membership in the Bluegreen Vacation Club.  Pursuant to Bluegreen’s policies, the statement must be signed by every purchaser.  Purchasers are entitled to cancel purchase agreements within applicable legal rescission periods.  Substantially all VOI purchasers visit one of Bluegreen’s sales offices prior to or at the time of purchase.



Customer Financing



Bluegreen generally offers financing of up to 90% of the purchase price of its VOIs to its VOI customers who meet certain FICO ® score-based underwriting standards.  The typical financing extended by Bluegreen on a VOI during

2016 provided for a term of 10 years and a fixed interest rate.  However, Bluegreen also encourages purchasers to finance their purchase with a loan having a shorter term by offering a lower interest rate on those loans.  In connection with Bluegreen VOI sales, Bluegreen delivers the property deed to the trustee of the Bluegreen Vacation Club on behalf of the purchaser and obtains a mortgage on the purchaser’s VOI.



Purchasers of VOIs are generally required to make a down payment of at least 10% of the VOI sales price.  As part of Bluegreen’s continued efforts to improve its operating cash flows, Bluegreen incentivizes its sales associates to encourage cash sales, and Bluegreen promotes a point-of-sale credit card program sponsored by a third party financial institution.  As a result of such efforts, Bluegreen has increased both the percentage of its sales that are 100% cash and its average down payment on financed sales.  Including down payments received on financed sales, approximately 41% of Bluegreen VOI sales during 2016 were paid in cash within approximately 30 days from the contract date.



See “Products and Services — Vacation Ownership” above for more information about the demographic profile of Bluegreen’s typical customer.  See “Sales of Receivables/Pledging of Receivables” below for information regarding Bluegreen’s receivable financing activities.



Loan Underwriting



Prior to December 15, 2008, Bluegreen’s VOI financing was not subject to any significant loan underwriting criteria and no FICO ® score was obtained prior to extending credit.  Instead, customer financing on sales of VOIs typically only required the following: (i) receipt of a minimum down payment of 10% of the purchase price; (ii) a note and mortgage (or deed of trust); and (iii) other closing documents by the purchaser and Bluegreen.



Effective December 15, 2008, Bluegreen implemented a FICO ® score-based credit underwriting program.  Following implementation, subject to certain limited exceptions, Bluegreen no longer provided financing to customers with FICO ® scores below 500, and new customers with FICO ® scores between 500 and 599 were required to make a minimum cash down payment of 20%.  Effective January 1, 2010, subject to certain limited exceptions, Bluegreen further increased its FICO ® score-based credit underwriting standards such that Bluegreen no longer originates financing to customers with FICO ® scores below 575 subject to certain limited exceptions. However, Bluegreen may, from time to time, offer certain introductory products to customers with different FICO ®   scores, finance and down payment terms that it intends to hold in its portfolio.  Additionally, Bluegreen may provide financing to customers with no FICO ®   scores if the customer makes a minimum required down payment.  For loans with an outstanding balance as of December 31, 2016 that were originated from December 15, 2008 through December 31, 2009, the borrowers’ weighted average FICO ® score at the point of sale was 700.  For loans with an outstanding balance as of December 31, 2016 that were originated from January 1, 2010 through December 31, 2016, the borrowers’ weighted average FICO ® score at the point of sale was 706.  Further information is set forth in the following table:











Bluegreen encourages purchasers to make higher down payments and accept shorter loan period terms by offering lower interest rates.  Bluegreen may also from time to time offer lower rates for purchasers with specific FICO ®   scores or purchasers of higher volume point packages.  In addition, where permitted under applicable laws, rules and regulations, purchasers may receive a 1% discount in the interest rate by participating in Bluegreen’s pre-authorized payment plan.  As of December 31, 2016, borrowers with respect to approximately 95% of Bluegreen’s serviced VOI notes receivable participated in Bluegreen’s pre-authorized payment plan.



Effective November 1, 2008, Bluegreen increased the interest rates charged on new loans.  The weighted-average interest rate on Bluegreen’s VOI notes receivable was as follows:



Collection Policies



Financed sales of VOIs originated by Bluegreen typically utilize a note and mortgage.  Collection efforts related to the timeshare loans are managed by Bluegreen and are handled by a staff of collectors, assisted by a mortgage collection computer system.  Bluegreen’s collectors are incentivized through a performance-based compensation program.  Technological capabilities include, but are not limited to, automated lock box and clearing house processing.



Bluegreen generally makes collection efforts to customers by mail and by telephone.  Telephone contact generally commences when an account is as few as 10 days past due.  At 30 days past due, a collection letter is sent to U.S. residents advising the customer that if the loan is not brought current, the delinquency will be reported to the credit reporting agencies.  At 60 days delinquent, Bluegreen sends a letter to the customer by mail advising that they may be prohibited from making any future reservations for lodging at a resort.  If the delinquency continues, at 90 days past due, Bluegreen stops the accrual of, and reverses previously accrued but unpaid, interest on the note receivable and mails a “Notice of Intent to Cancel Membership,” which informs the customer that unless the delinquency is cured within 30 days, Bluegreen will terminate the customer’s VOI ownership.  If the customer fails to respond to such correspondence within the given timeframe, the loan will be defaulted and the customer’s VOI terminated.  In that case, Bluegreen sends a final letter, typically at approximately 120 days delinquent, to notify the customer of the loan default and the termination of the customer’s beneficial interest in the VOI property.  Thereafter, Bluegreen seeks to resell the VOI to a new purchaser.  Historically, Bluegreen has typically not sought to collect a deficiency on defaulted notes.



Recently, Bluegreen’s collection efforts have been increasingly impacted by the receipt of cease and desist letters from attorneys purporting to represent certain VOI owners and have encouraged such owners to become delinquent and ultimately default on obligations.  Following receipt, contact of VOI owners is ceased, unless otherwise allowed by law.



Allowance for Credit Losses



Under timeshare accounting rules, Bluegreen estimates uncollectibles based on historical uncollectibles for similar VOI notes receivable and does not consider the value of the underlying collateral.  Bluegreen holds large amounts of homogeneous VOI notes receivable and assesses uncollectibility based on pools of receivables.  In estimating future credit losses, Bluegreen does not use a single primary indicator of credit quality but instead evaluates its VOI notes receivable based upon a combination of factors, including a static pool analysis, the aging of the respective receivables, current default trends and prepayment rates by origination year, as well as the FICO ® scores of the borrowers.



Substantially all defaulted VOI notes receivable result in the holder of the note receivable acquiring the related VOI that secured the note receivable, typically soon after default and at little or no cost.  The reacquired VOI is then available for resale in the normal course of business.



See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the performance of Bluegreen’s notes receivable portfolio.



Sales of Receivables/Pledging of Receivables



Bluegreen’s ability to sell or borrow against its VOI notes receivable has historically been a critical factor in Bluegreen meeting its liquidity requirements.  The vacation ownership business generally involves making sales of a vacation product where a buyer is only required to pay a minimum of 10% to 20% of the purchase price up front, while at the same time selling and marketing expenses are primarily cash expenses exceeding the down payment amount.  For the year ended December 31, 2016, Bluegreen’s sales and marketing expenses were approximately 52% of its system-wide sales.  Accordingly, having facilities for the sale or hypothecation of these VOI notes receivables,

along with periodic term securitization transactions, has been a critical factor for Bluegreen in meeting its short- and long-term cash needs.



Bluegreen’s VOI receivables purchase facilities and term securitizations typically utilize an owner’s trust structure whereby Bluegreen sells receivables to a wholly-owned, special purpose finance entity which then sells the receivables to an owner’s trust, typically without recourse to Bluegreen or its subsidiaries, except for breaches of certain representations and warranties at the time of sale.  While in limited instances Bluegreen has entered into guarantees in connection with its vacation ownership receivables purchase facilities or term securitizations, historically, Bluegreen has typically not entered into such guarantees.  These facilities usually have detailed requirements with respect to the eligibility of receivables for purchase, and fundings under these facilities are typically subject to certain conditions precedent.  Under such purchase facilities, a variable purchase price of a portion of the principal balance of the receivables sold, subject to certain terms and conditions, is paid at closing in cash.  The balance of the purchase price is deferred until such time as the facility purchaser has received a specified return and all servicing, custodial, agent and similar fees and expenses have been paid and, if applicable, a specified overcollateralization ratio is achieved and a cash reserve account is fully funded.  Bluegreen’s VOI receivables purchase facilities typically include various conditions to purchase, covenants, triggering events and other provisions Bluegreen believes to be customary for these types of transactions.  Bluegreen has historically acted as servicer of, and in such capacity received a fee for servicing, the VOI receivables Bluegreen has sold under these purchase facilities.  See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about Bluegreen’s VOI receivables purchase facilities and term securitizations.



Receivables Servicing



Receivables servicing includes collecting payments from borrowers and remitting the funds to the owners, lenders or investors in such receivables, accounting for principal and interest on such receivables, making advances when required, contacting delinquent borrowers, terminating a membership in the Bluegreen Vacation Club in the event that defaults are not timely remedied, and performing other administrative duties.



Bluegreen receives mortgage servicing fees for servicing its securitized notes receivable which are included as a component of interest income.  Additionally, Bluegreen earns servicing fee income from third-party developers in connection with Bluegreen’s servicing of their loan portfolios under certain of Bluegreen’s fee-based services arrangements. 



Market and Industry Data



Market and industry data used throughout this r eport were obtained from Bluegreen’s internal surveys, industry publications, unpublished industry data and estimates, discussions with industry sources and other currently available information.  The sources for this data include, without limitation, the American Resort Development Association.  Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information.  Bluegreen has not independently verified such market data.  Similarly, Bluegreen’s internal surveys, while believed by Bluegreen to be reliable, have not been verified by any independent sources.  Accordingly, such data may not prove to be accurate.



BBX Capital Real Estate



Overview



BBX Capital Real Estate’s activities consist of the monetization and management of assets in its portfolio and investments in real estate developments and unconsolidated real estate joint ventures. Legacy assets (assets retained following the BankAtlantic sale) include loans, foreclosed real estate and a portfolio of charged-off loans. BBX Capital Real Estate conducts land entitlement activities on certain properties acquired through foreclosure and land development projects which include selling or leasing the improved properties to third parties.



Strategies



BBX Capital Real Estate’s growth strategy is focused on :





Real Estate Developments



Beacon Lake Master Planned Development



The Company obtained entitlements to develop raw land in St. Johns County, Florida into 1,476 finished lots which will comprise the Beacon Lake Community.  The Company acquired this undeveloped property through foreclosure and it is anticipated that the finished lots will be sold to home builders.  The centerpiece of the community is the 43-acre Beacon Lake, which offers opportunities for outdoor recreation.  The planned amenities include a Junior Olympic lap pool, Splash Park, tennis courts, fitness center and a community dog park.  Single-family homes and townhomes are planned to range from 1,800 square feet to 4,000 square feet and priced from the high $200,000’s to the $500,000’s.  Construction began in January 2017.  The Company has entered into a purchase agreement with a home builder for approximately 152 finished lots with the first finished lot closing anticipated to occur during the first quarter of 2018.



PGA Station



The Company acquired land through foreclosure located in PGA Station, in the city of Palm Beach Gardens, Florida in 2014.  The property held by the PGA Design Center Holdings joint venture described below is adjacent to PGA Station.  During the year ended December 31, 2016, the Company obtained governmental approvals to construct a 125 room limited-service suite hotel, a medical office building and three 60,000 square foot office buildings on vacant tracts of land in PGA Station.  The Company is the master developer of PGA station and intends to sell the developed land to third party developers.  The Company executed a sales contract for the hotel site with closing anticipated during the second quarter of 2017, subject to satisfactory completion of the prospective buyer’s due diligence and other closing conditions.



Gardens on Millenia



Gardens on Millenia consisted of 37 acres of land acquired through foreclosure located near the Mall at Millenia in a commercial center of Orlando, Florida.  During 2015, the Company obtained governmental approvals for a 300,000 square foot retail shopping center designed for multiple big-box and in-line tenants as well as two outparcel retail pads and nine rental apartment buildings totaling approximately 292 units. The Company contributed the portion of the land entitled for rental apartments to the Addison on Millenia Investment, LLC joint venture and contributed the portion of the land entitled for the retail center to the BBX/S Millenia Blvd Investments, LLC joint venture as initial capital contributions to the joint ventures. The Addison on Millenia Investment, LLC joint venture and the BBX/S Millenia Blvd Investments, LLC joint venture are described below in “Investments in unconsolidated real estate joint ventures”. 



Investments in unconsolidated real estate joint ventures



The Company had investments in the following real estate joint ventures as of December 31, 2016 and 2015 (in thousands):





The above investments in unconsolidated real estate joint ventures are described below.



Altis at Kendall Square, LLC (“Kendall Commons”)



In March 2013, the Company invested $1.3 million as one of a number of investors in a 321 unit multi-family development – Altis at Kendall Square – developed by Altman Development (“Altman”). The multifamily rental community is comprised of 12 three-story apartment buildings, one mixed-use building and one clubhouse. During the year ended December 31, 2016, the joint venture sold the development and the Company recognized $3.1 million of equity earnings and received $3.7 million of distributions from the joint venture.



Altis at Lakeline – Austin Investor, LLC



In December 2014, the Company invested $5.0 million as one of a number of investors in a planned multi-family development – Altis at Lakeline – being developed by Altman.  Located on an approximate 23 acre parcel in the northwest area of Austin, Texas, Altis at Lakeline is comprised of 19, two and three story, residential apartment buildings with 354 apartment units, 38 enclosed garages, and a private resort style 5,500 square foot clubhouse.  After all investors receive a specified return on capital  and the return of their contributed capital, a ny distributions thereafter are shared based on earnings with the managing member receiving an increasing percentage of distributions.  Construction commenced in the first quarter of 2015 and 312 units were available for lease with an occupancy rate of 49% as of December 31, 2016. 



New Urban/BBX Development, LLC (“Village at Victoria Park”)



Village at Victoria Park consists of a residential development on approximately 2 acres of previously vacant land previously owned by the Company that is located near downtown Fort Lauderdale, Florida.   In December 2013, The Company invested in a joint venture with New Urban Communities to develop the project as 30 single-family homes.  The project is a 50% - 50% joint venture with New Urban Communities serving as the developer and manager of the joint venture.  The project commenced construction and sales during the third quarter of 2014. As of December 31, 2016, the joint venture closed on 10 single-family homes and has sales contracts on four additional homes.  



Bayview (Sunrise and Bayview Partners, LLC)



In June 2014, the Company invested in a joint venture with an affiliate of Procacci Development Corporation (“PDC”) with the Company and PDC each contributing $1.8 million to the Sunrise and Bayview Partners joint venture.  The joint venture acquired for $8.0 million approximately three acres of real estate located at Bayview Drive and Sunrise Boulevard in Fort Lauderdale, Florida.  The Company and PDC each have a 50% interest in the joint venture.  There is currently an approximate 84,000 square foot office building along with a convenience store and gas station on the property.  The office building has low occupancy with short term leases. The convenience store's lease ends in

March 2022.  The Company anticipates that the property will be redeveloped into a mixed-use project at some point in the future.



Hialeah Communities, LLC ( Bonterra – CC Homes)



In July 2014, the Company invested in a joint venture with CC Bonterra to develop approximately 394 homes in a portion of Bonterra community in Hialeah, Florida.  The Company transferred approximately 50 acres of land acquired through foreclosure at an agreed upon value of approximately $15.6 million subject to an $8.3 million mortgage which was assumed by the joint venture.  In exchange, the Company received $2.2 million of cash and a joint venture interest with an agreed upon assigned initial capital contribution value of $4.9 million .  The Company receives 57% of the joint venture distributions until the Company receives its aggregate capital contributions plus a specified return on capital. Any distributions thereafter are shared with the managing member receiving an increased percentage of distributions.  During the year ended December 31, 2016, the joint venture closed on 212 single-family homes and the Company received $11.5 million of cash distributions and recognized $9.5 million of equity earnings from the joint venture.  As of December 31, 2016, the joint venture has executed sales contracts on an additional 109 single-family homes. 



PGA Design Center Holdings, LLC



In December 2013, the Company purchased for $6.1 million a commercial property in Palm Beach Gardens, Florida, with three existing buildings consisting of 145,000 square feet of mainly furniture retail space. The property, which is located in a larger mixed use property now known as PGA Station was substantially vacant at the date of acquisition.  Subsequent to the acquisition of the property, the Company entered into a joint venture with Stiles Development which acquired a 60% interest in the joint venture for $2.9 million in cash.  The Company contributed the property (excluding certain residential development entitlements having an estimated value of $1.2 million) to the joint venture in exchange for $2.9 million in cash and the remaining 40% interest in the joint venture.  The Company transferred the retained residential development entitlements to adjacent parcels owned by it in PGA Station (see above for a discussion of the other parcels owned by the Company in PGA Station).  During the year ended December 31, 2016, governmental approvals were obtained to change the use of a portion of the property from retail to office.  The joint venture intends to sell or lease the buildings. 



CCB Miramar, LLC



In May 2015, the Company invested in a joint venture with two separate unaffiliated developers relating to the acquisition of real estate in Miramar, Florida for the construction of single-family homes.  The Company contributed $875,000 for an approximate 35% interest in the joint venture and one of the developers contributed to the joint venture a contract to purchase the real estate. The purchase of the real estate is subject to certain closing conditions, including receipt of all necessary entitlements and completion of due diligence by the joint venture.



Centra Falls, LLC



In August 2015, the Company invested as one of a number of investors in a joint venture with an unaffiliated developer for the development and sale of 89 townhomes in Pembroke Pines, Florida.  The Company contributed $750,000 and is entitled to receive 7.143% of the joint venture distributions until it receives the return of its aggregate capital contributions plus a specified return on its investment. Any distributions thereafter are shared with the managing member receiving an increased percentage of distributions. The project commenced construction and sales during the third quarter of 2015.  As of December 31, 2016, the joint venture closed on 21 townhomes and has executed contracts on an additional 54 townhomes.



The Addison on Millenia Investment, LLC



In December 2015, the Company invested as one of a number of investors in a joint venture to develop 11.8 acres in the Gardens on Millenia site located in Orlando, Florida into nine retail apartment buildings containing approximately 292 units.  The joint venture currently intends to hold the property and operate the apartment project as an income producing business.   The Company transferred property with an agreed upon value of $5.8 million and $0.3 million of cash for its initial joint venture contribution. The Company is entitled to receive 48% of the joint venture distributions until it receives its aggregate capital contributions plus a specified return in its investment. Any distributions thereafter are shared based on earnings with the managing member receiving an increasing percentage of distributions. Construction commenced in the first quarter of 2016 and leasing of apartment units is anticipated to begin during the first quarter of 2017. 



BBX/S Millenia Blvd Investments, LLC



In October 2015, the Company and a developer invested in a joint venture to develop a retail center on the Gardens of Millenia site in Orlando, Florida.  The joint venture intends to construct the center, lease the premises and sell the property. The Company transferred property with an agreed upon value of $7.0 million to the joint venture and received $0.7 million in cash and a 90% interest in the joint venture.  The Company is entitled to receive 90% of joint venture distributions until it receives its aggregate capital contributions plus a specified return on its investment .   Any distributions thereafter are shared with the managing member receiving an increased percentage of the distributions. The joint venture completed the construction of the retail center, two anchor tenants are open for business and the joint venture anticipates selling the retail center in 2017.



Altis at Bonterra – Hialeah, LLC



In December 2015, the Company invested in a joint venture with Altman to develop approximately 314 apartment homes in a portion of Bonterra communities in Hialeah, Florida. The Company transferred approximately 14 acres of land at an agreed upon value of approximately $9.4 million and cash of $7.5 million to the joint venture.  The Company is entitled to receive 95% of the joint venture distributions until it receives its aggregate capital contributions plus a specified return on its investment. A ny distributions thereafter are shared based on earnings with the managing member receiving an increas ed percentage of the distributions .     Construction commenced during the first quarter of 2016 a nd leasing of apartment units is anticipated to begin during the first quarter of 2017. 



Altis at Shingle Creek Manager, LLC



During April 2016, the Company invested in a joint venture with Altman and an investor to develop approximately 356 apartment homes on 24 acres of land located in Kissimmee, Florida. The Company invested approximately $332,000 for a 2.5% interest in the joint venture.  T he Company is entitled to receive 2.5% of the joint venture distributions until it receives its aggregate capital contribution plus a specified return on its investment. A ny distributions thereafter are shared based on earnings with the managing member receiving an increas ing percentage of the distributions .     Construction commenced during the fourth quarter of 2016 a nd leasing of apartment units is anticipated to begin during the third quarter of 2017. 



Centra Falls II, LLC



During 2016, the Company invested as one of a number of investors in a joint venture with Label & Co. to develop 61 town homes on land located in the City of Pembroke Pines, Broward County, Florida. The Company contributed $571,000 to the joint venture and is entitled to receive 7.143% of the joint venture distributions until it receives its aggregate capital contribution plus a specified return on its investment.  A ny distributions thereafter are shared with the managing member receiving an increas ed percentage of the distributions .  Construction is expected to commence in the first quarter of 2017 and closings are anticipated to commence during the fourth quarter of 2017.



Legacy Assets



Legacy assets in the Company’s Consolidated Statement of Financial Condition as of December 31, 2016 primarily consisted of $25.5 million of loans receivable, $12.0 million of real estate held-for-investment and $33.3 million of real estate held-for-sale.  PGA Station and the Gardens on Millenia real estate developments discussed above are included in real estate held-for-sale with an aggregate carrying value of $9.2 million as of December 31, 2016.  These legacy assets are described in further detail in Item 8 – Note 5 and Note 8 of this report.



The majority of the legacy assets do not generate income on a regular or predictable basis. As a consequence BBX Capital Real Estate does not expect to generate significant revenue from the legacy assets until the assets are monetized through repayments or transactions involving the sale, joint venture or development of the underlying real estate. The cash flow from the monetization of legacy assets are generally invested in income producing real estate, real estate developments and real estate joint ventures as well as in the Company’s middle market operating businesses.  As a result of the substantial decline in real estate values during the recession, the majority of legacy non-performing commercial real estate loans and foreclosed real estate were written down in prior periods to the then prevailing estimated fair values of the collateral less costs to sell.  The Company believes there has been continued improvements generally in real estate markets and believes that the prior estimated fair values of the underlying collateral securing certain of its commercial real estate loans and its real estate carrying values may be below current market values.  Additionally, this recovery in the real estate market has favorably affected the financial condition of borrowers and the Company is aggressively pursuing its borrowers and/or guarantors in order to maximize recoveries through cash settlements, loan workout arrangements or participation interests in the development or performance of

the collateral.  If the Company is successful in its efforts, the Company expects to recognize gains to the extent that the amounts it collects exceed the carrying value of its commercial loans and foreclosed real estate.



Middle Market Division



Overview



The Middle Market Division invests in operating companies and businesses with revenues of less than $250 million.   Renin , which was acquired in October 2013 and has the highest revenue of our portfolio companies in this division, manufactures products for the home improvement industry and operates through headquarters in Canada and two manufacturing assembly and distribution facilities in Canada and the United States.  Since December 2013, the Middle Market Division also has made investments and has completed acquisitions in the sugar and confection e ry industry through the Company’s wholly-owned subsidiary, BBX Sweet Holdings. In 2016, a wholly owned subsidiary of the Company entered into area development agreements with MOD Super Fast Pizza Franchising, LLC with a goal of developing approximately 60 MOD franchised pizza restaurant locations throughout Florida over the next seven years.



Products and Sales Channels



Renin’s products include sliding bipass and bifold closet doors, room dividers including barn-style doors and hardware, fabricated glass and home décor products. While the majority of Renin’s products are manufactured at its facilities located in Canada and the United States, a portion of its products are sourced from suppliers in China.  Renin products are sold through three distinct channels in North America: retail, wholesale, and direct in the metropolitan Toronto area   (“ Toronto Area ”) .  Retail currently makes up over 50% of Renin’s sales and includes big box retail customers such as Home Depot and Lowes.  Wholesale, which includes OEMs and fabricators across North America, makes up approximately 30% of Renin’s sales.  The Toronto Area, where Renin operates an installation business, generates the remaining sales.    



BBX Sweet Holdings’ products include fine chocolates, chocolate drenched candies, tropical snacks, and hard candies, all of which are made at facilities located in Utah and Florida. BBX Sweet Holdings’ fine chocolates are sold directly to consumers at its nine Hoffman’s Chocolates retail chocolate locations in South Florida. BBX Sweet Holdings’ other products are sold to retailers or distributors.



Strategies



The business and operating strategy for the portfolio of companies in the Middle Market Division focuses on :







Employees



Management believes that its relations with its employees are satisfactory. The Company currently maintains employee benefit programs that are considered by management to be generally competitive with programs provided by other major employers in its markets.



As of December 31, 2016, the Company and its subsidiaries had approximately 6,141 employees, with 5,729 employees at Bluegreen, of which 549 employees were located at Bluegreen’s headquarters in Boca Raton, Florida, and 5,180 employees were located in regional field offices throughout the United States and one office in Aruba.  





Competition



The industries in which the Company conducts business are very competitive and we also face substantial competition with respect to our investment activities from real estate developers and building construction companies from private equity funds, hedge funds and other institutional investors. The Company competes with institutions and entities that are larger and have greater resources than the resources available to the Company.  Four unaffiliated companies in the candy and confectionery industry currently account for approximately 71% of the industry’s revenues reflecting

significant fragmentation in the industry in which Sweet Holdings operates.  Renin’s products are sold mainly to large retailers as well as to housing and building construction companies. The industry in which Renin operates experiences intense competition from foreign importers and producers.  MOD Pizza competes with established pizza brands, new entrants into the fast casual pizza category, especially in Florida, and for prime locations, with other operators.  Bluegreen competes with various high profile and well-established operators, many of which have greater liquidity and financial resources than Bluegreen. Further, Bluegreen competes with numerous smaller owners and operators of vacation ownership resorts and also faces competition from alternative lodging options available to consumers through both traditional methods of delivery as well as new web portals and applications, including private rentals of homes or apartments or condominium units, which have increased in popularity in recent years.  Many of the world’s most recognized lodging, hospitality and entertainment companies develop and sell VOIs in resort properties.  Major companies that now operate or are developing or planning to develop vacation ownership resorts directly or through subsidiaries include Marriott Vacations Worldwide Corporation, the Walt Disney Company, Hilton, Wyndham, ILG and Diamond Resorts International.  Bluegreen also competes with numerous other smaller owners and operators of vacation ownership resorts.  In Bluegreen’s fee-based services business, Bluegreen typically competes with Hilton Hotels Corporation and Wyndham Worldwide Corporation.  In addition to competing for sales leads, prospects and fee-based service clients, Bluegreen competes with other VOI developers for marketing, sales, and resort management personnel.





Regulation



As a public company, we are subject to federal securities laws, including the Securities Exchange Act of 1934.  In addition, the companies in which we hold investments are subject to federal, state and local laws and regulations generally applicable to their respective businesses. 



Bluegreen



The vacation ownership and real estate industries are subject to extensive and complex governmental regulation.  Bluegreen is subject to various federal, state, local and foreign environmental, zoning, consumer protection and other laws, rules and regulations, including those regarding the acquisition, marketing and sale of real estate and VOIs and various aspects of Bluegreen’s financing operations.  On a federal level, the Federal Trade Commission has taken an active regulatory role through the Federal Trade Commission Act, which prohibits unfair or deceptive acts or unfair competition in interstate commerce.  In addition, many states have what are known as “Little FTC Acts” that apply to intrastate activity.  In addition to the laws applicable to Bluegreen’s customer financing and other operations discussed below, Bluegreen is or may be subject to the Fair Housing Act and various other federal laws, rules and regulations.  Bluegreen is also subject to various foreign laws with respect to La Cabana Beach Resort and Casino in Oranjestad, Aruba and Blue Water Resort at Cable Beach in Nassau, Bahamas.  In addition, in the future, VOIs may be deemed to be securities subject to regulation as such, which could have a material adverse effect on Bluegreen.  The cost of complying with applicable laws and regulations may be significant and Bluegreen may not maintain compliance at all times with all applicable laws, including those discussed below.  Any failure to comply with current or future applicable laws or regulations could have a material adverse effect on Bluegreen.



Bluegreen’s vacation ownership resorts are subject to various regulatory requirements, including state and local approvals.  The laws of most states require Bluegreen to file a detailed offering statement describing Bluegreen’s business and all material aspects of the project and sale of VOIs with a designated state authority.  In addition, when required by state law, Bluegreen provides its VOI purchasers with a public disclosure statement that contains, among other items, detailed information about the resort, the surrounding vicinity, and the purchaser’s rights and obligations as a VOI owner.  Laws in each state where Bluegreen sells VOIs generally grant the purchaser of a VOI the right to cancel a purchase contract at any time within a specified rescission period following the earlier of the date the contract was signed or the date the purchaser has received the last of the documents required to be provided by Bluegreen.  Most states have other laws that regulate Bluegreen’s activities, including real estate licensure requirements; sellers of travel licensure requirements; anti-fraud laws; telemarketing laws; prize, gift and sweepstakes laws; and labor laws.  



Under various federal, state and local laws, ordinances and regulations, the owner of real property generally is liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, the property, as well as related costs of investigation and property damage.  These laws often impose such liability without regard to whether the owner knew of the presence of such hazardous or toxic substances.  The presence of these substances, or the failure to properly remediate these substances if they exist, may adversely affect the owner’s ability to sell or lease a property or to borrow using the real property as collateral.  Other federal and state laws require the removal or encapsulation of asbestos-containing material when this material is in poor condition or in the event of construction, demolition, remodeling or renovation.  Other statutes may require the removal of underground storage

tanks.  Noncompliance with these and other environmental, health or safety requirements may result in the need to cease or alter operations or development at a property.  In addition, certain state and local laws may impose liability on property developers with respect to construction defects discovered on the property or repairs made by future owners of such property.  Under these laws, Bluegreen may be required to pay for repairs to the developed property.  The development, management and operation of Bluegreen’s resorts are also subject to the Americans with Disabilities Act.



Bluegreen’s marketing, sales and customer financing activities are also subject to extensive regulation, which can include, but is not limited to: the Truth-in-Lending Act and Regulation Z; the Fair Housing Act; the Fair Debt Collection Practices Act; the Equal Credit Opportunity Act and Regulation B; the Electronic Funds Transfer Act and Regulation E; the Home Mortgage Disclosure Act and Regulation C; the Dodd–Frank Wall Street Reform and Consumer Protection Act; Unfair or Deceptive Acts or Practices and Regulation AA; the Patriot Act; the Right to Financial Privacy Act; the Gramm-Leach-Bliley Act; the Fair and Accurate Credit Transactions Act; and anti-money laundering laws. The Dodd-Frank Act contains significant changes to the regulation of financial institutions, and related entities, including the creation of new federal regulatory agencies, and the granting of additional authorities and responsibilities to existing regulatory agencies to identify and address emerging systemic risks posed by the activities of financial services firms.  The Consumer Financial Protection Bureau (“CFPB”) is one such regulatory agency created pursuant to the Dodd-Frank Act.  The CFPB’s mandate is to protect consumers by carrying out federal consumer financial laws and to publish rules and forms that facilitate understanding of the financial implications of the transactions consumers enter into.  Consistent with this mission, the CFPB amended Regulations X and Z to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property.  The practical impact upon Bluegreen was the requirement to use a new Integrated Mortgage Disclosure Statement in lieu of the separate Good Faith Estimate and Closing Statement.  No assurance can be given that Bluegreen will be in compliance with this act or other applicable laws or that compliance with this rule or the promulgation of additional new standards by the CFPB will not have an adverse impact on Bluegreen.  In addition, Bluegreen’s term securitization transactions currently must comply with certain requirements of the Dodd-Frank Act, including the risk retention rules.



Bluegreen's management of, and dealings with, POAs, including Bluegreen's purchase of defaulted inventory from POAs in connection with its secondary market arrangements, is also subject to state laws and resort rules and regulations, including those with respect to the establishment of budgets and expenditures, rule-making, and the imposition of maintenance assessments.



During the year ended December 31, 2016, approximately 7% of Bluegreen’s VOI sales were generated by marketing to prospective purchasers obtained through internal and third-party vendors’ outbound telemarketing efforts.  Bluegreen attempts to monitor the actions and compliance of these third parties, but there are risks associated with Bluegreen’s and such third parties’ telemarketing efforts.  In recent years, state and federal regulators have increased regulations and enforcement actions related to telemarketing operations, including requiring the adherence to state “do not call” laws.  In addition, the Federal Trade Commission and Federal Communications Commission have implemented national “do not call” legislation.  These measures have significantly increased the costs associated with telemarketing.  While Bluegreen continues to be subject to telemarketing risks and potential liability, Bluegreen believes that its exposure to adverse impacts from this heightened telemarketing legislation and enforcement may be mitigated to some extent by the use of “permission marketing,” whereby Bluegreen obtains the permission of prospective purchasers to contact them in the future, thereby exempting such calls from the various “do not call” laws.  Bluegreen has also implemented policies and procedures which Bluegreen believes will help reduce the possibility that individuals who have requested to be placed on its internal company do not call list are not contacted, but such policies and procedures may not be effective in ensuring strict regulatory compliance.



To date, no material fines or penalties have been imposed on Bluegreen as a result of its telemarketing operations.  However, from time to time, Bluegreen has been the subject of proceedings for violation of the “do not call” laws and for violation of state laws applicable to the marketing and sale of VOIs.  Bluegreen may not be able to efficiently or effectively market to prospective purchasers through telemarketing operations in the future or successfully develop alternative sources of identifying and marketing to prospective purchasers of Bluegreen’s VOI products at acceptable costs.  In addition, Bluegreen may face significant non-compliance issues or additional costs of compliance, which may adversely impact Bluegreen’s results and operations in the future.



See also “Item 1A – Risk Factors ” for a description of risks with respect to regulatory compliance and “Item 3 – Legal Proceedings” for a description of any pending regulatory actions.