Debt and Preferred Equity Investments

During the nine months ended September 30, 2013 and 2012, our debt and preferred equity investments (net of discounts and deferred origination fees) increased approximately $497.4 million and $374.0 million, respectively, due to originations, purchases, accretion of reserves and discounts and paid-in-kind interest. We recorded repayments, participations and sales of approximately $530.2 million and $288.3 million, respectively, and loan loss reserves of zero and $3.0 million during the nine months ended September 30, 2013 and 2012, respectively, which offset the increases in debt and preferred equity investments.

Debt Investments

As of September 30, 2013 and December 31, 2012, we held the following debt investments with an aggregate weighted average current yield of approximately 11.3% at September 30, 2013 (in thousands):



Loan Type	September 30, 2013 Senior Financing		September 30, 2013 Carrying Value, Net of Discounts and Deferred Origination Fees			December 31, 2012 Carrying Value, Net of Discounts and Deferred Origination Fees			Initial Maturity Date
Other Loan	$	398,500	$	14,837		$	—		March 2015
Mezzanine Loan	205,000		67,740			66,307			February 2016
Mortgage/Mezzanine Loan	167,355		44,549			44,013			May 2016
Mezzanine Loan	177,000		15,226			15,906			May 2016
Junior Participation	133,000		49,000			49,000			June 2016
Mezzanine Loan	165,000		71,254			70,967			November 2016
Mortgage/Mezzanine Loan(1)	1,109,000		78,268			115,804			March 2017
Other Loan	15,000		3,500			3,500			September 2021
Mortgage(2)	—		—			218,068			—
Total fixed rate	$	2,369,855	$	344,374		$	583,565
Mortgage Loan	—		29,912			—			December 2013
Junior Participation(3)	57,750		10,869			10,869			February 2014
Junior Participation(4)	80,932		23,953			—			February 2014
Mortgage/Mezzanine Loan	330,000		131,595			131,231			July 2014
Mezzanine Loan(5)	62,500		37,394			37,288			July 2014
Mezzanine Loan	180,000		59,852			59,739			August 2014
Mortgage	—		14,855			14,745			September 2014
Mezzanine Loan(6)	87,374		37,365			34,444			October 2014
Mortgage/Mezzanine Loan(7)	—		53,258			47,253			February 2015
Mezzanine Loan	110,000		48,991			—			September 2015
Mezzanine Loan(8)	92,711		27,772			55,336			December 2015
Mezzanine Loan	775,000		72,585			—			March 2016
Mezzanine Loan(9)	160,000		22,515			7,624			June 2016
Mezzanine Loan	87,300		25,580			34,761			July 2016
Mortgage/Mezzanine Loan	72,000		20,558			—			July 2018
Total floating rate	$	2,095,567	$	617,054		$	433,290
Total	4,465,422		961,428			1,016,855
Loan loss reserve(10)			(4,000		)	(7,000		)
			$	957,428		$	1,009,855

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(1)

Interest is added to the principal balance for this accrual only loan. In January 2013, we sold 50% of the mezzanine loan for $57.8 million and recognized additional income of $12.9 million, which is included in investment and preferred equity income on the consolidated statements of income. The unaccrued interest during the period in which the loan was on non-accrual status is being accreted as of January 2013.


(2)	In connection with the repayment of the loan in May 2013, we recognized additional income of $6.4 million, which is included in investment and preferred equity income on our consolidated statements of income.


(3)	In June 2013, the loan was extended to February 2014, subject to an additional four-month extension option.


(4)	As of September 30, 2013, we were committed to fund an additional $0.9 million in connection with this loan.


(5)	As a result of the transfer not meeting the conditions for sale accounting, the $5.0 million portion of the outstanding loan that was participated out has been recorded in other liabilities in the accompanying consolidated balance sheets.


(6)	As of September 30, 2013, we were committed to fund an additional $12.3 million in connection with this loan.


(7)	As of September 30, 2013, we were committed to fund an additional $5.2 million in connection with this loan.


(8)	We funded $56.3 million at origination. In June 2013, we sold 50% of our interest in the $85.0 million mezzanine loan. As of September 30, 2013, we were committed to fund an additional $13.6 million in connection with our share of this loan.

(9)

As part of the refinancing of the related senior mortgage in June 2013, we originated a $30.0 million mezzanine loan and our previous investment in the amount of $15.0 million, including the $7.4 million participated interest, was repaid in full. Following the refinancing, we entered into a loan participation agreement in the amount of $7.4 million on this $30.0 million mezzanine loan. Due to our continued involvement with the loan, the portion that was participated out has been recorded in other assets and other liabilities in the accompanying consolidated balance sheets.


(10)	Loan loss reserves are specifically allocated to investments. Our reserves reflect management's judgment of the probability and severity of losses based on Level 3 data. We cannot be certain that our judgment will prove to be correct or that reserves will be adequate over time to protect against potential future losses.

Preferred Equity Investments

As of September 30, 2013 and December 31, 2012, we held the following preferred equity investments, with an aggregate weighted average current yield of approximately 10.9% at September 30, 2013 (in thousands):



Type	September 30, 2013 Senior Financing		September 30, 2013 Carrying Value, Net of Discounts and Deferred Origination Fees		December 31, 2012 Carrying Value, Net of Discounts and Deferred Origination Fees		Initial Mandatory Redemption
Preferred equity	$	70,000	$	9,937	$	9,927	October 2014
Preferred equity(1)(2)	525,000		107,723		99,768		July 2015
Preferred equity(1)(3)	55,986		24,426		18,925		April 2016
Preferred equity(1)	926,260		216,037		209,959		July 2016
	$	1,577,246	$	358,123	$	338,579

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(1)	The difference between the pay and accrual rates is included as an addition to the principal balance outstanding.


(2)	The reserve previously taken against this loan is being accreted up to the face amount through the maturity date. In June 2013, the redemption date was extended from July 2014 to July 2015.


(3)	As of September 30, 2013, we were committed to fund an additional $1.4 million on this loan.

The following table is a rollforward of our total loan loss reserves at September 30, 2013 and December 31, 2012 (in thousands):



	September 30, 2013			December 31, 2012
Balance at beginning of year	$	7,000		$	50,175
Expensed	—			3,000
Recoveries	—			(2,436		)
Charge-offs and reclassifications	(3,000		)	(43,739		)
Balance at end of period	$	4,000		$	7,000

At September 30, 2013 and December 31, 2012, all debt and preferred equity investments, other than as noted above, were performing in accordance with the terms of the loan agreements.

We have determined that we have one portfolio segment of financing receivables at September 30, 2013 and December 31, 2012, comprising commercial real estate, which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling approximately $145.8 million at September 30, 2013 and $121.3 million at December 31, 2012. No financing receivables were 90 days past due or on non-accrual status at September 30, 2013.

The following table presents impaired loans, which may include non-accrual loans, as of September 30, 2013 and December 31, 2012, respectively (in thousands):



	September 30, 2013						December 31, 2012
	Unpaid Principal Balance		Recorded Investment		Allowance Allocated		Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded:
Commercial real estate	10,750		10,750		4,000		10,750		10,750		7,000

Total	$	10,750	$	10,750	$	4,000	$	10,750	$	10,750	$	7,000

The following table presents the average recorded investment in impaired loans, which may include non-accrual loans and the related investment and preferred equity income recognized during the three and nine months ended September 30, 2013 and 2012, respectively (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Average recorded investment in impaired loans	$	10,890	$	40,304		$	10,877	$	63,391

Investment and preferred equity income recognized	3,316		(298		)	3,804		3,480

On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity. We assess credit quality indicators based on the underlying collateral.