6. COMMERCIAL REAL ESTATE INVESTMENTS

At December 31, 2014 and 2013, commercial real estate investments were composed of the following:

CRE Debt and Preferred Equity Investments

	December 31, 2014							December 31, 2013
	Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)			Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)
	(dollars in thousands)
Senior mortgages	$	384,304	$	383,895		25.2	%	$	669,512	$	667,299		42.2	%
Senior securitized mortgages(3)		399,541		398,634		26.3	%		-		-		0.0	%
Subordinate notes		-		-		0.0	%		41,059		41,408		2.6	%
Mezzanine loans		522,474		522,731		34.4	%		626,883		628,102		39.5	%
Preferred equity		214,653		212,905		14.1	%		249,769		247,160		15.7	%
Total	$	1,520,972	$	1,518,165		100.0	%	$	1,587,223	$	1,583,969		100.0	%

(1) Carrying value includes unamortized origination fees of $3.0 million and $4.9 million as of December 31, 2014 and December 31, 2013, respectively.
(2) Based on outstanding principal.
(3) Assets of consolidated VIE.

	December 31, 2014
	Senior Mortgages			Senior Securitized Mortgages(1)			Subordinate Notes			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	667,299		$	-		$	41,408		$	628,102		$	247,160		$	1,583,969
Originations & advances (principal)		127,112			-			-			122,742			-			249,854
Principal payments		(12,756	)		-			(41,059	)		(227,151	)		(35,116	)		(316,082	)
Sales (principal)		-			-			-			-			-			-
Amortization & accretion of (premium) discounts		(138	)		-			(349	)		(1,093	)		108			(1,472	)
Net (increase) decrease in origination fees		(2,427	)		(116	)		-			(478	)		-			(3,021	)
Amortization of net origination fees		2,783			772			-			609			753			4,917
Transfers		(397,978	)		397,978			-			-			-			-
Allowance for loan losses		-			-			-			-			-			-
Net carrying value	$	383,895		$	398,634		$	-		$	522,731		$	212,905		$	1,518,165

	December 31, 2013
	Senior Mortgages			Senior Securitized Mortgages(1)			Subordinate Notes			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	101,473		$	-		$	41,851		$	547,068		$	39,060		$	729,452
Originations & advances (principal)		590,039			-			-			184,704			210,000			984,743
Principal payments		(24,333	)		-			(235	)		(90,431	)		-			(114,999	)
Sales (principal)		(13,750	)		-			-			-			-			(13,750	)
Amortization & accretion of (premium) discounts		(109	)		-			(208	)		(484	)		85			(716	)
Net (increase) decrease in origination fees		151			-			-			(285	)		(2,118	)		(2,252	)
Amortization of net origination fees		1,328			-			-			30			133			1,491
Transfers		12,500			-			-			(12,500	)		-			-
Allowance for loan losses		-			-			-			-			-			-
Net carrying value	$	667,299		$	-		$	41,408		$	628,102		$	247,160		$	1,583,969

(1) Assets of consolidated VIE.

Internal CRE Debt and Preferred Equity Investment Ratings

	December 31, 2014
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List		Defaulted-Recovery			Workout
	(dollars in thousands)
Senior mortgages	$	384,304		25.2	%	$	371,331	$	-	$	12,973	(2)	$	-
Senior securitized mortgages(1)		399,541		26.3	%		390,291		9,250		-			-
Subordinate notes		-		0.0	%		-		-		-			-
Mezzanine loans		522,474		34.4	%		522,474		-		-			-
Preferred equity		214,653		14.1	%		214,653		-		-			-
	$	1,520,972		100.0	%	$	1,498,749	$	9,250	$	12,973		$	-


	December 31, 2013
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List		Defaulted-Recovery			Workout
	(dollars in thousands)
Senior mortgages	$	669,512		42.2	%	$	644,039	$	-	$	25,473	(3)	$	-
Subordinate notes		41,059		2.6	%		41,059		-		-			-
Mezzanine loans		626,883		39.5	%		620,883		-		6,000			-
Preferred equity		249,769		15.7	%		249,769		-		-			-
	$	1,587,223		100.0	%	$	1,555,750	$	-	$	31,473		$	-

(1) Assets of consolidated VIE.
(2) Relates to one loan on nonaccrual status.
(3) Includes one loan on non-accrual status with a carrying value of $12.9 million.

Real Estate Acquisitions

In November 2014, a joint venture, in which the Company has a 90% interest, acquired eleven retail properties located in New York, Ohio and Georgia. The purchase price was funded with cash and a new $104.0 million, ten-year, 4.03% fixed-rate interest-only mortgage loan.

The following table summarizes acquisitions of real estate held for investment during the year ended December 31, 2014:


Date of Acquisition	Type	Location	Purchase Price	Remaining Lease Term (Years) (1)
(dollars in thousands)
April 2014	Single-tenant retail	Tennessee	$ 19,000	8
June 2014	Multi-tenant retail	Virginia	$ 17,743	7
November 2014	Multi-tenant retail	New York, Ohio, Georgia	$ 154,000	4.6
(1) Does not include extension options.

The aforementioned acquisitions were accounted for using the acquisition method of accounting. The Company incurred approximately $2.3 million of transaction costs in connection with the acquisitions, which were expensed during the year ended December 31, 2014 and are reflected in Other general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss).

The following table presents the aggregate allocation of the purchase price:

	Tennessee			Virginia			Joint Venture			Total
	(dollars in thousands)
Purchase Price Allocation:
Land	$	3,503		$	6,394		$	21,581		$	31,478
Buildings		11,960			10,862			97,133			119,955
Site improvements		1,349			1,184			12,952			15,485
Tenant Improvements		-			-			9,601			9,601
Real estate held for investment		16,812			18,440			141,267			176,519

Intangible assets (liabilities):
Leasehold intangible assets		4,288			3,218			22,555			30,061
Above market lease		-			-			5,463			5,463
Below market lease value		(2,100	)		(3,915	)		(15,285	)		(21,300	)
Total purchase price	$	19,000		$	17,743		$	154,000		$	190,743

The weighted average amortization period for intangible assets and liabilities is 4.25 years. Above market leases and leasehold intangible assets are included in Other assets and below market leases are included in Accounts payable and other liabilities in the Consolidated Statements of Financial Condition. The fair value of the 10% non-controlling interest in the joint venture at the acquisition date was $15.4 million. The fair value of the acquisition and the related non-controlling interest was determined based on the purchase price.

Total Commercial Real Estate Investment

	December 31, 2014			December 31, 2013
	(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	38,117		$	6,639
Buildings and improvements		176,139			31,100
Subtotal		214,256			37,739
Less: accumulated depreciation		(4,224	)		(877	)
Total real estate held for investment at amortized cost, net		210,032			36,862
Real estate held for sale at fair value		-			23,270
Total investment in commercial real estate, net		210,032			60,132
Net carrying value of CRE Debt and Preferred Equity Investments		1,518,165			1,583,969
Total commercial real estate investments	$	1,728,197		$	1,644,101

Depreciation expense was $3.2 million and $0.9 million for the year ended December 31, 2014 and 2013, respectively and is included in General and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss). The table below presents the minimum future rentals on noncancelable leases of the Company’s commercial real estate investments as of December 31, 2014.

The minimum rental amounts due under the leases are generally either subject to scheduled fixed increases or adjustments. The leases generally also require that the tenants reimburse us for certain operating costs. Approximate future minimum rents to be received over the next five years and thereafter for non-cancelable operating leases in effect at December 31, 2014 for the consolidated properties, including consolidated joint venture properties are as follows (in thousands):

Rental Income

	December 31, 2014
	(dollars in thousands)
2015	$	20,299
2016		18,285
2017		15,661
2018		13,388
2019		11,050
Later years		51,087
	$	129,770

Mortgage loans payable as of December 31, 2014 and 2013, were as follows:

December 31, 2014
Property	Mortgage Carrying Value		Mortgage Principal		Interest Rate			Fixed/Floating Rate	Maturity Date	Priority
			(dollars in thousands)
Joint Venture	$	103,950	$	103,950		4.03	%	Fixed	9/6/2019	First liens
Tennessee		12,350		12,350		4.01	%	Fixed	6/6/2019	First liens
Virginia		11,025		11,025		3.58	%	Fixed	12/6/2024	First liens
Arizona		16,709		16,600		3.50	%	Fixed	1/1/2017	First liens
Nevada		2,519		2,505		3.45	%	Floating (1)	3/29/2017	First liens
	$	146,553	$	146,430

(1) Rate is fixed via an interest rate swap (pay fixed 3.45%, receive floating rate of L+200).


December 31, 2013
Property	Mortgage Carrying Value		Mortgage Principal		Interest Rate			Fixed/Floating Rate	Maturity Date	Priority
			(dollars in thousands)
Arizona	$	16,762	$	16,600		3.50	%	Fixed	1/1/2017	First liens
Nevada		2,570		2,550		3.45	%	Floating (1)	3/29/2017	First liens
	$	19,332	$	19,150

(1) Rate is fixed via an interest rate swap (pay fixed 3.45%, receive floating rate of L+200).

The following table details future mortgage loan principal payments as of December 31, 2014:

Years Ending December 31,	Mortgage Loan Principal Payments
	(dollars in thousands)
2015	$	334
2016		399
2017		18,372
2018		-
2019		23,375
Later years		103,950
	$	146,430

VIE

Securitization

In January 2014, the Company closed NLY Commercial Mortgage Trust 2014-FL1 (the “Trust”), a $399.5 million securitization financing transaction which provides permanent, non-recourse financing collateralized by floating-rate first mortgage debt investments originated or co-originated by the Company and is not subject to margin calls. A total of $260.7 million of investment grade bonds were issued by the Trust, representing an advance rate of 65.3% at a weighted average coupon of LIBOR plus 1.74% at closing. The Company is using the proceeds to originate commercial real estate investments. The Company retained bonds rated below investment grade and the only interest-only bond issued by the Trust, which are referred to as the subordinate bonds.

The Company incurred approximately $4.3 million of costs in connection with the securitization that have been capitalized and are being amortized to interest expense. Deferred financing costs are included in Other assets in the accompanying Consolidated Statements of Financial Condition.

The Trust is structured as a pass-through entity that receives principal and interest on the underlying collateral and distributes those payments to the certificate holders. The Trust is a VIE and the Company is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership interest in the subordinate bonds. The Company’s exposure to the obligations of the VIE is generally limited to the Company’s investment in the Trust. Assets of the Trust may only be used to settle obligations of the Trust. Creditors of the Trust have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the Trust. No gain or loss was recognized upon initial consolidation of the Trust.

As of December 31, 2014 the carrying value of the Trust’s assets was $398.6 million, net of $0.9 million of unamortized origination fees, which are included in Commercial real estate debt and preferred equity in the accompanying Consolidated Statements of Financial Condition. As of December 31, 2014, the carrying value of the Trust’s liabilities was $260.7 million, classified as Securitized debt in the accompanying Consolidated Statements of Financial Condition.