8. COMMERCIAL REAL ESTATE INVESTMENTS

At September 30, 2017 and December 31, 2016, commercial real estate debt investments held for investment were comprised of the following:

CRE Debt and Preferred Equity Investments

	September 30, 2017						December 31, 2016
	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	$	583,630	$	580,609	59.2	%	$	512,322	$	510,071	52.6	%
Mezzanine loans	392,988		392,159		39.9	%	453,693		451,467		46.5	%
Preferred equity	9,000		8,980		0.9	%	9,000		8,967		0.9	%
Total ⁽³⁾	$	985,618	$	981,748	100.0	%	$	975,015	$	970,505	100.0	%

(1)	Carrying value includes unamortized origination fees of $3.9 million and $4.5 million at September 30, 2017 and December 31, 2016, respectively.

(2)	Based on outstanding principal.

(3)	Excludes loans held for sale, net.

	Nine months ended September 30, 2017
	Senior Mortgages			Mezzanine Loans			Preferred Equity		Total
	(dollars in thousands)
Beginning balance	$	510,071		$	451,467		$	8,967	$	970,505
Originations & advances (principal)	263,916			63,801			—		327,717
Principal payments	(192,608		)	(124,506		)	—		(317,114		)
Amortization & accretion of (premium) discounts	(43		)	28			—		(15		)
Net (increase) decrease in origination fees	(2,531		)	(605		)	—		(3,136		)
Amortization of net origination fees	1,804			1,974			13		3,791
Net carrying value	$	580,609		$	392,159		$	8,980	$	981,748

	December 31, 2016
	Senior Mortgages			Senior Securitized Mortgages⁽¹⁾			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	385,838		$	262,703		$	578,503		$	121,773		$	1,348,817
Originations & advances (principal)	211,318			—			62,390			—			273,708
Principal payments	(86,310		)	(263,072		)	(191,291		)	(113,444		)	(654,117		)
Amortization & accretion of (premium) discounts	(136		)	—			(178		)	—			(314		)
Net (increase) decrease in origination fees	(2,086		)	—			(472		)	—			(2,558		)
Amortization of net origination fees	1,447			369			2,515			638			4,969
Net carrying value ⁽²⁾	$	510,071		$	—		$	451,467		$	8,967		$	970,505

(1)	Assets of consolidated VIE.

(2)	Excludes loans held for sale, net.

Internal CRE Debt and Preferred Equity Investment Ratings

The Company’s internal loan risk ratings are based on the guidance provided by the Office of the Comptroller of the Currency for commercial real estate lending. The Company’s internal risk rating categories include “Performing”, “Performing - Closely Monitored”, “Performing - Special Mention”, “Substandard”, “Doubtful” or “Loss”. Performing loans meet all present contractual obligations. Performing - Closely Monitored loans meet all present contractual obligations, but are transitional or could be exhibiting some weakness in both leverage and liquidity. Performing - Special Mention loans meet all present contractual obligations, but exhibit potential weakness that deserves management’s close attention and if uncorrected, may result in deterioration of repayment prospects. Substandard loans are inadequately protected by sound worth and paying capacity of the obligor or of the collateral pledged with a distinct possibility that loss will be sustained if some of the deficiencies are not corrected. Doubtful loans are Substandard loans whereby collection of all contractual principal and interest is highly questionable or improbable. Loss loans are considered uncollectible. The Company did not have any impaired loans, nonaccrual loans, or loans in default in the commercial loans portfolio as all of the loans were performing at September 30, 2017 and December 31, 2016. Accordingly, no allowance for loan losses was deemed necessary at September 30, 2017 and December 31, 2016.

	September 30, 2017
	Outstanding Principal		Percentage of CRE Debt and Preferred Equity Portfolio		Internal Ratings
Investment Type	Outstanding Principal		Percentage of CRE Debt and Preferred Equity Portfolio		Performing		Performing - Closely Monitored		Performing - Special Mention		Substandard		Doubtful		Loss		Total
	(dollars in thousands)
Senior mortgages	$	583,630	59.2	%	$	364,365	$	115,075	$	104,190	$	—	$	—	$	—	$	583,630
Mezzanine loans	392,988		39.9	%	206,919		50,498		135,571		—		—		—		392,988
Preferred equity	9,000		0.9	%	—		—		9,000		—		—		—		9,000
Total	$	985,618	100.0	%	$	571,284	$	165,573	$	248,761	$	—	$	—	$	—	$	985,618

	December 31, 2016
	Outstanding Principal ⁽¹⁾		Percentage of CRE Debt and Preferred Equity Portfolio		Internal Ratings
Investment Type	Outstanding Principal ⁽¹⁾		Percentage of CRE Debt and Preferred Equity Portfolio		Performing		Performing - Closely Monitored		Performing - Special Mention		Substandard		Doubtful		Loss		Total
	(dollars in thousands)
Senior mortgages	$	512,322	52.6	%	$	144,434	$	243,448	$	124,440	$	—	$	—	$	—	$	512,322
Mezzanine loans	453,693		46.5	%	254,337		170,039		29,317		—		—		—		453,693
Preferred equity	9,000		0.9	%	—		—		9,000		—		—		—		9,000
Total	$	975,015	100.0	%	$	398,771	$	413,487	$	162,757	$	—	$	—	$	—	$	975,015

(1)	Excludes loans held for sale, net.

At September 30, 2017 and December 31, 2016, approximately 85% and 77%, respectively, of the carrying value of the Company’s CRE Debt and Preferred Equity Investments, excluding commercial loans held for sale, were adjustable-rate.

Investments in Commercial Real Estate

There were no acquisitions of commercial real estate holdings during the three and nine months ended September 30, 2017. The Company sold one of its wholly-owned triple net leased properties during the nine months ended September 30, 2017 for $12.0 million and recognized a gain on sale of $5.1 million.

The weighted average amortization period for intangible assets and liabilities at September 30, 2017 is 4.5 years. Above market leases and leasehold intangible assets are included in Intangible assets, net and below market leases are included in Accounts payable and other liabilities in the Consolidated Statements of Financial Condition.

	September 30, 2017			December 31, 2016
	(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	111,012		$	112,675
Buildings and improvements	330,610			335,945
Subtotal	441,622			448,620
Less: accumulated depreciation	(44,998		)	(34,221		)
Total real estate held for investment, at amortized cost, net	396,624			414,399
Equity in unconsolidated joint ventures	74,304			60,168
Investments in commercial real estate, net	$	470,928		$	474,567

Depreciation expense was $4.0 million and $11.8 million for the three and nine months ended September 30, 2017, respectively. Depreciation expense was $5.0 million and $15.7 million for the three and nine months ended September 30, 2016, respectively. Depreciation expense is included in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

Rental Income

The minimum rental amounts due under 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 September 30, 2017 for consolidated investments in real estate are as follows:

	September 30, 2017
	(dollars in thousands)
2017 (remaining)	$	7,704
2018	28,986
2019	25,519
2020	20,883
2021	16,715
Later years	32,051
	$	131,858

Mortgage loans payable at September 30, 2017 and December 31, 2016, were as follows:

September 30, 2017

Property

Mortgage

Carrying Value

Mortgage

Principal

Interest Rate

Fixed/Floating

Rate

Maturity Date

Priority

(dollars in thousands)

Joint Ventures

286,278

289,125

4.03% - 4.61%

Fixed

2024 and 2025

First liens

Tennessee

12,286

12,350

4.01%

Fixed

9/6/2019

First liens

Virginia

11,018

11,025

3.58%

Fixed

6/6/2019

First liens

Nevada ⁽¹⁾

2,304

2,311

L + 200

Floating

12/29/2017

First liens

Total

311,886

314,811

(1)	The mortgage agreement contained an interest rate swap with an expiration date of March 29, 2017. Effective on March 29, 2017, the interest rate swap expired and the Company extended the maturity date of the mortgage debt to December 29, 2017.

December 31, 2016

Property

Mortgage

Carrying Value

Mortgage

Principal

Interest Rate

Fixed/Floating

Rate

Maturity Date

Priority

(dollars in thousands)

Joint Ventures

285,993

289,125

4.03% - 4.61%

Fixed

2024 and 2025

First liens

Tennessee

12,261

12,350

4.01%

Fixed

9/6/2019

First liens

Virginia

11,015

11,025

3.58%

Fixed

6/6/2019

First liens

Nevada

2,367

2,365

L + 200

Floating (1)

3/29/2017

First liens

Total

311,636

314,865

(1)	Includes a mortgage with a fixed rate via an interest rate swap (pay fixed 3.45%, receive floating rate of L+200).

The following table details future mortgage loan principal payments at September 30, 2017:

	Mortgage Loan Principal Payments
	(dollars in thousands)
2017 (remaining)	$	2,311
2018	—
2019	23,375
2020	—
2021	—
Later years	289,125
Total	$	314,811

On December 11, 2015, the Company originated a $335.0 million recapitalization financing with respect to eight class A/B office properties in Orange County California. The Company previously classified the senior mortgage loan as held for sale. During the nine months ended September 30, 2017, the Company sold the remaining balance of $115.0 million ($114.4 million, net of origination fees) of the senior loan to unrelated third parties at carrying value. Accordingly, no gain or loss was recorded in connection with these sales.