NOTE 8: VARIABLE INTEREST ENTITIES

The determination of when to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. We evaluated our investments and determined that, as of September 30, 2018, our consolidated VIEs were: RAIT I, RAIT II, RAIT FL7, RAIT FL8, and the RAIT VIE Properties (Willow Grove and Cherry Hill). As of December 31, 2017, our consolidated VIEs included the aforementioned VIEs and the two ventures described in Note 5: Indebtedness (RAIT Venture VIEs).

We consolidate the securitizations that we sponsor for which we have retained interests in and control the significant decisions regarding the collateral in these entities, such as the approval of loan workouts. As of September 30, 2018, we consolidated the VIE properties as we own a majority of these entities and control the significant capital and operating decisions regarding the properties.

The following tables present the assets and liabilities of our consolidated VIEs as of each respective date. Certain amounts included in the tables below are eliminated upon consolidation with our other subsidiaries that maintain investments in the debt or equity securities issued by these entities.

	As of September 30, 2018
	RAIT Securitizations		RAIT VIE Properties			Total
Assets
Investments in commercial mortgage loans, mezzanine loans and preferred equity interests	$	756,004	$	—		$	756,004
Investments in real estate		—		18,133			18,133
Cash and cash equivalents		—		197			197
Restricted cash		36,512		302			36,814
Accrued interest receivable		26,286		—			26,286
Other assets		72		3,971			4,043
Total assets	$	818,874	$	22,603		$	841,477
Liabilities and Equity
Indebtedness, net	$	784,873	$	19,530		$	804,403
Accrued interest payable		1,769		5,748			7,517
Accounts payable and accrued expenses		69		3,257			3,326
Deferred taxes, borrowers’ escrows and other liabilities		—		197			197
Total liabilities		786,711		28,732			815,443
Equity:
Shareholders’ equity:
RAIT investment and Retained earnings (deficit)		32,163		(6,129	)		26,034
Total shareholders’ equity		32,163		(6,129	)		26,034
Total liabilities and equity	$	818,874	$	22,603		$	841,477

	As of December 31, 2017
	RAIT Securitizations		RAIT VIE Properties			RAIT Venture VIE			Total
Assets
Investments in commercial mortgage loans, mezzanine loans and preferred equity interests	$	1,082,528	$	—		$	349,924		$	1,432,452
Investments in real estate		—		18,634			—			18,634
Cash and cash equivalents		—		283			92			375
Restricted cash		1,068		237			10			1,315
Accrued interest receivable		41,639		—			2,462			44,101
Other assets		16,860		3,954			—			20,814
Total assets	$	1,142,095	$	23,108		$	352,488		$	1,517,691
Liabilities and Equity
Indebtedness, net	$	1,034,750	$	19,630		$	354,835		$	1,409,215
Accrued interest payable		1,869		5,356			1,111			8,336
Accounts payable and accrued expenses		23		3,274			—			3,297
Deferred taxes, borrowers’ escrows and other liabilities		—		184			643			827
Total liabilities		1,036,642		28,444			356,589			1,421,675
Equity:
Shareholders’ equity:
RAIT investment and Retained earnings (deficit)		105,453		(5,336	)		(4,140	)		95,978
Total shareholders’ equity		105,453		(5,336	)		(4,140	)		95,977
Noncontrolling Interests		—		—			39			39
Total liabilities and equity	$	1,142,095	$	23,108		$	352,488		$	1,517,691

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. The amounts that eliminate in consolidation include $156,195 of total investments in mortgage loans and $244,116 of indebtedness as of September 30, 2018 and $257,625 of total investments in mortgage loans and $370,351 of indebtedness as of December 31, 2017. We do not have any contractual obligation to provide the VIEs listed above with any financial support. We have not and do not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

Deconsolidation of RAIT Venture VIEs and RAIT FL5 & RAIT FL6

On June 27, 2018, RAIT IV completed the sale of its FL5 Interests, as defined below, and FL6 Interests, as defined below (collectively, the Interests), to Melody RE II, LLC, or the Purchaser, for an aggregate purchase price of $54,632.

Prior to the sale, RAIT IV was the holder of:

•

60% of the units, or the FL5 Interests, of Holdings 2016, which controls RAIT – Melody 2016 Holdings Trust. This trust owned, at the time of sale, various classes of non-investment grade bonds and the equity of FL5 with the remaining 40% of the units of Holdings 2016 being held by affiliates of the Purchaser; and

•

60% of the units, or the FL6 Interests, of Holdings 2017, which controls RAIT – Melody 2017 Holdings Trust. This trust owned, at the time of sale, various classes of non-investment grade bonds and the equity of FL6 with the remaining 40% of the units of Holdings 2017 being held by affiliates of the Purchaser.

Holdings 2016 and Holdings 2017, have been referred to as the RAIT Venture VIEs. As a result of the sale, RAIT is no longer the primary beneficiary of the RAIT Venture VIEs, FL5 or FL6. Therefore, RAIT deconsolidated those entities as of June 27, 2018.

The following table summarizes the effects of deconsolidating the RAIT Venture VIEs, RAIT FL5 and RAIT FL6 from our balance sheet as of June 27, 2018:

	As of June 27, 2018
Assets
Commercial mortgage loans, mezzanine loans, and preferred equity interests	$	266,502
Cash and cash equivalents		189
Restricted cash		22,569
Accrued interest receivable		1,191
Other assets		1,233
Total assets	$	291,684
Liabilities
Indebtedness, net	$	205,137
Accrued interest payable		502
Accounts payable and accrued expenses		45
Borrowers' escrows		22,549
Deferred taxes and other liabilities		531
Total liabilities		228,764
Equity:
Stockholders' equity:
Noncontrolling interests		111
Total liabilities and equity	$	228,875

RAIT IV's net investment in RAIT FL5 & RAIT FL6	$	62,809
Purchase price for RAIT IV's FL5 Interests & FL6 Interests		54,632
Loss on deconsolidation of RAIT Venture VIEs, RAIT FL5 & RAIT FL6	$	(8,177	)