INVESTMENTS IN COMMERCIAL MORTGAGE LOANS, MEZZANINE LOANS AND PREFERRED EQUITY INTERESTS

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

INVESTMENTS IN COMMERCIAL MORTGAGES, MEZZANINE LOANS AND PREFERRED EQUITY INTERESTS

NOTE 3: INVESTMENTS IN COMMERCIAL MORTGAGE LOANS, MEZZANINE LOANS AND PREFERRED EQUITY INTERESTS

Loans Held for Investment

The following table summarizes our investments in commercial mortgage loans, mezzanine loans and preferred equity interests held for investment as of March 31, 2019:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE)
Commercial mortgage loans	$	388,913		$	(64	)	$	388,849			30		6.9	%	Apr. 2019 to Jun. 2025
Mezzanine loans		21,114			164			21,278			3		13.3	%	Jun. 2020 to Mar. 2023
Preferred equity interests		28,515			(1	)		28,514			13		6.0	%	Mar. 2023 to Jun. 2029
Total CRE (2)		438,542			99			438,641			46		7.2	%
Deferred fees and costs, net (3)		(397	)		-			(397	)
Total	$	438,145		$	99		$	438,244

(1) Weighted-average coupon is calculated on the unpaid principal balance, which does not necessarily correspond to the carrying amount.  

(2) Includes $53,128 of cash flow loans, of which $7,148 are commercial mortgage loans, $21,114 are mezzanine loans and $24,866 are preferred equity interests. See Note 2: Summary of Significant Accounting Policies, (j) Revenue Recognition, for further discussion of our cash flow loans.

(3) Includes $1,703 of deferred fees, net of $1,306 of deferred costs.

The following table summarizes our investments in commercial mortgage loans, mezzanine loans and preferred equity interests as of December 31, 2018:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE)
Commercial mortgage loans	$	453,283		$	(66	)	$	453,217			35		6.9	%	Feb. 2019 to Jun. 2025
Mezzanine loans		21,114			164			21,278			3		13.3	%	Jun. 2020 to Mar. 2023
Preferred equity interests		28,577			(1	)		28,576			13		6.0	%	Mar. 2023 to Jun. 2029
Total CRE (2)		502,974			97			503,071			51		7.2	%
Deferred fees and costs, net (3)		(674	)		-			(674	)
Total	$	502,300		$	97		$	502,397

(1) Weighted-average coupon is calculated on the unpaid principal balance, which does not necessarily correspond to the carrying amount.

(2) Includes $54,621 of cash flow loans, of which $8,579 are commercial mortgage loans, $21,114 are mezzanine loans and $24,928 are preferred equity interests. See Note 2: Summary of Significant Accounting Policies, (j) Revenue Recognition, for further discussion of our cash flow loans.

(3) Includes $2,558 of deferred fees, net of $1,884 of deferred costs.

A loan is placed on non-accrual status if it is delinquent for 90 days or more or if there is uncertainty over full collection of principal and interest, which generally includes our impaired loans that have reserves. The following table summarizes the delinquency statistics of our commercial real estate loans as of March 31, 2019 and December 31, 2018:

	As of March 31, 2019
Delinquency Status	Current		30 to 59 days		60 to 89 days		90 days or more		Total		Non-accrual (1)
Commercial mortgage loans	$	351,906	$	—	$	—	$	37,007	$	388,913	$	65,952
Mezzanine loans		21,114		—		—		—		21,114		8,245
Preferred equity interests		28,515		—		—		—		28,515		7,770
Total	$	401,535	$	—	$	—	$	37,007	$	438,542	$	81,967

(1) Includes five loans that are current but are on non-accrual status due to uncertainty over whether we will fully collect principal and interest.  Also includes two loans that are 90 days or more past due in accordance with their terms.

	As of December 31, 2018
Delinquency Status	Current		30 to 59 days		60 to 89 days		90 days or more		Total		Non-Accrual (1)
Commercial mortgage loans	$	414,735	$	—	$	—	$	47,440	$	453,283	$	46,793
Mezzanine loans		12,222		—		—		—		21,114		8,892
Preferred equity interests		28,577		—		—		—		28,577		37,308
Total	$	455,534	$	—	$	—	$	47,440	$	502,974	$	92,993

(1) Includes five loans that are current but are on non-accrual status due to uncertainty over whether we will fully collect principal and interest.  Also includes three loans that are 90 days or more past due in accordance with their terms.

As of March 31, 2019 and December 31, 2018, all of our held for investment commercial mortgage loans, mezzanine loans and preferred equity interests that were 90 days or more past due or in foreclosure were on non-accrual status.  As of March 31, 2019, $53,128 of our loans are cash flow loans, which permanently provide for the accrual of interest at specified rates which differ from current payment terms, and in some cases, do not require current payments. See Note 2: Summary of Significant Accounting Policies, (j) Revenue Recognition, for further discussion of our cash flow loans. As of March 31, 2019, and December 31, 2018, $81,967 and $92,993, respectively, of our loans were on non-accrual status and had a weighted-average interest rate of 6.8% and 6.9%, respectively. Also, as of March 31, 2019 and December 31, 2018, five loans with unpaid principal balances of $25,703, and weighted average interest rate of 11.4%, were not recognizing interest based on the estimated value of the underlying collateral.

Allowance For Loan Losses And Impaired Loans

During the three months ended March 31, 2019, we recognized a benefit for loan losses of $583 primarily driven by the receipt of payments on several impaired loans, partially offset by an additional reserve taken on a previously impaired commercial mortgage loan.

We closely monitor our loans which require evaluation for loan loss in two categories: satisfactory and watchlist. Loans classified as satisfactory are loans that are performing consistent with our expectations. Loans classified as watchlist are generally loans that have performed below our expectations, have credit weaknesses or in which the credit quality of the collateral has deteriorated. This is determined by evaluating quantitative factors including debt service coverage ratios, net operating income of the underlying collateral and qualitative factors such as recent operating performance of the underlying property and history of the borrower’s ability to provide financial support. We have classified our investment in loans by credit risk category as of March 31, 2019 and December 31, 2018 as follows:

	As of March 31, 2019
Credit Status	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Satisfactory	$	257,796	$	—	$	5,063	$	262,859
Watchlist (1)		131,117		21,114		23,452		175,683
Total	$	388,913	$	21,114	$	28,515	$	438,542

(1) Includes $115,618 of loans that are considered to be impaired and $60,065 of loans that are not considered to be impaired.

	As of December 31, 2018
Credit Status	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Satisfactory	$	314,104	$	—	$	5,063	$	319,167
Watchlist (1)		139,179		21,114		23,514		183,807
Total	$	453,283	$	21,114	$	28,577	$	502,974

(1) Includes $126,645 of loans that are considered to be impaired and $57,162 of loans that are not considered to be impaired.

The following tables provide a roll-forward of our allowance for loan losses for our commercial mortgage loans, mezzanine loans and preferred equity interests for the three months ended March 31, 2019 and 2018:

	For the Three Months Ended March 31, 2019
	Commercial Mortgage Loans			Mezzanine Loans		Preferred Equity			Total
Beginning balance	$	11,912		$	6,496	$	3,928		$	22,336
Provision (benefit) for loan losses		(485	)		—		(98	)		(583	)
Charge-offs, net of recoveries		(1,026	)		—		—			(1,026	)
Ending balance	$	10,401		$	6,496	$	3,830		$	20,727

	For the Three Months Ended March 31, 2018
	Commercial Mortgage Loans			Mezzanine Loans			Preferred Equity		Total
Beginning balance	$	9,019		$	5,622		$	242	$	14,883
Provision (benefit) for loan losses		5,248			2,784			—		8,032
Charge-offs, net of recoveries (1)		(6,008	)		(3,175	)		—		(9,183	)
Ending balance	$	8,259		$	5,231		$	242	$	13,732

(1) Includes $3,908 of charge-offs related to loans transferred to held for sale during the three months ended March 31, 2018.

Information on those loans considered to be impaired as of March 31, 2019 and December 31, 2018 was as follows:

	As of March 31, 2019
Impaired Loans	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Impaired loans expecting full recovery	$	7,148	$	12,869	$	19,332	$	39,349
Impaired loans with reserves		63,904		8,245		4,120		76,269
Total Impaired Loans (1)		71,052		21,114		23,452		115,618
Allowance for loan losses	$	10,401	$	6,496	$	3,830	$	20,727

(1) As of March 31, 2019, there was no unpaid principal relating to previously identified TDRs that are on accrual status.

	As of December 31, 2018
Impaired Loans	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Impaired loans expecting full recovery	$	8,579	$	12,869	$	19,334	$	40,782
Impaired loans with reserves		73,438		8,245		4,180		85,863
Total Impaired Loans (1)		82,017		21,114		23,514		126,645
Allowance for loan losses	$	11,912	$	6,496	$	3,928	$	22,336

(1) As of December 31, 2018, there was no unpaid principal relating to previously identified TDRs that are on accrual status.

The average unpaid principal balance and recorded investment of total impaired loans was $121,132 and $124,887 during the three months ended March 31, 2019 and 2018, respectively. We recorded interest income from impaired loans of $0 and $127 for the three months ended March 31, 2019 and 2018, respectively.

We have evaluated modifications to our commercial real estate loans to determine if the modification constitutes a troubled debt restructuring, or TDR, under FASB ASC Topic 310, “Receivables”. During the three months ended March 31, 2019, we determined that restructuring of one commercial real estate loan with an unpaid principal balance totaling $29,478 constituted a TDR as the interest payment rate was decreased through September 2019 although interest continues to accrue at the original contractual interest rate. During the three months ended March 31, 2018, we determined that restructuring of one commercial real estate loan with an unpaid principal balance totaling $7,948 constituted a TDR as the interest payment rate was decreased to zero percent and the maturity date was extended. During the three months ended March 31, 2019, and March 31, 2018, there were no TDRs that subsequently defaulted for restructurings that had been entered into within the previous 12 months.

In May 2019, we received $9,000 pursuant to a Settlement Agreement and Mutual Release related to a loan that was previously charged off. This will be recorded as a recovery of amounts previously charged off in the second quarter of 2019. See Note 13: Commitments and Contingencies for further information related to this Settlement Agreement and Mutual Release.

Loans Held for Sale

In February 2018, we began to pursue a sale of certain loans.  In March 2018, we sold these loans, which had an unpaid principal balance of $90,260 and received proceeds of $43,384 after repayment of $45,850 of secured warehouse facility debt and $349 of interest.  We recognized a loss of $930 on these loans.

During March 2018, we transferred nine additional loans to held for sale as we had the intent and ability to sell these loans. The transfer was made at the lower of cost or fair value for each respective loan. During the year ended December 31, 2018, six of these loans were sold or repaid, resulting in a net loss of $3,280. As of March 31, 2019, the three remaining loans held for sale were measured at the lower of cost or fair value, resulting in a gain of $303, an unpaid principal balance of $6,967, and a carrying amount of $5,131.

Loan-to-Real Estate Conversions

In June 2019, we completed the conversion of a portion of a commercial mortgage loan portfolio to real estate owned property. See Note 4: Investments in Real Estate - Acquisitions for further information.