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

6 Months Ended

Jun. 30, 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 June 30, 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	$	332,040		$	(61	)	$	331,979			25		6.8	%	Jul. 2019 to Jun. 2025
Mezzanine loans		21,114			164			21,278			3		13.3	%	Jun. 2020 to Mar. 2023
Preferred equity interests		28,453			(1	)		28,452			13		5.9	%	Mar. 2023 to Jun. 2029
Total CRE (2)		381,607			102			381,709			41		7.1	%
Deferred fees and costs, net (3)		(430	)		-			(430	)
Total	$	381,177		$	102		$	381,279

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

(2) Includes $51,017 of cash flow loans, of which $5,099 are commercial mortgage loans, $21,114 are mezzanine loans and $24,804 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 $1,290 of deferred fees, net of $860 of deferred costs.

The following table summarizes our investments in commercial mortgage loans, mezzanine loans and preferred equity interests held for investment 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 held for investment as of June 30, 2019 and December 31, 2018:

	As of June 30, 2019
Delinquency Status	Current		30 to 59 days		60 to 89 days		90 days or more		Total		Non-accrual (1)
Commercial mortgage loans	$	298,989	$	5,098	$	—	$	27,953	$	332,040	$	56,449
Mezzanine loans		21,114		—		—		—		21,114		8,245
Preferred equity interests		28,453		—		—		—		28,453		7,710
Total	$	348,556	$	5,098	$	—	$	27,953	$	381,607	$	72,404

(1) Includes five loans that are current, but are on non-accrual due to uncertainty over whether we will fully collect principal and interest.  Also includes one loan that is 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	$	—	$	—	$	38,548	$	453,283	$	46,793
Mezzanine loans		12,222		—		—		8,892		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 were current in accordance with their terms, but are on non-accrual due to uncertainty over whether we will fully collect principal and interest, and three loans that are 90 days or more past due in accordance with their terms.

As of June 30, 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 June 30, 2019, $51,017 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 June 30, 2019, and December 31, 2018, $72,404 and $92,993, respectively, of our loans were on non-accrual status and had a weighted-average interest rate of 6.9% and 6.9%, respectively. Also, as of June 30, 2019 and December 31, 2018, five loans with unpaid principal balances of $25,700, 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 and six months ended June 30, 2019, we recognized a benefit for loan losses of $9,509 and $10,092, respectively.  Our provision for loan losses during the three and six months ended June 30, 2019 was primarily driven by a $9,000 settlement payment received on a loan that was previously charged off.  See Note 13: Commitments and Contingencies for further information related to this settlement payment.

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 loans held for investment by credit risk category as of June 30, 2019 and December 31, 2018 as follows:

	As of June 30, 2019
Credit Status	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Satisfactory	$	216,242	$	—	$	5,063	$	221,305
Watchlist (1)		115,798		21,114		23,390		160,302
Total	$	332,040	$	21,114	$	28,453	$	381,607

(1) Includes $106,052 of loans that are considered to be impaired and $54,250 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 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 June 30, 2019 and 2018:

	For the Three Months Ended June 30, 2019
	Commercial Mortgage Loans			Mezzanine Loans		Preferred Equity			Total
Beginning balance	$	10,401		$	6,496	$	3,830		$	20,727
Provision (benefit) for loan losses		(9,449	)		—		(60	)		(9,509	)
Charge-offs, net of recoveries		8,927			—		—			8,927
Ending balance	$	9,879		$	6,496	$	3,770		$	20,145

	For the Three Months Ended June 30, 2018
	Commercial Mortgage Loans			Mezzanine Loans		Preferred Equity		Total
Beginning balance	$	8,259		$	5,231	$	242	$	13,732
Provision (benefit) for loan losses		14,748			—		—		14,748
Charge-offs, net of recoveries (1)		(11,781	)		—		—		(11,781	)
Ending balance	$	11,226		$	5,231	$	242	$	16,699

(1) Includes $1,423 of charge-offs related to loans transferred to held for sale during the three months ended June 30, 2018.

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 six months ended June 30, 2019 and 2018:

	For the Six Months Ended June 30, 2019
	Commercial Mortgage Loans			Mezzanine Loans		Preferred Equity			Total
Beginning balance	$	11,912		$	6,496	$	3,928		$	22,336
Provision (benefit) for loan losses		(9,934	)		—		(158	)		(10,092	)
Charge-offs, net of recoveries		7,901			—		—			7,901
Ending balance	$	9,879		$	6,496	$	3,770		$	20,145

	For the Six Months Ended June 30, 2018
	Commercial Mortgage Loans			Mezzanine Loans			Preferred Equity		Total
Beginning balance	$	9,019		$	5,622		$	242	$	12,354
Provision (benefit) for loan losses		19,996			2,784			—		45,614
Charge-offs, net of recoveries (1)		(17,789	)		(3,175	)		—	$	(43,085	)
Ending balance	$	11,226		$	5,231		$	242	$	16,699

(1) Includes $5,331 of charge-offs related to loans transferred to held for sale during the six months ended June 30, 2018.

Information on those loans considered to be impaired as of June 30, 2019 and December 31, 2018 was as follows:

	As of June 30, 2019
Impaired Loans	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Impaired loans expecting full recovery	$	5,099	$	12,869	$	19,330	$	37,298
Impaired loans with reserves		56,449		8,245		4,060		68,754
Total Impaired Loans (1)		61,548		21,114		23,390		106,052
Allowance for loan losses	$	9,879	$	6,496	$	3,770	$	20,145

(1)  As of June 30, 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 $110,835 and $125,871 during the three months ended June 30, 2019 and 2018, respectively and $116,105 and $126,074 for the six months ended June 30, 2019 and 2018, respectively. We recorded interest income from impaired loans of $0 and $313 for the three months ended June 30, 2019 and 2018, respectively. We recorded interest income from impaired loans of $0 and $440 for the six months ended June 30, 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 and six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 2019, and June 30, 2018, there were no TDRs that subsequently defaulted for restructurings that had been entered into within the previous 12 months.

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 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.  

During the three months ended, June 30, 2019, one of the remaining loans held for sale was repaid, resulting in a net gain of $66.  The two remaining loans held for sale were measured at the lower of cost or fair value, resulting in a gain of $221. As of June 30, 2019, these loans had an unpaid principal balance of $6,599 and a carrying amount of $4,973.

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.