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Consolidated Securitization Vehicles

3 Months Ended

Mar. 31, 2013

ConsolidatedSecuritizationVehiclesAbstract

Note 5. Consolidated Securitization Vehicles

As of March 31, 2013, our consolidated balance sheet included an aggregate $143.7 million of assets and $137.1 million of liabilities related to two consolidated securitization vehicles, CT CDO I and GSMS 2006-FL8A, a CMBS vehicle consolidated by CT CDO I. As of December 31, 2012, our consolidated balance sheet included an aggregate $145.5 million of assets and $139.3 million of liabilities related to these two consolidated securitization vehicles.

Securitization Vehicles Overview

We own the residual debt and equity positions of CT CDO I, and through CT CDO I, we own the subordinate securities of the GSMS 2006-FL8A securitization. As a result of consolidation, our subordinate debt and equity ownership interests in these entities are not included on our balance sheet, which instead reflects both the assets held and debt issued by these entities to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of these securitization vehicles, as opposed to our net economic interests in these entities.

Our economic interest in the loans receivable assets held by these entities, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the entities’ distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied by proceeds from each entity’s respective asset pool.

We are not obligated to provide, nor have we provided, any financial support to these securitization vehicles. As of March 31, 2013, our maximum exposure to loss from these vehicles was $6.6 million, the difference between the assets and liabilities of such vehicles included on our consolidated balance sheet.

An affiliate of our Manager is the CDO collateral manager for one of our consolidated securitization vehicles, and is named special servicer on a number of these two entities’ collateral assets.

A. Loans Receivable, Net – Consolidated Securitization Vehicles

The following table details overall statistics for our consolidated securitization vehicles’ loans receivable portfolio as of March 31, 2013 and December 31, 2012 ($ in thousands):


	March 31, 2013			December 31, 2012
Number of investments		6			7
Principal balance	$	157,579		$	164,180
Net book value	$	139,500		$	141,500
Coupon ⁽¹⁾⁽²⁾		4.64	%		4.73	%
Yield ⁽¹⁾⁽²⁾		3.57	%		4.74	%
Maturity (years) ⁽¹⁾⁽³⁾		0.5			0.7

(1)	Represents a weighted average as of March 31, 2013 and December 31, 2012, respectively.

(2)	All loans are floating rate loans as of both March 31, 2013 and December 31, 2012. Calculations are based on LIBOR of 0.20% and 0.30% as of March 31, 2013 and December 31, 2012, respectively.

(3)	For loans in CT CDO I, assumes all extension options are executed. For loans in GSMS 2006-FL8A, maturity is based on information provided by its trustee.

The tables below detail the types of loans in our consolidated securitization vehicles’ loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of March 31, 2013 and December 31, 2012 ($ in thousands):


	March 31, 2013					December 31, 2012
Asset Type	Book Value		Percentage			Book Value		Percentage
Subordinate interests in mortgages	$	77,000		55	%	$	79,000		56	%
Senior mortgages		62,500		45			62,500		44

Total	$	139,500		100	%	$	141,500		100	%


Property Type	Book Value		Percentage			Book Value		Percentage
Office	$	109,500		78	%	$	111,500		79	%
Hotel		30,000		22			30,000		21

Total	$	139,500		100	%	$	141,500		100	%


Geographic Location	Book Value		Percentage			Book Value		Percentage
West	$	92,500		66	%	$	92,500		65	%
Northeast		27,000		19			27,000		19
Southeast		12,404		10			12,404		9
Southwest		7,596		5			9,596		7

Total	$	139,500		100	%	$	141,500		100	%

Loan risk ratings

Quarterly, our Manager evaluates our consolidated securitization vehicles’ loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our consolidated securitization vehicles’ loans receivable based on our internal risk ratings as of March 31, 2013 and December 31, 2012 ($ in thousands):


	Loans Receivable as of March 31, 2013						Loans Receivable as of December 31, 2012
Risk Rating	Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
1 - 3		2	$	50,000	$	50,000		2	$	47,000	$	47,000
4 - 5		2		89,500		89,500		2		92,500		92,500
6 - 8		2		18,079		—		3		24,680		2,000

Total		6	$	157,579	$	139,500		7	$	164,180	$	141,500

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our consolidated securitization vehicles’ loans receivable by both loan type and our internal risk ratings as of March 31, 2013 and December 31, 2012 ($ in thousands):


	Senior Mortgage Loans
	as of March 31, 2013						as of December 31, 2012
Risk Rating	Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
1 - 3		—	$	—	$	—		—	$	—	$	—
4 - 5		1		62,500		62,500		1		62,500		62,500
6 - 8		—		—		—		—		—		—

Total		1	$	62,500	$	62,500		1	$	62,500	$	62,500


	Subordinate Interests in Mortgages
	as of March 31, 2013						as of December 31, 2012
Risk Rating	Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
1 - 3		2	$	50,000	$	50,000		2	$	47,000	$	47,000
4 - 5		1		27,000		27,000		1		30,000		30,000
6 - 8		2		18,079		—		3		24,680		2,000

Total		5	$	95,079	$	77,000		6	$	101,680	$	79,000

Loan impairments

The following table describes our consolidated securitization vehicles’ impaired loans as of March 31, 2013, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments ($ in thousands):


	March 31, 2013
Impaired Loans	No. of Loans		Gross Book Value		Loan Loss Reserve ⁽¹⁾			Net Book Value
Performing loans		1	$	7,531	($	7,531	)	$	—
Non-performing loans		1		10,548		(10,548	)		—

Total impaired loans		2	$	18,079	($	18,079	)	$	—

(1)	Reserve for loan loss represents a 100% loss severity against two subordinate interests in mortgages with an aggregate principal balance of $18.1 million as of March 31, 2013.

The following table describes our consolidated securitization vehicles’ impaired loans as of December 31, 2012, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments ($ in thousands):


	December 31, 2012
Impaired Loans	No. of Loans		Gross Book Value		Loan Loss Reserve ⁽¹⁾			Net Book Value
Performing loans		1	$	7,531	($	7,531	)	$	—
Non-performing loans		2		17,149		(15,149	)		2,000

Total impaired loans		3	$	24,680	($	22,680	)	$	2,000

(1)	Reserve for loan loss represents a 92% loss severity against seven subordinate interests in mortgages with an aggregate principal balance of $24.7 million as of December 31, 2012.

Generally, we have recorded loan loss reserves against all loans which are in maturity default, or otherwise have past-due principal payments. As of March 31, 2013, our consolidated securitization vehicles had one loan with a net book value of $27.0 million which was in maturity default but had no reserve recorded. We expect to collect all principal and interest due under this loan.

There was no income recorded on impaired loans in our consolidated securitization vehicles during the three months ended March 31, 2013. The following table details our consolidated securitization vehicles’ average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the year ended December 31, 2012 ($ in thousands):


Income on Impaired Loans for the Three Months ended March 31, 2012
Asset Type	Average Net Book Value		Income Recorded ⁽¹⁾
Senior Mortgage Loans	$	8,464	$	168
Subordinate Interests in Mortgages		5,419		369
Mezzanine & Other Loans		10,269		210

Total	$	24,152	$	747

(1)	Substantially all of the income recorded on impaired loans during the period was received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of March 31, 2013.

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of March 31, 2013 ($ in thousands):


Nonaccrual Loans Receivable as of March 31, 2013
Asset Type	Principal Balance		Net Book Value
Subordinate Interests in Mortgages	$	18,079		—

Total	$	18,079		—

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of December 31, 2012 ($ in thousands):


Nonaccrual Loans Receivable as of December 31, 2012
Asset Type	Principal Balance		Net Book Value
Subordinate Interests in Mortgages	$	24,680	$	2,000

Total	$	24,680	$	2,000

B. Loans Held-for-Sale, Net – Consolidated Securitization Vehicles

Activity relating to our consolidated securitization vehicles’ loans held-for-sale for the three months ended March 31, 2013 was as follows ($ in thousands):


	Gross Book Value		Valuation Allowance			Net Book Value

December 31, 2012	$	—	$	—		$	—

Reclassification from loans receivable		6,601		(4,601	)		2,000
Valuation allowance on loans held-for-sale		—		(200	)		(200	)

March 31, 2013	$	6,601	($	4,801	)	$	1,800

During the first quarter of 2013, we reclassified a $6.6 million subordinate mortgage loan and its related $4.6 million reserve for loan losses to loans held-for-sale. We recorded an additional $200,000 valuation allowance to reflect this loan at its approximate fair value.

C. Debt Obligations – Consolidated Securitization Vehicles

The balances of each of our consolidated securitization vehicles’ outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows ($ in thousands):


	March 31, 2013				December 31, 2012					March 31, 2013
Non-Recourse Securitized Debt Obligations	Principal Balance		Book Value		Book Value		Coupon⁽¹⁾			All-In Cost⁽¹⁾			Maturity Date⁽²⁾
CT CDO I	$	88,892	$	88,892	$	91,131		1.63	%		1.63	%		July 2039
GSMS 2006-FL8A	$	48,052	$	48,052	$	48,053		1.07	%		1.07	%		June 2020
Total/Weighted Average	$	136,944	$	136,944	$	139,184		1.43	%		1.43	%		October 2032

(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.20% at March 31, 2013 for floating rate debt obligations.

(2)	Maturity dates represent the contractual maturity of each securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity date above.

As of March 31, 2013, loans receivable with an aggregate book value of $141.3 million served as collateral for the non-recourse debt and equity securities issued by our consolidated securitizations vehicles. As of December 31, 2012, loans receivable with an aggregate book value of $141.5 million served as collateral for the securities issued by these same vehicles.

One of our consolidated securitization vehicles, CT CDO I is subject to interest coverage and overcollateralization tests which, when breached, provide for hyper-amortization of the senior notes by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, CT CDO I provides for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold. As a result collateral asset impairments and the related breaches of these interest coverage and overcollateralization tests, we currently do not receive any cash payments from CT CDO I.