Note 17. Fair Values

Assets Recorded at Fair Value

The following table summarizes our assets that are recorded at fair value as of June 30, 2013 ($ in thousands):


			Fair Value Measurements Using
	Total Fair Value at June 30, 2013		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:

Loans held-for-sale, net	$	3,800	$	—	$	—	$	3,800
Loans receivable, at fair value	$	117,549	$	—	$	—	$	117,549
Securities, at fair value ⁽¹⁾	$	15,461	$	—	$	1,925	$	13,536

Measured on a non-recurring basis:

Impaired loans receivable ⁽²⁾	$	—	$	—	$	—	$	—

(1)	Other assets, at fair value include securities and other assets carried at fair value.

(2)	All impaired loans receivable have a 100% loan loss reserve and are held by consolidated securitization vehicles as of June 30, 2013.

The following table summarizes our assets that are recorded at fair value as of December 31, 2012 ($ in thousands):


			Fair Value Measurements Using
	Total Fair Value at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured on a recurring basis:

Investment in CT Legacy Asset	$	132,000	$	—	$	—	$	132,000

Measured on a non-recurring basis:

Impaired loans receivable ⁽¹⁾	$	2,000	$	—	$	—	$	2,000

(1)	Impaired loans receivable have a 92% loan loss reserve and are held by consolidated securitization vehicles as of December 31, 2013.

The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):


	Loans Held-for-Sale, net		Loans Receivable, at fair value			Other assets, at fair value ⁽¹⁾			Investment in CT Legacy Assets
December 31, 2012	$	—	$	—		$	—		$	132,000
Consolidation of CT Legacy Partners		—		150,332			15,761			(132,000	)
Transfer from loans receivable, net		2,000		—			—			—
Principal paydowns		—		(36,930	)		(349	)		—
Deferred interest		—		195			—			—

Adjustments to fair value included in earnings:
Valuation allowance on loans held-for-sale		1,800		—			—			—
Unrealized gain on investments at fair value		—		3,951			49			—

June 30, 2013	$	3,800	$	117,549		$	15,461		$	—

(1)	Other assets include securities and other assets carried at fair value.

The following describes the key assumptions used in arriving at the fair value of each type of asset that was recorded at fair value as of June 30, 2013 and December 31, 2012. There were no liabilities recorded at fair value as of June 30, 2013 or December 31, 2012. See Note 2 for further discussion regarding fair value measurement.

Loans held-for-sale - Loans held-for-sale are valued based on expected net proceeds from a sale of the asset.

Loans receivable, at fair value - The following table lists the range of key assumptions for each type of loans receivable as of June 30, 2013 ($ in millions):


	Assumption Ranges for Significant				Book Value
	Unobservable Inputs (Level 3) ⁽¹⁾				Sensitivity to a
		Recovery			100bps Discount
Collateral Type	Discount Rate	Percentage ⁽²⁾	Book Value		Rate Increase
Hotel	8% -12%	84%- 100%	$	51.7		(0.3%	)
Mixed Use / Other	10%	100%		24.1		(0.1%	)
Office	7%- 20%	69%- 100%		41.7		0.05	%

			$	117.5

(1)	Excludes loans for which there is no expectation of future cash flows.

(2)	Represents the proportion of the principal expected to be collected relative to the loan balance as of June 30, 2013.

Other assets, at fair value - Other assets include securities and other assets carried at fair value. As of June 30, 2013, all other assets were valued by obtaining assessments from third-party dealers.

Impaired loans receivable - Our impaired loans receivables, which are held by our consolidated securitization vehicles, include two subordinate interests in mortgage loans with an aggregate principal balance of $18.1 million. These hotel loans are in maturity default as of June 30, 2013. The range of key assumptions used for arriving at the fair value of these loans included capitalization rates between 9% and 15% and assumed occupancy rates between 75% and 83%.

Investment in CT Legacy Asset - We elected the fair value option of accounting for CT Legacy REIT’s investment in CT Legacy Asset, at December 31, 2012. We arrived at the fair value of our Investment in CT Legacy Asset by discounting the net cash flows expected to be distributed to its equity holders after the repayment of the repurchase facility. The key assumptions for significant unobservable inputs were: (i) a discount rate of 15% and (ii) loss severities applied to the underlying assets.

Fair Value of Financial Instruments

As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. The following table details the carrying amount, face amount, and approximate fair value of the financial instruments described in Note 2. All fair value estimates, except for cash and cash equivalents, are measured using significant unobservable inputs, or Level 3 inputs, as further described above. ($ in thousands):


	June 30, 2013						December 31, 2012
	Carrying Amount		Face Amount		Fair Value		Carrying Amount		Face Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	59,746	$	59,746	$	59,746	$	15,423	$	15,423	$	15,423
Restricted cash		21,972		21,972		21,972		14,246		14,246		14,246
Loans receivable, net		830,101		851,716		827,152		141,500		164,180		133,682

Financial liabilities:
Secured notes		8,848		8,848		7,827		8,497		8,497		7,374
Repurchase obligations		165,239		165,239		165,239		—		—		—
Securitized debt obligations		74,472		74,472		51,454		139,184		139,184		89,880