18. FAIR VALUES

Assets Recorded at Fair Value

The following table summarizes our assets that are recorded at fair value as of December 31, 2013 ($ in thousands):


	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Measured on a recurring basis
Loans receivable, at fair value	$	40,665	$	—	$	—	$	40,665
Other assets, at fair value⁽¹⁾	$	15,740	$	—	$	1,944	$	13,796
Measured on a non-recurring basis
Impaired loans receivable⁽²⁾	$	—	$	—	$	—	$	—

(1)

Other assets include securities, equity investments, and other receivables carried at fair value.

(2)

All impaired loans receivable have a 100% loan loss reserve and are held by CT CDO I as of December 31, 2013.

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


	Fair Value Measurements Using
	Fair Value		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, 2012.

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 Asset
December 31, 2012	$	—		$	—		$	—		$	132,000
Consolidation of CT Legacy Partners		—			150,332			14,448			(132,000	)
Transfer from loans receivable, net		2,000			—			—			—
Transfer from loans receivable, at fair value		—			(6,813	)		6,813			—
Deferred interest		—			984			—			—
Proceeds from investments		(3,259	)		(110,654	)		(7,981	)		—
Adjustments to fair value included in earnings
Valuation allowance on loans held-for-sale		1,259			—			—			—
Gain on investments at fair value		—			6,816			516			—

December 31, 2013	$	—		$	40,665		$	13,796		$	—

(1)	Other assets include securities, equity investments, and other receivables 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 December 31, 2013 and 2012. There were no liabilities recorded at fair value as of December 31, 2013 or 2012. Refer to 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 December 31, 2013 ($ in millions):


	Assumption Ranges for Significant Unobservable Inputs (Level 3)⁽¹⁾							Book Value Sensitivity to a 100 bp Discount Rate Increase
Collateral Type	Discount Rate		Recovery Percentage⁽²⁾			Book Value
Hotel		7%		100	%	$	15.0		(1.4	%)
Office		6% – 15%		100	%		25.7		(0.3	%)

						$	40.7

(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 balances as of December 31, 2013.

Other assets, at fair value – Our other assets balance include certain CMBS, CDO, equity investments, and other receivables and are generally valued by a combination of (i) obtaining assessments from third-party dealers and (ii) in cases where such assessments are unavailable or deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. In the case of internal models, expected cash flows of each security are based on assumptions regarding the collection of principal and interest on the underlying loans and securities.

Impaired loans receivable – CT CDO I has one impaired loan receivable, which is a subordinate loan with a principal balance of $10.5 million. This hotel loan is in maturity default as of December 31, 2013, with no expectation of recovery or repayment.

Investment in CT Legacy Asset – We elected the fair value option of accounting for CT Legacy REIT’s investment in CT Legacy Asset as of 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 ($ in thousands):


	December 31, 2013						December 31, 2012
	Carrying Amount		Face Amount		Fair Value		Carrying Amount		Face Amount		Fair Value
Financial assets
Cash and cash equivalents	$	52,342	$	52,342	$	52,342	$	15,423	$	15,423	$	15,423
Restricted cash		10,096		10,096		10,096		14,246		14,246		14,246
Loans receivable, net		2,047,223		2,076,411		2,058,699		141,500		164,180		133,682

Financial liabilities
Secured notes		—		—		—		8,497		8,497		7,374
Repurchase obligations		1,109,353		1,109,353		1,109,353		—		—		—
Convertible notes, net		159,524		172,500		181,772		—		—		—
Securitized debt obligations		40,181		40,181		25,696		139,184		139,184		89,880
Participations sold		90,000		90,000		90,304		—		—		—

Estimates of fair value for cash, cash equivalents and convertible notes are measured using observable, quoted market prices, or Level 1 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.