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CURRENT EXPECTED CREDIT LOSSES
 9 Months Ended
Sep. 30, 2023
Credit Loss [Abstract]  
CURRENT EXPECTED CREDIT LOSSES CURRENT EXPECTED CREDIT LOSSES
    The Company estimates its CECL Reserve primarily using a probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan. Calculation of the CECL Reserve requires loan specific data, which includes capital senior to the Company when the Company is the subordinate lender, changes in net operating income, debt service coverage ratio, loan-to-value, occupancy, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s floating rate loan portfolio and (iv) the Company’s current and future view of the macroeconomic environment. The Company may consider loan-specific qualitative factors on certain loans to estimate its CECL Reserve. In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company utilizes historical market loan loss data licensed from a third party data service. The third party’s loan database includes historical loss data for commercial mortgage-backed securities, or CMBS, issued dating back to 1998, which the Company believes is a reasonably comparable and available data set to its type of loans. The Company utilized macroeconomic data that reflects weak economic growth in the near term given current macroeconomic conditions; however, the actual financial impact on the Company of the current environment is highly uncertain. For periods beyond the reasonable and supportable forecast period, the Company reverts back to historical loss data. Management’s current estimate of expected credit losses as of September 30, 2023 increased compared to the current estimate of expected credit losses as of June 30, 2023 primarily due to an increase in the CECL reserves for risk rated “4” and “5” loans in the portfolio as a result of the impact of the current macroeconomic environment, including high inflation and interest rates, and other loan specific factors partially offset by shorter average remaining loan term and loan repayments during the three months ended September 30, 2023. The CECL Reserve also takes into consideration the assumed impact of macroeconomic conditions on CRE properties and is not specific to any loan losses or impairments on the Company’s loans held for investment, unless the Company determines that a specific reserve is warranted for a select asset.
    
As of September 30, 2023, the Company’s CECL Reserve for its loans held for investment portfolio is $115.7 million or 494 basis points of the Company’s total loans held for investment commitment balance of $2.3 billion and is bifurcated between the CECL reserve (contra-asset) related to outstanding balances on loans held for investment of $112.4 million and a liability for unfunded commitments of $3.2 million. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion.

During the nine months ended September 30, 2023, the senior mortgage loan on an office property located in Illinois with a principal balance of $56.9 million and the senior mortgage loan on an office property located in California with a principal balance of $33.2 million were both downgraded to a risk rating of “5.” As of September 30, 2023, both loans were assessed individually and the Company elected to assign specific CECL reserves of $41.1 million on the Illinois office loan and $14.4 million on the California office loan. These specific CECL reserves for both loans were based on the Company’s estimate of proceeds available from the potential sale of the collateral property less the estimated costs to sell the property and the specific CECL reserves are included in the Company’s total CECL Reserve. The senior mortgage loan on a hotel property located in Illinois with a principal balance of $35.0 million, which had a risk rating of “5” and a specific CECL reserve of $5.9 million assigned to it as of June 30, 2023, was paid off during the three months ended September 30, 2023. See Note 3 included in these consolidated financial statements for further details.
Current Expected Credit Loss Reserve for Funded Loan Commitments    

    Activity related to the CECL Reserve for outstanding balances on the Company’s loans held for investment as of and for the three and nine months ended September 30, 2023 was as follows ($ in thousands):
Balance at June 30, 2023 (1)
$108,114 
Provision for current expected credit losses4,318
Write-offs—
Recoveries—
Balance at September 30, 2023 (1)
$112,432 
Balance at December 31, 2022 (1)
$65,969 
Provision for current expected credit losses46,463 
Write-offs— 
Recoveries— 
Balance at September 30, 2023 (1)
$112,432 
__________________________

(1)     The CECL Reserve related to outstanding balances on loans held for investment is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

Current Expected Credit Loss Reserve for Unfunded Loan Commitments    

    Activity related to the CECL Reserve for unfunded commitments on the Company’s loans held for investment as of and for the three and nine months ended September 30, 2023 was as follows ($ in thousands):

Balance at June 30, 2023 (1)
$4,340 
Provision for current expected credit losses(1,091)
Write-offs— 
Recoveries— 
Balance at September 30, 2023 (1)
$3,249 
Balance at December 31, 2022 (1)
$5,339 
Provision for current expected credit losses(2,090)
Write-offs— 
Recoveries — 
Balance at September 30, 2023 (1)
$3,249 
__________________________

(1)     The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in the Company’s consolidated balance sheets.

The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, loan structure and exit plan, loan-to-value ratio, debt service coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:
Ratings    Definition
1Very Low Risk
2Low Risk
3Medium Risk
4High Risk/Potential for Loss: Asset performance is trailing underwritten expectations. Loan at risk of impairment without material improvement to performance
5Impaired/Loss Likely: A loan that has a significantly increased probability of default and principal loss

    The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

    As of September 30, 2023, the carrying value, excluding the CECL Reserve, of the Company’s loans held for investment within each risk rating by year of origination is as follows ($ in thousands):
20232022202120202019PriorTotal
Risk rating:
1$—$37,712$5,597$—$—$—$43,309
246,76811,408202,263——56,804317,243
366,789458,777576,810121,953103,31729,2071,356,853
4—84,626—210,66268,71616,440380,444
5————31,38551,17882,563
Total$113,557$592,523$784,670$332,615$203,418$153,629$2,180,412

Accrued Interest Receivable

    The Company elected not to measure a CECL Reserve on accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. As of September 30, 2023 and December 31, 2022, interest receivable of $15.1 million and $14.0 million, respectively, is included within other assets in the Company’s consolidated balance sheets and is excluded from the carrying value of loans held for investment. If the Company were to have uncollectible accrued interest receivable, it generally would reverse accrued and unpaid interest against interest income and no longer accrue for these amounts.