| Financial instruments carried at fair value on a recurring basis |
The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of December 31, 2020 and December 31, 2019 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | Total | | Level I | | Level II | | Level III | | Assets, at fair value | | | | | | | | | Real estate securities, available for sale, measured at fair value | $ | 171,136 | | | $ | — | | | $ | 171,136 | | | $ | — | | | Commercial mortgage loans, held-for-sale, measured at fair value | 67,649 | | | — | | | — | | | 67,649 | | | Other real estate investments, measured at fair value | 2,522 | | | — | | | — | | | 2,522 | | | | | | | | | | | Interest rate swaps | 25 | | | — | | | 25 | | | — | | | | | | | | | | | Total assets, at fair value | $ | 241,332 | | | $ | — | | | $ | 171,161 | | | $ | 70,171 | | | | | | | | | | | Liabilities, at fair value | | | | | | | | | Credit default swaps | $ | 297 | | | $ | — | | | $ | 297 | | | $ | — | | | | | | | | | | | Treasury note futures | 106 | | | 106 | | | — | | | — | | | Total liabilities, at fair value | $ | 403 | | | $ | 106 | | | $ | 297 | | | $ | — | | | | | | | | | | | December 31, 2019 | | | | | | | | | Assets, at fair value | | | | | | | | | Real estate securities, available for sale, measured at fair value | $ | 386,316 | | | $ | — | | | $ | 386,316 | | | $ | — | | | Commercial mortgage loans, held-for-sale, measured at fair value | 112,562 | | | — | | | — | | | 112,562 | | | Other real estate investments, measured at fair value | 2,557 | | | — | | | — | | | 2,557 | | | Credit default swaps | 59 | | | — | | | 59 | | | — | | | Interest rate swaps | 325 | | | — | | | 325 | | | — | | | Treasury note futures | 735 | | | 735 | | | — | | | — | | | Total assets, at fair value | $ | 502,554 | | | $ | 735 | | | $ | 386,700 | | | $ | 115,119 | | | | | | | | | | | Liabilities, at fair value | | | | | | | | | Credit default swaps | $ | 1,581 | | | $ | — | | | $ | 1,581 | | | $ | — | | | Total liabilities, at fair value | $ | 1,581 | | | $ | — | | | $ | 1,581 | | | $ | — | |
The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019 for which the Company has used Level III inputs to determine fair value (dollars in thousands): | | | | | | | | | | | | | | | | | December 31, 2020 | | | Commercial mortgage loans, held-for-sale, measured at fair value | | Other real estate investments, measured at fair value | | Beginning balance, January 1, 2020 | | $ | 112,562 | | | $ | 2,557 | | Transfers into Level III (2) | | 23,625 | | | — | | | Total realized and unrealized gain/(loss) included in earnings: | | | | | | Realized gain/(loss) on sale of commercial mortgage loan, held-for-sale | | 15,931 | | | — | | | Unrealized gain/(loss) on commercial mortgage loans, held-for-sale and other real estate investments | | (75) | | | (32) | | | Net accretion | | — | | | (3) | | Purchases (1) | | 267,552 | | | — | | Sales / paydowns (1) | | (328,321) | | | — | | | | | | | Transfers out of Level III (2) | | (23,625) | | | — | | | Ending Balance, December 31, 2020 | | $ | 67,649 | | | $ | 2,522 | | | | | | | | | December 31, 2019 | | | Commercial mortgage loans, held-for-sale, measured at fair value | | Other real estate investments, measured at fair value | | Beginning balance, January 1, 2019 | | $ | 76,863 | | | $ | — | | Transfers into Level III (2) | | — | | | — | | | Total realized and unrealized gain (loss) included in earnings: | | | | | | Realized gain (loss) on sale of real estate securities | | — | | | — | | | Realized gain (loss) on sale of commercial mortgage loan held-for-sale | | 37,832 | | | — | | | Unrealized gain (loss) on commercial mortgage loans held-for-sale and other real estate investments | | 312 | | | 47 | | | Net accretion | | — | | | — | | | Unrealized gain (loss) included in OCI | | — | | | — | | | Purchases | | 1,015,677 | | | 2,510 | | | Sales / paydowns | | (1,008,050) | | | — | | | Cash repayments / receipts | | — | | | — | | Transfers out of Level III (2) | | (10,072) | | | — | | | Ending Balance, December 31, 2019 | | $ | 112,562 | | | $ | 2,557 | |
________________________ (1) Excluded from Purchases and Sales/paydowns are $679.1 million and $682.0 million, respectively, of loans that collateralize a CMBS investment required to be consolidated in connection with the Company's retention of the B tranche during the year ended December 31, 2020. Upon disposition of the B tranche during the year ended December 31, 2020, the Company recognized a gain of $2.8 million that is recorded in Realized gain/loss on sale of real estate securities on the consolidated statements of operations. (2) Transfers in and transfers out include transfers between Commercial mortgage loans, held-for-sale and Commercial mortgage loans, held for investment.
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| Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques |
Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level III category. As a result, the unrealized gains and losses for assets and liabilities within the Level III category may include changes in fair value that were attributable to both observable and unobservable inputs. The following table summarizes the valuation method and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level III of the fair value hierarchy as of December 31, 2020 and December 31, 2019 (dollars in thousands). | | | | | | | | | | | | | | | | | | | Asset Category | Fair Value | Valuation Methodologies | Unobservable Inputs (1) | Weighted Average (2) | Range | | December 31, 2020 | | | | | | | Commercial mortgage loans, held-for-sale, measured at fair value | $ | 67,649 | | Discounted Cash Flow | Yield | 16.6% | 15.6% - 17.6% | | Other real estate investments, measured at fair value | 2,522 | | Discounted Cash Flow | Yield | 13.2% | 12.2% - 14.2% | | December 31, 2019 | | | | | | | Commercial mortgage loans, held-for-sale, measured at fair value | $ | 112,562 | | Discounted Cash Flow | Yield | 4.9% | 4.7% - 5.2% | | Other real estate investments, measured at fair value | 2,557 | | Broker Quotes | Yield | 12.4% | 11.4% - 13.4% |
________________________ (1) In determining certain inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments. (2) Inputs were weighted based on the fair value of the investments included in the range.
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| Financial instruments not carried at fair value |
The fair values of the Company's commercial mortgage loans, held for investment and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of December 31, 2020 and 2019 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | Level | | Carrying Amount | | Fair Value | | December 31, 2020 | | | | | | | | Commercial mortgage loans, held for investment (1) | Asset | | III | | $ | 2,714,734 | | | $ | 2,724,039 | | | Collateralized loan obligation | Liability | | III | | 1,625,498 | | | 1,606,478 | | | Mortgage note payable | Liability | | III | | 29,167 | | | 29,167 | | | Other financing and loan participation - commercial mortgage loans | Liability | | III | | 31,379 | | | 31,379 | | | December 31, 2019 | | | | | | | | Commercial mortgage loans, held for investment (1) | Asset | | III | | $ | 2,762,963 | | | $ | 2,784,650 | | | Collateralized loan obligation | Liability | | III | | 1,803,185 | | | 1,822,386 | | | Mortgage note payable | Liability | | III | | 29,167 | | | 29,167 | |
________________________ (1) The carrying value is gross of $20.9 million and $0.9 million of allowance for credit losses as of December 31, 2020 and December 31, 2019, respectively.
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