| 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 September 30, 2022 and December 31, 2021 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | Total | | Level I | | Level II | | Level III | | September 30, 2022 | | | | | | | | | Assets, at fair value | | | | | | | | | Real estate securities, available for sale, measured at fair value | $ | 74,625 | | | $ | — | | | $ | 74,625 | | | $ | — | | | Real estate securities, trading, measured at fair value | 252,491 | | | — | | | $ | 252,491 | | | $ | — | | | Commercial mortgage loans, held for sale, measured at fair value | 41,342 | | | — | | | — | | | 41,342 | | | Derivatives instruments, measured at fair value: | | | | | | | | | Credit default swaps | — | | | — | | | — | | | — | | | Interest rate swaps | 3,546 | | | — | | | 3,546 | | | — | | | Total assets, at fair value | $ | 372,004 | | | $ | — | | | $ | 330,662 | | | $ | 41,342 | | | | | | | | | | | Liabilities, at fair value | | | | | | | | | Derivatives instruments, measured at fair value: | | | | | | | | | Interest rate swaps | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | Credit default swaps | $ | 4 | | | $ | — | | | $ | 4 | | | $ | — | | | | | | | | | | | Total liabilities, at fair value | $ | 12 | | | $ | — | | | $ | 12 | | | $ | — | | | | | | | | | | | December 31, 2021 | | | | | | | | | Assets, at fair value | | | | | | | | | | | | | | | | | Real estate securities, trading, measured at fair value | $ | 4,566,871 | | | $ | — | | | $ | 4,566,871 | | | $ | — | | | Commercial mortgage loans, held for sale, measured at fair value | 34,718 | | | — | | | — | | | 34,718 | | | Other real estate investments, measured at fair value | 2,074 | | | — | | | — | | | 2,074 | | | | | | | | | | | Derivatives instruments, measured at fair value: | | | | | | | | | Interest rate swaps | 312 | | | — | | | 312 | | | — | | | Treasury note futures | 124 | | | — | | | 124 | | | — | | | Total assets, at fair value | $ | 4,604,099 | | | $ | — | | | $ | 4,567,307 | | | $ | 36,792 | | | | | | | | | | | Liabilities, at fair value | | | | | | | | | Derivatives instruments, measured at fair value: | | | | | | | | | Credit default swaps | $ | 1,142 | | | $ | — | | | $ | 1,142 | | | $ | — | | | | | | | | | | | | | | | | | | | Unsecured debt-related interest rate swap agreements | 31,153 | | | — | | | 31,153 | | | — | | | Total liabilities, at fair value | $ | 32,295 | | | $ | — | | | $ | 32,295 | | | $ | — | |
| | | | | | | | | | | | | | | | | September 30, 2022 | | | Commercial Mortgage Loans, held for sale, measured at fair value | | Other Real Estate Investments, measured at fair value | | Beginning balance, January 1, 2022 | | $ | 34,718 | | | $ | 2,074 | | Transfers into Level III (1) | | — | | | — | | | Total realized and unrealized gain/(loss) included in earnings: | | | | | | Realized gain/(loss) on sale of commercial mortgage loans, held for sale, and other real estate investments | | 4,838 | | | (33) | | | Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments | | (3,678) | | | 4 | | | Net accretion | | — | | | — | | | Purchases | | 343,096 | | | — | | | Sales / paydowns | | (337,632) | | | (2,045) | | | | | | | Transfers out of Level III (1) | | — | | | — | | | Ending Balance, September 30, 2022 | | $ | 41,342 | | | $ | — | | | | | | | | | December 31, 2021 | | | Commercial Mortgage Loans, held for sale, measured at fair value | | Other Real Estate Investments, measured at fair value | | Beginning balance, January 1, 2021 | | $ | 67,649 | | | $ | 2,522 | | Transfers into Level III (1) | | — | | | — | | | Total realized and unrealized gain/(loss) included in earnings: | | | | | | Realized gain/(loss) on sale of commercial mortgage loans, held for sale | | 24,208 | | | — | | | Unrealized gain/(loss) on commercial mortgage loans, held for sale and other real estate investments | | 469 | | | (19) | | | Net accretion | | — | | | (3) | | | Purchases | | 420,673 | | | — | | | Sales / paydowns | | (478,281) | | | (426) | | | | | | | Transfers out of Level III (1) | | — | | | — | | | Ending Balance, December 31, 2021 | | $ | 34,718 | | | $ | 2,074 | |
________________________________________________________ (1) 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 |
The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where the Company discloses fair value as of September 30, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asset Category | | Fair Value | | Valuation Methodologies | | Unobservable Inputs (1) | | Weighted Average (2) | | Range | | September 30, 2022 | | | | | | | | | | | | Commercial mortgage loans, held for sale, measured at fair value | | $ | 41,342 | | | Discounted Cash Flow | | Yield | | 3.4% | | 3.1% - 7.3% | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | | | | | | | | | | | Commercial mortgage loans, held for sale, measured at fair value | | $ | 34,718 | | | Discounted Cash Flow | | Yield | | 3.4% | | 3.2% - 4.2% | | Other real estate investments, measured at fair value | | 2,074 | | | Discounted Cash Flow | | Yield | | 10.9% | | 9.9% - 11.9% |
________________________________________________________(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 September 30, 2022 and December 31, 2021 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2022 | | December 31, 2021 | | | | Level | | Carrying Amount (1) | | Fair Value | | Carrying Amount (1) | | Fair Value | | Commercial mortgage loans, held for investment | Asset | | III | | $ | 5,328,273 | | | $ | 5,331,258 | | | $ | 4,226,888 | | | $ | 4,249,118 | | | Collateralized loan obligations | Liability | | III | | 3,174,530 | | | 3,097,531 | | | 2,162,190 | | | 2,181,571 | | | Mortgage note payable | Liability | | III | | 23,998 | | | 23,998 | | | 23,998 | | | 23,998 | | | Other financing and loan participation - commercial mortgage loans | Liability | | III | | 53,167 | | | 53,167 | | | 37,903 | | | 37,903 | | | Unsecured debt | Liability | | III | | 98,670 | | | 73,700 | | | 148,594 | | | 125,400 | |
________________________________________________________(1) The carrying value is gross of $46.8 million and $15.8 million of allowance for credit losses as of September 30, 2022 and December 31, 2021, respectively.
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