Variable Interest Entities

12 Months Ended

Dec. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

CMBS — KREF beneficially owned and directly held CMBS with an unpaid principal balance and fair value of $34.9 million and $12.5 million, respectively, as of December 31, 2018. During the three months ended September 30, 2019, KREF sold its remaining directly held CMBS investments, comprised of (i) a controlling beneficial interest in a CMBS trust held and (ii) interest-only bonds, for $9.8 million, resulting in a net loss of $2.7 million, which is included in "Other Income — (Loss) gain on sale of investments" in the accompanying Consolidated Statements of Income. Consequently, KREF deconsolidated the respective CMBS trust upon sale and as of December 31, 2019.

The initial cost basis of the CMBS trusts sold during the three months ended September 30, 2019 was $10.0 million and the fair value as of December 31, 2018 was $12.5 million.

KREF was required to consolidate each of the CMBS trusts acquired from the date of acquisition through the date of sale since KREF retained the controlling class and management determined KREF was the primary beneficiary of those trusts. Further, management irrevocably elected the fair value option for each of the trusts and carried the fair values of the trust's assets and liabilities at fair value in its Consolidated Balance Sheets; recognized changes in the trust's net assets, including fair value adjustments and net interest earned, in its Consolidated Statements of Income; and recorded cash interest received from the trusts, net of cash interest paid to CMBS not beneficially owned by KREF, as operating cash flows.

The following table presents the KREF recognized Trust's Assets and Liabilities:



	December 31, 2019		December 31, 2018
Trusts' Assets
Commercial mortgage loans held in variable interest entities, at fair value^(A)	$	—	$	1,092,986
Accrued interest receivable	—		4,005

Trusts' Liabilities
Variable interest entity liabilities, at fair value^(B)	—		1,080,255
Accrued interest payable	—		3,818


(A)	Included accrued interest receivable.


(B)	Included accrued interest payable.

The following table presents "Other Income — Change in net assets related to CMBS consolidated variable interest entities":



	Year Ended December 31,
	2019		2018			2017
Net interest earned	$	1,665	$	5,152		12,470
Unrealized gain (loss)	—		(2,564		)	3,375
Change in net assets related to CMBS consolidated variable interest entities	$	1,665	$	2,588		$	15,845

See Note 13 for additional information regarding the valuation of financial assets and liabilities held by KREF's consolidated VIEs.

Concentration of Credit Risk — The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by KREF, as a percentage of the collateral unpaid principal balance and weighted by the fair value of the CMBS tranches beneficially owned by KREF's stockholders:



	December 31, 2019		December 31, 2018			December 31, 2019		December 31, 2018
Geography					Collateral Property Type
California	—	%	33.4	%	Retail	—	%	28.3	%
Texas	—		11.1		Office	—		27.4
New York	—		8.3		Hospitality	—		13.0
Missouri	—		5.4		Multifamily	—		9.9
Pennsylvania	—		5.1		Industrial/ Flex	—		9.6
Florida	—		4.2		Self Storage	—		5.7
Massachusetts	—		3.6		Mixed Use	—		3.9
Illinois	—		2.7		Mobile Home	—		1.7
Georgia	—		2.6		Other	—		0.5
New Hampshire	—		2.4			—	%	100.0	%
Delaware	—		1.9
Virginia	—		1.7
Other U.S.	—		17.6
Total	—	%	100.0	%

Collateralized Loan Obligation — KREF is the primary beneficiary of a collateralized loan obligation consolidated as a VIE that closed in November 2018 (Note 5). Management considers the CLO Issuers, wholly-owned subsidiaries of KREF, to be the primary beneficiary as the CLO Issuers have the ability to control the most significant activities of the CLO, the obligation to absorb losses, and the right to receive benefits of the CLO through the subordinate interests the CLO Issuers own.

Equity method investments — KREF holds two investments in entities that it records using the equity method.

As of December 31, 2019, KREF held a 3.5% interest in RECOP I, an unconsolidated VIE of which KREF is not the primary beneficiary, at its fair value of $37.2 million. The aggregator vehicle in which KREF invests is controlled and advised by affiliates of the Manager. RECOP I intends to primarily acquire junior tranches of CMBS newly issued by third parties but may also make purchases on the secondary market. KREF will not pay any fees to RECOP I, but KREF bears its pro rata share of RECOP I's expenses. KREF reported its share of the net asset value of RECOP I in its Consolidated Balance Sheets, presented as “Equity method investments” and its share of net income, presented as “Income from equity method investments” in the Consolidated Statements of Income.

As of December 31, 2019, the non-voting limited liability company interests issued by the Manager, a VIE, and held by a Taxable REIT Subsidiary ("TRS") of KREF for the benefit of the holder of the SNVPS represented 4.7% of the Manager’s outstanding limited liability company interests (Note 9). KREF reported its allocable percentage of the assets and liabilities of the Manager in its Consolidated Balance Sheets, presented as “Equity method investments” and its share of net income, presented as “Income from equity method investments” in the Consolidated Statements of Income.