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Fair Value of Financial Instruments (Tables)
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Assets and Liabilities Recorded at Fair Value on Recurring Basis

The carrying values and fair values of KREF’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value, as of December 31, 2019 were as follows:
 
 
 
 
 
 
Fair Value
 
 
Principal Balance(A)
 
Carrying Value(B)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
67,619

 
$
67,619

 
$
67,619

 
$
—

 
$
—

 
$
67,619

Commercial mortgage loans, held-for-investment, net(C)
 
4,960,698

 
4,931,042

 
—

 
—

 
4,937,808

 
4,937,808

Equity method investments
 
37,469

 
37,469

 
—

 
—

 
37,469

 
37,469

Commercial mortgage loans held in variable interest entities, at fair value
 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
5,065,786

 
$
5,036,130

 
$
67,619

 
$
—

 
$
4,975,277

 
$
5,042,896

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Secured financing agreements, net
 
$
2,898,716

 
$
2,884,887

 
$
—

 
$
—

 
$
2,898,716

 
$
2,898,716

Collateralized loan obligation, net
 
810,000

 
803,376

 
—

 
—

 
810,867

 
810,867

Convertible notes, net
 
143,750

 
139,075

 
150,719

 
—

 
—

 
150,719

Loan participations sold, net
 
65,000

 
64,966

 
—

 
—

 
64,966

 
64,966

Variable interest entity liabilities, at fair value
 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
3,917,466

 
$
3,892,304

 
$
150,719

 
$
—

 
$
3,774,549

 
$
3,925,268

(A)
The principal balance of commercial mortgage loans excludes premiums and unamortized discounts.
(B)
The carrying value of commercial mortgage loans is presented net of $29.7 million unamortized origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $13.8 million unamortized debt issuance costs. The carrying value of collateralized loan obligations is presented net of $6.6 million unamortized debt issuance costs.
(C)
Includes $1.0 billion of CLO loan participations as of December 31, 2019. Includes senior loans for which KREF syndicated a vertical loan participation that was not treated as a sale under GAAP, with a carrying value and a fair value of $65.0 million as of December 31, 2019.

The carrying values and fair values of KREF’s financial assets recorded at fair value on a recurring basis, as well as other financial instruments for which fair value is disclosed, as of December 31, 2018 were as follows:
 
 
 
 
 
 
Fair Value
 
 
Principal Balance(A)
 
Carrying Value(B)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
86,531

 
$
86,531

 
$
86,531

 
$
—

 
$
—

 
$
86,531

Commercial mortgage loans, held-for-investment, net(C)
 
4,026,713

 
4,001,820

 
—

 
—

 
4,007,316

 
4,007,316

Equity method investments
 
30,734

 
30,734

 
—

 
—

 
30,734

 
30,734

Commercial mortgage loans held in variable interest entities, at fair value
 
1,127,926

 
1,092,986

 
—

 
—

 
1,092,986

 
1,092,986

 
 
$
5,271,904

 
$
5,212,071

 
$
86,531

 
$
—

 
$
5,131,036

 
$
5,217,567

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Secured financing agreements, net
 
$
1,965,675

 
$
1,951,049

 
$
—

 
$
—

 
$
1,965,675

 
$
1,965,675

Collateralized loan obligation, net
 
810,000

 
800,346

 
—

 
—

 
810,000

 
810,000

Convertible notes, net
 
143,750

 
137,688

 
142,107

 
—

 
—

 
142,107

Loan participations sold, net
 
85,880

 
85,465

 
—

 
—

 
85,295

 
85,295

Variable interest entity liabilities, at fair value
 
1,092,984

 
1,080,255

 
—

 
—

 
1,080,255

 
1,080,255

 
 
$
4,098,289

 
$
4,054,803

 
$
142,107

 
$
—

 
$
3,941,225

 
$
4,083,332

(A)    The principal balance of commercial mortgage loans excludes premiums and discounts.
(B)
The carrying value of commercial mortgage loans is presented net of $24.9 million origination discounts and deferred nonrefundable fees. The carrying value of secured financing agreements is presented net of $14.6 million unamortized debt issuance costs. The carrying value of collateralized loan obligations is presented net of $9.7 million unamortized debt issuance costs.
(C)
Includes $1.0 billion of CLO loan participations as of December 31, 2018. Includes senior loans for which KREF sold a loan participation that was not treated as a sale under GAAP, with a carrying value of $85.6 million and a fair value of $85.3 million as of December 31, 2018.
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of December 31, 2019. The following table summarizes the changes in these assets and liabilities.
 
 
Assets
 
Liabilities
 
 
 
 
Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value
 
Variable Interest Entity Liabilities, at Fair Value
 
Net
Balance as of December 31, 2017
 
$
5,372,811

 
$
5,256,926

 
$
115,885

Gains (losses) included in net income
 
 
 
 
 
 
Realized gain (loss)
 
13,000

 
—

 
13,000

Unrealized gain (loss) included in change in net assets related to CMBS consolidated VIEs
 
(98,990
)
 
(96,426
)
 
(2,564
)
Purchases and repayments
 
 
 
 
 
 
Purchases
 
—

 
—

 
—

Sale/Deconsolidation/Repayments
 
(4,178,118
)
 
(4,065,371
)
 
(112,747
)
Other(A)
 
(15,717
)
 
(14,874
)
 
(843
)
Balance as of December 31, 2018
 
$
1,092,986

 
$
1,080,255

 
$
12,731

Gains (losses) included in net income
 
 
 
 
 
 
Realized gain (loss)
 
(2,759
)
 
—

 
(2,759
)
Unrealized gain (loss) included in change in net assets related to CMBS consolidated VIEs
 
(2,322
)
 
(2,322
)
 
—

Purchases and sales/repayments
 
 
 
 
 
 
Sale/Deconsolidation/Repayments
 
(1,083,899
)
 
(1,074,115
)
 
(9,784
)
Other(A)
 
(4,006
)
 
(3,818
)
 
(188
)
Balance as of December 31, 2019
 
$
—

 
$
—

 
$
—


(A)
Amounts primarily consist of changes in accrued interest.
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

KREF reported the following financial assets and liabilities at fair value on a recurring basis using Level 3 inputs as of December 31, 2019. The following table summarizes the changes in these assets and liabilities.
 
 
Assets
 
Liabilities
 
 
 
 
Commercial Mortgage Loans Held in Variable Interest Entities, at Fair Value
 
Variable Interest Entity Liabilities, at Fair Value
 
Net
Balance as of December 31, 2017
 
$
5,372,811

 
$
5,256,926

 
$
115,885

Gains (losses) included in net income
 
 
 
 
 
 
Realized gain (loss)
 
13,000

 
—

 
13,000

Unrealized gain (loss) included in change in net assets related to CMBS consolidated VIEs
 
(98,990
)
 
(96,426
)
 
(2,564
)
Purchases and repayments
 
 
 
 
 
 
Purchases
 
—

 
—

 
—

Sale/Deconsolidation/Repayments
 
(4,178,118
)
 
(4,065,371
)
 
(112,747
)
Other(A)
 
(15,717
)
 
(14,874
)
 
(843
)
Balance as of December 31, 2018
 
$
1,092,986

 
$
1,080,255

 
$
12,731

Gains (losses) included in net income
 
 
 
 
 
 
Realized gain (loss)
 
(2,759
)
 
—

 
(2,759
)
Unrealized gain (loss) included in change in net assets related to CMBS consolidated VIEs
 
(2,322
)
 
(2,322
)
 
—

Purchases and sales/repayments
 
 
 
 
 
 
Sale/Deconsolidation/Repayments
 
(1,083,899
)
 
(1,074,115
)
 
(9,784
)
Other(A)
 
(4,006
)
 
(3,818
)
 
(188
)
Balance as of December 31, 2019
 
$
—

 
$
—

 
$
—


(A)
Amounts primarily consist of changes in accrued interest.
Fair Value Inputs, Liabilities, Level 3 Inputs
The following table contains the Level 3 inputs used to value assets and liabilities on a recurring and nonrecurring basis or where KREF discloses fair value as of December 31, 2019:
 
 
Fair Value
 
Valuation Methodologies
 
Unobservable Inputs(A)
 
Weighted Average(B)
 
Range
Assets(C)
 
 
 
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-investment, net
 
$
4,937,808

 
Discounted cash flow
 
Discount rate
 
5.2%
 
4.2% - 10.3%
 
 
 
 
 
 
Loan-to-value ratio(D)
 
N/A
 
N/A
 
 
$
4,937,808

 
 
 
 
 
 
 
 
Liabilities(E)
 
 
 
 
 
 
 
 
 
 
Collateralized loan obligation, net
 
$
810,867

 
Discounted cash flow
 
Yield
 
2.9%
 
2.6% - 4.0%
 
 
$
810,867

 
 
 
 
 
 
 
 

(A)
An increase (decrease) in the valuation input results in a decrease (increase) in value.
(B)
Represents the average of the input value, weighted by the unpaid principal balance of the financial instrument.
(C)
KREF carries a $37.2 million investment in an aggregator vehicle alongside RECOP I (Note 8) at its pro rata share of the aggregator's net asset value, which management believes approximates fair value.
(D)
For commercial mortgage loans risk-rated 1-3, the loans are valued using a discounted cash flow model using discount rate derived from relevant market indices. For commercial mortgage loans risk-rated 4 or 5, the loans are valued using a discounted cash flow model using discount rates derived from relevant market indices and estimates of the underlying property's value. No loans were rated 4 or 5 as of December 31, 2019.
(E)
Does not include $65.0 million of vertical loan syndication which was syndicated at par value and included in “Loan participation sold, net” in the accompanying Consolidated Balance Sheet.