Loans Portfolio |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Portfolio | Note 3. Loan Portfolio Loans Receivable Our loan portfolio as of June 30, 2024 was comprised of the following loans ($ in thousands, except for number of loans):
(1) Loan commitment represents principal outstanding plus remaining unfunded loan commitments. (2) Net of specific CECL reserves of $78.3 million. (3) The weighted average spread is expressed as a spread over the relevant floating benchmark rates. One-month term Secured Overnight Financing Rate (“SOFR”) as of June 30, 2024 was 5.34%. Weighted average is based on outstanding principal as of June 30, 2024. For loans placed on non-accrual, the spread used in calculating the weighted average spread is 0%. (4) Reflects the weighted average interest rate based on the applicable floating benchmark rate (if applicable), including SOFR floors (if applicable). Weighted average is based on outstanding principal as of June 30, 2024 and includes loans on non-accrual status. For loans placed on non-accrual, the spread used in calculating the weighted average interest rate is 0%. (5) Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans (if any), and pari passu participations in senior mortgage loans. Our loans receivable portfolio as of December 31, 2023 was comprised of the following loans ($ in thousands, except for number of loans):
(1) Loan commitment represents principal outstanding plus remaining unfunded loan commitments. (2) Net of specific CECL reserves of $72.6 million. (3) The weighted average is expressed as a spread over the relevant floating benchmark rates. SOFR as of December 31, 2023 was 5.35%. Weighted average is based on unpaid principal balance as of December 31, 2023. For loans placed on non-accrual, the spread used in calculating the weighted average spread is 0%. (4) Reflects the weighted average interest rate based on the applicable floating benchmark rate (if applicable), including SOFR floors (if applicable). Weighted average is based on unpaid principal balance as of December 31, 2023 and includes loans on non-accrual status. For loans placed on non-accrual, the interest rate used in calculating the weighted average interest rate is 0%. (5) Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans (if any), and pari passu participations in senior mortgage loans. Activity relating to the loans receivable portfolio for the six months ended June 30, 2024 ($ in thousands):
(1) Balance at December 31, 2023 does not include general CECL reserve. In April 2024, we sold a senior loan, which was collateralized by two multifamily properties under development located in Irvine, CA and a pledge of equity interests in the borrower, to an unaffiliated purchaser with a then carrying value and unpaid principal balance of $216.8 million and $218.4 million, respectively. During the three months ended March 31, 2024, in anticipation of this loan sale, we classified the loan as held-for-sale and recognized a $42.3 million principal charge-off, representing the difference between the carrying value before principal charge-off and the sales price of the loan. Such principal charge-off was attributable to the construction status of the loan’s collateral asset and its $44.9 million of remaining unfunded commitments. During the three months ended June 30, 2024, we recorded an additional principal charge-off of $0.6 million relating to transaction costs incurred. The loan was on non-accrual status effective October 1, 2023 and was risk rated 4. In January 2024, we sold three senior loans to an unaffiliated purchaser. As of December 31, 2023, we determined that these loans met the held-for-sale criteria and were not considered in determining our general CECL reserve. The loans receivable held-for-sale were presented net of a $7.5 million principal charge-off, representing the difference between the carrying values before principal charge-off and the sales price of the loans. Two of the three loans were sold at their respective carrying values, while the principal charge-off was allocated and attributable to the construction status of the third loan’s collateral asset and its $105.0 million of remaining unfunded commitments. As of June 30, 2024, we have no loans receivable classified as held-for-sale. As of December 31, 2023, our loans receivable held-for-sale were comprised of the following loans ($ in thousands):
During the three months ended September 30, 2023, we sold a senior loan collateralized by a portfolio of multifamily properties located in San Francisco, CA. We obtained a true-sale-at-law opinion and determined the transaction constituted a sale. Concurrent with the sale, we entered into an agreement with the transferee which provides for a share of cash flows from the senior loan upon the transferee meeting certain financial metrics. As of June 30, 2024, we have not recognized any value to this interest on our consolidated financial statements. During the three months ended December 31, 2023, we modified a loan with a borrower that was experiencing financial difficulties, resulting in a maturity extension to June 10, 2024. As of June 30, 2024, the loan had total commitments and an amortized cost basis of $78.6 million, represents approximately 1.1% of total loans receivable held-for-investment, based on carrying value net of any specific CECL reserves, is current on interest payments, is in maturity default, and is risk rated 4. The loan is considered in determining our general CECL reserve. During the three months ended June 30, 2022, we modified a loan with a borrower that was experiencing financial difficulties, resulting in a decrease in the index rate floor from 1.57% to 1.00% and modified extension requirements. During the year ended December 31, 2023, we further modified this loan to provide for an initial maturity extension to September 18, 2023. As of June 30, 2024, the loan had total commitments and an amortized cost basis of $87.8 million, represents approximately 1.3% of total loans receivable held-for-investment, based on carrying value net of any specific CECL reserves, is current on interest payments, is in maturity default, and is risk rated 4. The loan is considered in determining our general CECL reserve. Concentration of Risk The following table presents our loans receivable held-for-investment by loan type, as well as property type and geographic location of the properties collateralizing these loans as of June 30, 2024 and December 31, 2023 ($ in thousands):
(1) Net of specific CECL reserves of $78.3 million at June 30, 2024. (2) Net of specific CECL reserves of $72.6 million at December 31, 2023. (3) Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans and pari passu participations in senior mortgage loans. (4) At June 30, 2024, mixed-use comprises of 4% office, 2% retail, 2% multifamily, 1% hospitality, and immaterial amounts of for sale condo. At December 31, 2023, mixed-use comprises of 3% office, 2% retail, 2% multifamily, 1% hospitality, and immaterial amounts of for sale condo. Interest Income and Accretion The following table summarizes our interest and accretion income from our loan portfolio and interest on cash balances for the three and six months ended June 30, 2024 and 2023, respectively ($ in thousands):
(1) For the three months ended June 30, 2024 and 2023, we did not recognize any default interest, late fees, pre-payment penalties, and/or accelerated fees. For the six months ended June 30, 2024 and 2023, we recognized $1.3 million and $0.3 million, respectively, in default interest, late fees, pre-payment penalties, and/or accelerated fees. Loan Risk Ratings As further described in Note 2 – Summary of Significant Accounting Policies, we evaluate the credit quality of our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, we assess the risk factors of each loan and assign a risk rating based on several factors, including current loan-to-value, debt yield, structure, cash flow volatility, exit plan, current market conditions and sponsorship level. While evaluating the credit quality of each loan within our portfolio, we assess these quantitative and qualitative factors as a whole and with no pre-prescribed weight on their impact to our determination of a loan’s risk rating. However, based upon the facts and circumstances for each loan and the current market conditions, we may consider certain previously mentioned factors more or less relevant than others. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 – Summary of Significant Accounting Policies. The following tables allocate the principal balance and carrying value of our loans receivable held-for-investment based on our internal risk ratings as of June 30, 2024 and December 31, 2023 ($ in thousands):
(1) Net of specific CECL reserves of $78.3 million.
(1) Net of specific CECL reserves of $72.6 million. As of June 30, 2024 and December 31, 2023, the average risk rating of our portfolio was 3.4 and 3.3, respectively, weighted by unpaid principal balance.
The following table presents the carrying value and significant characteristics of our loans receivable held-for-investment on non-accrual status as of June 30, 2024 ($ in thousands):
(1) Loans classified as non-accrual represented 10.2% of the total loans receivable held-for-investment at June 30, 2024, based on carrying value net of any specific CECL reserves. Excludes five loans with an aggregate carrying value of $600.7 million that are in maturity default but remain on accrual status as the borrower is either current on interest payments or interest is deemed collectible based on the underlying collateral value. Additionally, as of June 30, 2024, we have two loans with an aggregate carrying value of $479.4 million that are delinquent on interest payments but remains on accrual status as the interest is deemed collectible based on the underlying collateral value. The following table presents the carrying value and significant characteristics of our loans receivable held-for-investment on non-accrual status as of December 31, 2023 ($ in thousands):
(1) This loan was sold in April 2024. (2) During the year ended December 31, 2023, interest income of $0.3 million was recognized on a cash basis for this loan while on non-accrual status. (3) Loans classified as non-accrual represented 9.2% of the total loans receivable held-for-investment at December 31, 2023, based on carrying value net of any specific CECL reserves. Excludes four loans with an aggregate carrying value of $490.2 million that are in maturity default but remain on accrual status as the borrower is either current on interest payments or interest is deemed collectible based on the underlying collateral value. Additionally, as of December 31, 2023, we have one loan with an aggregate carrying value of $78.4 million that is delinquent on interest payments but remains on accrual status as the interest is deemed collectible based on the underlying collateral value.
Current Expected Credit Losses The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to our loan commitments. See Note 2 for further detail of our current expected credit loss reserve methodology. The following table illustrates the changes in the current expected credit loss reserve for our loans receivable held-for-investment for the three and six months ended June 30, 2024 and 2023, respectively ($ in thousands):
(1) The CECL reserve for unfunded commitments is included in other liabilities on the consolidated balance sheets. (2) Represents CECL reserve as a percent of total unpaid principal balance of loans receivable held-for-investment as of June 30, 2024. During the six months ended June 30, 2024, we recorded a provision for current expected credit losses of $103.9 million, which consisted of a $55.4 million increase in our general CECL reserve and a $48.5 million increase in our specific CECL reserve prior to principal charge-offs. The increase in general CECL reserves was primarily attributable to changes in the historical loss rate of the analogous dataset and changes in risk ratings, non-accrual status, and expected remaining duration within our loan portfolio, offset by the reduction in the size of our loan portfolio subject to determination of the general CECL reserve. As of June 30, 2024, our total current expected credit loss reserve was $213.7 million. During the six months ended June 30, 2023, we recorded a provision for current expected credit losses of $38.2 million, which included a $44.6 million increase in our specific CECL reserve prior to a principal charge-off and a reversal of $6.4 million of general CECL reserves. This reversal of general CECL reserves was primarily attributable to the seasoning of our loan portfolio and a reduction in the size of our loan portfolio. As of June 30, 2023, our total current expected credit loss reserve was $117.7 million. Specific CECL Reserves The following table presents a summary of our loans receivable held-for-investment with specific CECL reserves as of June 30, 2024 ($ in thousands):
As of December 31, 2023, we had a specific CECL reserve of $31.2 million in connection with a senior loan with a borrower that is experiencing financial difficulty and which is secured by land in Arlington, VA. During the six months ended June 30, 2024, we recorded additional specific CECL reserves totaling $0.9 million as a result of protective advances made, resulting in a total specific CECL reserve of $32.1 million. As of June 30, 2024, the loan had an unpaid principal balance and carrying value prior to any specific CECL reserve of $152.2 million and is in maturity default. Effective January 1, 2023, this loan was placed on non-accrual status. As of December 31, 2023, we had a specific CECL reserve of $20.5 million in connection with a senior loan with a borrower that is experiencing financial difficulty and which is secured by an office building in San Francisco, CA and a pledge of equity interests in the borrower. During the six months ended June 30, 2024, we recorded additional specific CECL reserves totaling $0.4 million based on changes to the collateral value, resulting in a total specific CECL reserve of $20.9 million. As of June 30, 2024, the loan had an unpaid principal balance and carrying value prior to any specific CECL reserve of $112.4 million and $112.2 million, respectively, and is in maturity default. Effective September 1, 2023, this loan was placed on non-accrual status. As of December 31, 2023, we had a specific CECL reserve of $20.0 million in connection with a senior loan with a borrower that is experiencing financial difficulty and which is secured by an office building in Atlanta, GA and a pledge of equity interests in the borrower. During the six months ended June 30, 2024, we recorded additional specific CECL reserves totaling $4.4 million based on changes to the collateral value, resulting in a total specific CECL reserve of $24.4 million. As of June 30, 2024, the loan had an unpaid principal balance and carrying value prior to any specific CECL reserve of $71.5 million and $71.1 million, respectively, and an initial maturity date of August 27, 2024. Effective September 1, 2023, this loan was placed on non-accrual status. As of June 30, 2023 and December 31, 2023, we had a specific CECL reserve of $0.9 million in connection with a subordinate loan with a borrower that is experiencing financial difficulty and which is secured by the equity interests in a retail condo in Brooklyn, NY. As of June 30, 2024, the loan had an unpaid principal balance and carrying value prior to any specific CECL reserve of $0.9 million and is in maturity default. Effective June 30, 2023, the loan was placed on non-accrual status. Fair market values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair market values used to determine specific CECL reserves as of June 30, 2024 include assumptions of property specific cash flows over estimated holding periods, assumptions of property redevelopment costs, assumptions of leasing activities, discount rates ranging from 6.0% to 9.5%, and market and terminal capitalization rates ranging from 6.0% to 8.3%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, and anticipated real estate and capital market conditions. Our primary credit quality indicator is our internal risk rating, which is further discussed above. The following table presents the carrying value of our loans receivable held-for-investment as of June 30, 2024 by year of origination and risk rating, and the principal charge-offs recognized during the six months ended June 30, 2024 ($ in thousands):
(1) Net of specific CECL reserves of $78.3 million. (2) Principal charge-off recognized in connection with the sale of a senior loan in April 2024. The following table details overall statistics for our loans receivable held-for-investment:
(1) Represents the weighted average annualized yield to initial maturity of each loan, inclusive of coupon, and fees received, based on the applicable floating benchmark rate/floors (if applicable), in place as of June 30, 2024 and December 31, 2023. For loans placed on non-accrual, the annualized yield to initial maturity used in calculating the weighted average annualized yield to initial maturity is 0%. (2)
Term to fully extended maturity is determined based on the maximum maturity of each of the corresponding loans, assuming all extension options are exercised by the borrower; provided, however, that our loans may be repaid prior to such date. |