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Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 12 – Fair Value of Financial Instruments

The following table presents the Company’s financial instruments measured on a recurring basis and carried at fair value in the consolidated balance sheets by their level in the fair value hierarchy (see Note 2 – Summary of Significant Accounting Policies included in the Annual Report) as of March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

 

Level I

 

 

Level II

 

 

Level III

 

Real estate securities

 

$

117,814

 

 

 

 

 

$

117,814

 

 

 

 

 

$

157,869

 

 

 

 

 

$

157,869

 

 

 

 

 

The Company did not transfer any assets within fair value levels during the three-months ended March 31, 2020.

 

The following table presents the Company’s financial instruments measured on a non-recurring basis and carried at fair value in the consolidated balance sheets by their level in the fair value hierarchy as of March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

 

Level I

 

 

Level II

 

 

Level III

 

Collateral dependent impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired first mortgage loan

 

$

21,500

 

 

 

 

 

 

 

 

$

21,500

 

 

$

 

 

 

 

 

 

 

 

$

 

Impaired credit loan

 

$

1,500

 

 

 

 

 

 

 

 

$

1,500

 

 

$

 

 

 

 

 

 

 

 

$

 

 

For collateral dependent impaired loans, these loans are recorded at the estimated fair value of collateral less the estimated cost to sell. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor will obtain external “as is” appraisals for loan collateral, generally when third party participations exist.

 

The following table presents the valuation methods and significant unobservable inputs used to value Level 3 assets measured at fair value on a nonrecurring basis:

 

Asset

 

Valuation Method

 

Unobservable inputs

 

Range of Quantitative Values

 

Impaired first mortgage loan

 

Market approach

 

Indicative Market Value

 

$

25,650

 

Impaired first mortgage loan

 

Market approach

 

Costs to Foreclose and Sell

 

$

4,150

 

Impaired credit loan

 

Market approach

 

Market Price of Single Asset Hotel Mezzanine CMBS

 

50% of Par

 

 

GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value.  The following table details the carrying amount and estimated fair value of the Company’s financial instruments at the dates below:

 

 

March 31, 2020

 

 

December 31, 2019

 

 

Carrying

Amount

 

 

Estimated Fair

Value

 

 

Carrying

Amount

 

 

Estimated Fair

Value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

27,642

 

 

$

27,642

 

 

$

37,210

 

 

$

37,210

 

Restricted cash

 

19,033

 

 

 

19,033

 

 

 

429

 

 

 

429

 

Commercial mortgage loans, net

 

551,336

 

 

 

556,815

 

 

 

504,702

 

 

 

511,734

 

Total

$

598,011

 

 

$

603,490

 

 

$

542,341

 

 

$

549,373

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements - real estate securities

$

103,307

 

 

$

103,307

 

 

$

107,489

 

 

$

107,489

 

Repurchase agreements - commercial mortgage

   loans

 

375,447

 

 

 

375,447

 

 

 

335,805

 

 

 

335,805

 

Total

$

478,754

 

 

$

478,754

 

 

$

443,294

 

 

$

443,294

 

 

The following describes the Company’s methods for estimating the fair value for financial instruments:

The estimated fair value of cash and cash equivalents and restricted cash was based on the bank balance and was a Level 1 fair value measurement.

The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement.  The Sub-Advisor estimates the fair values of commercial loans by analyzing interest rate spreads on loans based on various factors including capitalization rates, occupancy rates, sponsorship, geographic concentration, collateral type, market conditions and actions of other lenders.

The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates the Company determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.