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. |
|