Real Estate Owned, Net

12 Months Ended

Dec. 31, 2023

On May 16, 2023, the Company acquired legal title to an office property located in Phoenix, AZ pursuant to a negotiated deed-in-lieu of foreclosure. The property previously served as collateral for a first mortgage loan held for investment, which had been originated in May 2017. As of March 31, 2023, the loan had a risk rating of “5”, was on nonaccrual status and was accounted for under cost-recovery. At the time of acquisition, the loan had an amortized cost and carrying value of $28.2 million and $24.0 million, respectively. During the year ended December 31, 2023, the Company recognized the property as real estate owned with a carrying value of $24.0 million based on the estimated fair value of the property. This acquisition was accounted for as an asset acquisition under ASC 805.

The Company allocated the fair value of the assumed assets and liabilities on the acquisition date as follows:


(in thousands)	Fair Value Allocation
Land	$	9,123
Building	5,638
Tenant improvements	3,596
In-place lease intangibles(1)	5,280
Above-market lease intangibles(1)	401
Below-market lease intangibles(2)	(38)
Total	$	24,000

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(1)Included in “Other assets” on the consolidated balance sheets.

(2)Included in “Other liabilities” on the consolidated balance sheets.

The weighted average initial depreciation period for the acquired tenant improvements during the year ended December 31, 2023, was 1.5 years. The weighted average initial amortization period for the acquired in-place lease intangibles, above-market lease intangibles and below-market lease intangibles acquired during the year ended December 31, 2023, were 1.6 years, 1.9 years, and 3.6 years, respectively.

The Company assumed certain legacy lease arrangements upon the acquisition of the REO. These arrangements entitle the Company to receive contractual rent payments during the lease periods and tenant reimbursements for certain property operating expenses, including common area costs, insurance, utilities and real estate taxes.

The following table presents the identified intangible assets and liabilities related to REO as of December 31, 2023, and 2022:


(in thousands)	December 31, 2023		December 31, 2022
Intangible Assets
Gross amount	$	5,681	$	—
Accumulated amortization	(2,082)		—
Total, net	$	3,599	$	—
Intangible Liabilities
Gross amount	$	(38)	$	—
Accumulated amortization	8		—
Total, net	$	(30)	$	—

The following table presents the REO operations and related income (loss) included in the Company’s consolidated statements of comprehensive income for the years ended December 31, 2023, and 2022:


(in thousands)	Year Ended December 31,
Real Estate Owned, Net	2023		2022
Rental income	$	2,510	$	—
Other operating income	112		—
Revenue from real estate owned operations	2,622		—
Expenses from real estate owned operations (1)	(5,977)		—




Total	$	(3,355)	$	—

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(1)Includes $(3.4) million of depreciation and amortization for the year ended December 31, 2023.

The following table presents the amortization of lease intangibles included in the Company’s consolidated statements of income for the years ended December 31, 2023, and 2022:


(in thousands)		Year Ended December 31,
	Income Statement Location	2023		2022
Asset
In-place lease intangibles	Expenses from real estate owned operations	$	1,957	$	—
Above-market lease intangibles	Revenue from real estate owned operations	(126)		—
Liability
Below-market lease intangibles	Revenue from real estate owned operations	9		—

The following table presents the amortization of lease intangibles for each of the succeeding fiscal years:


(in thousands)	In-place Lease Intangible Assets		Above-market Lease intangible Assets		Below-market Lease Intangible Liabilities
2024	$	1,979	$	123	$	(6)
2025	589		24		(6)
2026	498		20		(6)
2027	58		17		(6)
2028	53		17		(5)
Thereafter	146		75		—

Future Minimum Lease Payments

The following table presents the future minimum lease payments to be collected under non-cancelable operating leases, excluding tenant reimbursements of expenses as of December 31, 2023:


(in thousands)	Contractual Lease Payments
2024	$	3,145
2025	1,755
2026	1,630
2027	637
2028	630
Thereafter	792

The weighted average minimum remaining term of the non-cancelable leases was approximately 2.0 years as of December 31, 2023.