Loans Receivable

3 Months Ended

Mar. 31, 2012

Loans Receivable [Abstract]

Loans Receivable

5. Loans Receivable

The following table summarizes the Trust’s loans receivable at March 31, 2012 and December 31, 2011 (in thousands):

			Carrying Amount				Contractual Maturity Date
Description	Location Position	Stated Interest Rate	March 31, 2012		December 31, 2011
160 Spear	B-Note	9.75%(2)	$	13,418	$	11,555		06/09/12
160 Spear	Mezzanine	15.00%		4,689		4,846		06/09/12
Magazine	Mezzanine	LIBOR + 1.23%		19,374		18,805		07/09/12
Mentor Building	Whole Loan	7.50%		2,550		—		09/10/12
Hotel Wales	Whole Loan	LIBOR + 4.0%(3)		20,101		20,101		10/05/13
Renaissance Walk	Mezzanine	LIBOR + 12.0%		3,000		3,000		01/01/14
Legacy Orchard (1)	Corporate Loan	15.00%		9,750		9,750		10/31/14
San Marbeya	Whole Loan	5.88%		26,656		26,501		01/01/15
Rockwell	Mezzanine	12.00%		284		275		05/01/16
29 East Madison (1)	Mezzanine	8.00%		4,000		4,028		05/31/16
500-512 7th Ave	B-Note	7.19%		9,985		9,979		07/11/16
180 N. Michigan	Mezzanine	8.50%(4)		—		2,930		12/31/16
Wellington Tower	Mezzanine	6.79%		2,592		2,563		07/11/17
			$	116,399	$	114,333

(1) The Trust determined that certain loans receivable are variable interests in VIEs primarily based on the fact that the underlying entities do not have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support. The Trust does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and is not required to consolidate the underlying entity.

(2) Interest on the B note equals the difference between (i) interest on the entire outstanding loan principal balance ($73,796 at March 31, 2012) at a rate of 6.48215% per annum less (ii) interest payable on the outstanding principal balance of the A note ($35,000 at March 31, 2012) at a rate of 9.75% per annum. As a result, the effective yield on the Trust’s $3,410 cash investment is 40.8%.

(3) Libor floor of 3%.

(4) Converted to equity investment during the three months ended March 31, 2012.

The carrying amount of loans receivable includes accrued interest of $507,000 and $500,000 at March 31, 2012 and December 31, 2011, respectively, and cumulative accretion of $12,747,000 and $9,914,000 at March 31, 2012 and December 31, 2011, respectively.

At March 31, 2012 and December 31, 2011, the Trust’s loans receivable have unamortized discount yet to be recognized as income totaling $9,682,000 and $8,399,000.

The weighted average coupon on the Trust’s loans receivable was 5.98% and 5.99% and the weighted average yield to maturity was 12.67% and 12.64% at March 31, 2012 and December 31, 2011 respectively.

With the exception of the San Marbeya and Hotel Wales loans receivable, none of the loans receivable are directly financed. Non-recourse secured financings in the amount of $29,150,000 were outstanding at March 31, 2012 and December 31, 2011.

Loan Receivable Activity

Activity related to loans receivable is as follows (in thousands):

	Three Months Ended March 31, 2012
Balance at beginning of year	$	114,333
Purchase and advances		2,521
Interest (received) accrued, net		7
Repayments		(357	)
Loan discount accretion		2,833
Transfer 180 North Michigan loan to equity investments		(2,938	)
Balance at end of year	$	116,399

The following table summarizes the Trust’s interest, dividend and discount accretion income for the three months ended March 31, 2012 and 2011 (in thousands):

	2012		2011
Interest, dividends and discount accretion detail:
Interest on loan assets	$	2,399	$	2,710
Accretion of loan discount		2,833		6,504
Interest and dividends on REIT securities		286		458
Total interest, dividends, and discount accretion	$	5,518	$	9,672

Credit Quality of Loans Receivable and Loan Losses

The Trust evaluates impairment on its loan portfolio on an individual basis and has developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Grading categories include debt yield, debt service coverage ratio, length of loan, property type, loan type, and other more subjective variables that include property or collateral location, market conditions, industry conditions, and sponsor’s financial stability. Management reviews each category and assigns an overall numeric grade for each loan to determine the loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific loan loss allowance is necessary. A loan’s grade of credit quality is determined quarterly.

All loans with a positive score do not require a loan loss allowance. Any loan graded with a neutral score or “zero” is subject to further review of the collectability of the interest and principal based on current conditions and qualitative factors to determine if impairment is warranted. Any loan with a negative score is deemed impaired and management then would measure the specific impairment of each loan separately using the fair value of the collateral less costs to sell.

Management estimates the loan loss allowance by calculating the estimated fair value less costs to sell of the underlying collateral securing the loan based on the fair value of underlying collateral and comparing the fair value to the loan’s net carrying value. If the fair value is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan will be maintained at a level the Trust believes will be adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at March 31, 2012 (in thousands, except for number of loans).

Internal Credit Quality	Number of Loans		Carrying Value of Loans Receivable
Greater than zero		12	$	116,399
Equal to zero		—		—
Less than zero		—		—
		12	$	116,399

Non-Performing Loans

The Trust considers a loan to be non-performing and places loans on non-accrual status at such time as management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. While on non-accrual status, based on the Trust’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan’s carrying value. If and when a loan is brought back into compliance with its contractual terms, the Trust will resume accrual of interest. As of March 31, 2012 and December 31, 2011, there were no non-performing loans and no past due payments. The Trust recorded no provision for loan loss for the three months ended March 31, 2012 and 2011.