5.	Loans Receivable

The Trust’s loans receivable at December 31, 2013 and 2012 are as follows (in thousands):


	Loan Position	Stated Interest Rate			Carrying Amount				Contractual Maturity Date
Description	Loan Position	Stated Interest Rate			December 31, 2013		December 31, 2012		Contractual Maturity Date

Hotel Wales (5)	Whole Loan		LIBOR + 4.0	% (2)	$	20,101	$	20,101		10/05/14
The Shops at Wailea	B-Note		6.15	%		6,292		5,376		10/06/14
Legacy Orchard (1) (5)	Corporate Loan		15.0	%		9,750		9,750		10/31/14
Queensridge (6)	Whole Loan		LIBOR + 11.5	% (3)		2,942		39,170		11/15/14
San Marbeya (5)	Whole Loan		5.88	%		28,546		27,149		01/01/15
Churchill (1)	Whole Loan		LIBOR + 3.75	%		683		683		06/01/15
1515 Market	Whole Loan			(4)		—		58,650			(4)
Playa Vista / Water’s Edge	Mezzanine		LIBOR + 14.25	% (3)		10,327		—		01/23/15
Rockwell (7)	Mezzanine		12.0	%		—		323		05/01/16
500-512 7th Ave (5)	B-Note		7.19	%		10,250		10,009		07/11/16
Pinnacle II	B-Note		6.31	%		4,648		4,652		09/06/16
Popiu Shopping Village	B-Note		6.62	%		2,058		1,948		01/06/17
Wellington Tower (5)	Mezzanine		6.79	%		2,991		2,687		07/11/17
Mentor Building	Whole Loan		10.0	%		2,512		2,512		09/10/17
Renaissance Walk (8)	Mezzanine		—			—		3,000		—
Fenway Shea (1) (8)	Whole Loan		—			—		2,273		—
127 West 25th Street (8)	Mezzanine		—			—		8,687		—
180 N. Michigan (8)	Mezzanine		—			—		5,237		—
The Disney Building (9)	B-Note		—			—		9,043		—

					$	101,100	$	211,250

(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)	LIBOR floor of 3%.

(3)	LIBOR floor of 0.5%.

(4)	This loan was in maturity default at the time of acquisition. The loan was modified on February 1, 2013. The Trust consolidates the operations of the borrower entity and the loan receivable is eliminated in consolidation.

(5)	These loans were sold to an independent third party in February 2014. See Note 26 - Subsequent Events for details on the sale.

(6)	This loan was paid off at par in January 2014. See Note 26 - Subsequent Events for details on the payoff.

(7)	Loan defaulted in December 2013. Carrying amount at December 31, 2013 reflects a $348 loan loss reserve.

(8)	The loans were satisfied during the year ended December 31, 2013.

(9)	Loan was sold during 2013.

The carrying amount of loans receivable includes accrued interest of $501,000 and $1,016,000 at December 31, 2013 and December 31, 2012, respectively, and cumulative accretion of $6,488,000 and $2,527,000 at December 31, 2013 and December 31, 2012, respectively.

At December 31, 2013, the Trust’s loan receivables have accretable discount yet to be recognized as income totaling $5,782,000. At December 31, 2012, the Trust’s loan receivables had accretable discount yet to be recognized as income totaling $9,865,000.

The weighted average coupon on the Trust’s loans receivable was 6.55% and the weighted average yield to maturity was 11.59% at December 31, 2013. The weighted average coupon on the Trust’s loans receivable was 7.65% and the weighted average yield to maturity was 11.43% at December 31, 2012.

With the exception of the San Marbeya, Hotel Wales and Queensridge Tower loans receivable, none of the loans receivable are directly financed.

On November 15, 2012 the Trust obtained a $25,000,000 loan from KeyBank collateralized by the Queensridge Towers loan. The loan bears interest at LIBOR plus 4%, requires monthly payments of interest only and is co-terminous with the Queensridge Towers loan with a maturity date of November 15, 2014, subject to one, twelve month extension. Principal payments are required to be made in accordance with principal payments received on the Queensridge Tower loan. The KeyBank loan payable is recourse to the Trust and the Operating Partnership. As of September 30, 2013 the Trust has fully repaid the recourse secured financing.

Loan Receivable Activity

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


	Year Ended December 31, 2013			Year Ended December 31, 2012
Balance at beginning of year	$	211,250		$	114,333
Purchase and advances		22,314			175,550
Interest (received) accrued, net		(514	)		516
Repayments / sale proceeds		(75,407	)		(68,824	)
Elimination of 1515 Market Street in consolidation		(60,279	)		—
Loan accretion		4,121			8,333
Discount accretion received in cash		(37	)		(15,720	)
Provision for loss on loans receivable		(348	)		—
Conversion of 180 North Michigan loan to equity investments		—			(2,938	)

Balance at end of year	$	101,100		$	211,250

The following table summarizes the Trust’s interest and dividend income for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	2013		2012		2011
Interest and dividends detail:
Interest on loan assets	$	14,334	$	11,736	$	11,073
Accretion of loan discount		4,121		8,333		13,401
Interest and dividends on REIT securities		—		1,054		984

Total interest and dividends	$	18,455	$	21,123	$	25,458

The San Marbeya loan and the Queensridge loan, each representing more than 10% of interest income, contributed approximately 34% of interest income of the Trust for the year ended December 31, 2013.

The 160 Spear loan and the San Marbeya loan, each representing more than 10% of interest income, contributed approximately 34% of interest income of the Trust for the year ended December 31, 2012. The 160 Spear loan and the Metropolitan Tower loan, each representing more than 10% of interest income, contributed approximately 48% of interest income of the Trust for the year ended December 31, 2011.

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 the 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 is maintained at a level the Trust believes is adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at December 31, 2013 (in thousands, except for number of loans).


Internal Credit Quality	# of Loans		Carrying Value of Loans Receivable		# of Loans		Whole Loans		# of Loans		B-Notes		# of Loans		Mezzanine Loans

Greater than zero		11	$	90,773		6	$	64,534		4	$	23,248		1	$	2,991
Equal to zero		1		10,327		—		—		—		—		1		10,327
Less than zero		1		—		—		—		—		—		1		—

Subtotal		13	$	101,100		6	$	64,534		4	$	23,248		3	$	13,318

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


Internal Credit Quality	# of Loans		Carrying Value of Loans Receivable		# of Loans		Whole Loans		# of Loans		B-Notes		# of Loans		Mezzanine Loans

Greater than zero		18	$	211,250		8	$	160,288		5	$	31,028		5	$	19,934
Equal to zero		—		—		—		—		—		—		—		—
Less than zero		—		—		—		—		—		—		—		—

Subtotal		18	$	211,250		8	$	160,288		5	$	31,028		5	$	19,934

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 December 31, 2013 there was one non-performing loan with past due payments. There was $348,000 of provision for loan loss recorded during the years ended December 31, 2013.

As of December 31, 2012 there were no non-performing loans and no past due payments. There was no provision for loan loss recorded during the years ended December 31, 2012 and 2011.

Secured Financing Receivable

In August 2013 the Trust closed on an agreement to acquire Elad’s 50% interest in Lender LP for $30,000,000. In connection with the transaction, the Trust entered into an option agreement with Elad granting Elad the right, but not obligation, to repurchase the interest in the venture. The option agreement provides Elad, as the transferor, the option to unilaterally cause the return of the asset at the earlier of two years from August 21, 2013 or an event of default on Lender LP’s mezzanine debt. As such, Elad is able to retain control of its interest in Lender LP for financial reporting purposes as the exercise of the option is unconditional other than for the passage of time. As a result, for financial reporting purposes, the transfer of the financial asset is accounted for as a secured financing rather than an acquisition. The $30,000,000 acquisition price is recorded as a secured financing receivable. The Trust will recognize interest income on the secured financing receivable on an accrual basis in accordance with GAAP, at an annual interest rate of 15%. The Trust recorded $1,386,000 of interest income during the year ended December 31, 2013.