8.	Loans Receivable

The Trust’s loans receivable at December 31, 2014 and 2013 are as follows (in thousands):


Description	Loan Position	Stated Interest Rate at December 31, 2014		Carrying Amount (1)				Contractual Maturity Date
Description	Loan Position	Stated Interest Rate at December 31, 2014		December 31, 2014		December 31, 2013		Contractual Maturity Date
Churchill (2)	Whole Loan	LIBOR + 3.75%		$	—	$	683		6/01/15
Rockwell	Mezzanine	12.0%			—		—		5/01/16
Popiu Shopping Village	B-Note	6.62%			2,804		2,058		1/06/17
Edens Center and Norridge Commons (3)	Mezzanine	LIBOR + 12%	(4)		18,690		—		3/09/17
Mentor Building	Whole Loan	10.0%			2,511		2,512		9/10/17
1515 Market	Whole Loan	—			—		—		(5), (7)
Hotel Wales	Whole Loan	—			—		20,101		(6)
Legacy Orchard	Corporate Loan	—			—		9,750		(6)
San Marbeya	Whole Loan	—			—		28,546		(6)
500-512 7th Ave	B-Note	—			—		10,250		(6)
Wellington Tower	Mezzanine	—			—		2,991		(6)
Pinnacle II	B-Note	—			—		4,648		(6)
Queensridge	Whole Loan	—			—		2,942		(7)
The Shops at Wailea	B-Note	—			—		6,292		(7)
Playa Vista / Water’s Edge	Mezzanine	—			—		10,327		(7)

				$	24,005	$	101,100

(1)

The carrying amount at December 31, 2014 represents the estimated amount expected to be collected on disposition of the loan plus contractual interest receivable at December 31, 2014. The carrying amount at December 31, 2013 represents the loan balance under the going concern basis of accounting.

(2)

The Trust determined that this loan receivable is a variable interest in a VIE primarily based on the fact that the underlying entity does 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.

(3)

Carrying amount includes the par amount of $15,500 plus the estimated amount to be collected on the participation interest of $3,000. A principal payment of $15,275 was received on February 5, 2015 resulting in an outstanding principle balance of $225.

(4)

LIBOR floor of 0.5%.

(5)

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.

(6)

These loans were sold to independent third parties. See Note 7 – Acquisition and Disposition Activities for details on the sales.

(7)

The loan was satisfied during the year ended December 31, 2014.

The carrying amount of loans receivable at December 31, 2014 represents the estimated amount expected to be collected on disposition of the loans and includes accrued interest of $218,000. The carrying amount of loans receivable at December 31, 2013 includes accrued interest of $501,000 and cumulative accretion of $6,488,000. At December 31, 2013, the Trust’s loan receivables had accretable discount yet to be recognized as income totaling $5,782,000.

The weighted average coupon as calculated on the par value of the Trust’s loans receivable was 10.55% and 6.55% at December 31, 2014 and 2013, respectively, and the weighted average yield to maturity as calculated on the carrying value of the Trust’s loans receivable was 12.78% and 11.59% at December 31, 2014 and 2013, respectively.

At December 31, 2014, none of the Trust’s loans receivable were directly financed. At December 31, 2013, the San Marbeya and Hotel Wales loans receivable were directly financed. See Note 13 – Debt for details on the financings.

Loan Receivable Activity

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


	Year Ended December 31, 2014			Year Ended December 31, 2013
Balance at beginning of year	$	101,100		$	211,250
Purchase and advances		35,992			22,314
Interest received, net		(283	)		(514	)
Repayments / sale proceeds / forgiveness		(120,194	)		(75,407	)
Elimination of 1515 Market Street in consolidation		—			(60,279	)
Loan discount accretion		2,086			4,121
Discount accretion received in cash		(5,865	)		(37	)
Provision for loss on loans receivable		—			(348	)
Liquidation adjustment		6,071			—
Change in liquidation value		5,098			—

Balance at end of year	$	24,005		$	101,100

The following table summarizes the Trust’s interest, dividend and discount accretion income for the seven months ended July 31, 2014 and the years ended December 31, 2013 and 2012 (in thousands):


	Seven Months Ended July 31, 2014		Year Ended December 31, 2013		Year Ended December 31, 2012
Interest on loan assets	$	5,770	$	14,334	$	11,736
Exit fee/prepayment penalty		1,787		—		—
Accretion of loan discount		2,086		4,121		8,333
Interest and dividends on REIT securities		—		—		1,054

Total interest, dividends and discount accretion	$	9,643	$	18,455	$	21,123

The secured financing receivable, the Queensridge loan receivable and the Shops at Wailea loan receivable, each individually representing more than 10% of interest income, contributed approximately 58% of interest income of the Trust for the seven months ended July 31, 2014.

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.

Credit Quality of Loans Receivable and Loan Losses

Prior to the adoption of the plan of liquidation, the Trust evaluated impairment on its loan portfolio on an individual basis and developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Subsequent to the adoption of the plan of liquidation, the Trust utilizes the same grading system to assess the collectability of its loan portfolio. 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 will be adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at December 31, 2014 and 2013 (in thousands, except for number of loans):


	December 31, 2014				December 31, 2013
Internal Credit Quality	Number of Loans		Liqudiation Value of Loans Receivable		Number of Loans		Carrying Value of Loans Receivable
Greater than zero		3	$	24,005		11	$	90,773
Equal to zero		1		—		1		10,327
Less than zero		1		—		1		—

		5	$	24,005		13	$	101,100

Non-Performing Loans

Prior to adopting the liquidation basis of accounting, the Trust considered a loan to be non-performing and placed loans on non-accrual status at such time as management determined it was probable that it would 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 were either accounted for on a cash basis, where interest income was recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduced a loan’s carrying value. If and when a loan was brought back into compliance with its contractual terms, the Trust resumed accrual of interest.

As of July 31, 2014 and December 31, 2013, there was one non-performing loan with past due payments. A $348,000 provision for loan loss was recorded as of December 31, 2013. The Trust did not record any provision for loan loss for the seven months ended July 31, 2014.

Secured Financing Receivable

In August 2013 the Trust closed on an agreement to acquire its venture partner’s (“Elad”) 50% interest in the mezzanine lender with respect to the One South State Street, Chicago, Illinois property (“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. Under the going concern basis of accounting, the Trust recognized 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 $2,215,000 of interest income during the seven months ended July 31, 2014 and $1,386,000 during the year ended December 31, 2013.