SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2015

The consolidated financial statements reflect the Company's accounts and the accounts of the Company's majority-owned and/or controlled subsidiaries. The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 810 as amended by Accounting Standards Update (“ASU”) 2015-2, Amendments to the Consolidation Analysis. The determination of whether or not to consolidate entities under GAAP requires significant judgment. To make these judgments, management performs an entity-by-entity analysis with consideration of 1) whether the Company has a variable interest in the entity, 2) whether the entity is a variable interest entity (“VIE”), and 3) whether the Company is the primary beneficiary of the VIE.

When determining whether the Company has a variable interest in entities it evaluates for consolidation, the Company considers interests in the entities and fees it receives to act as a decision maker or service provider to the entity being evaluated. If the Company determines that it does not have a variable interest in an entity, no further consolidation analysis is performed as the Company would not be required to consolidate the entity. Fees received by the Company are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) the Company's other economic interests in the VIE held directly and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits. If fees paid to the Company were determined to be a variable interest, it could result in the Company being the primary beneficiary of and thus consolidating the entity being evaluated. Evaluation of these criteria requires judgment.

For those entities in which it has a variable interest, the Company performs an analysis to first determine whether the entity is a VIE. This determination includes considering whether the entity’s equity investment at risk is sufficient, whether the voting rights of an investor are not proportional to its obligation to absorb the income or loss of the entity and substantially all of the entity’s activities either involve or are conducted on behalf of that investor and its related parties, and whether the entity’s at-risk equity holders have the characteristics of a controlling financial interest.

The Company is the general partner/manager of and has a variable interest in certain limited partnerships and similar entities. One of the factors that the Company considers in evaluating whether these entities are VIEs is whether a simple majority (or lower threshold) of limited partners with equity at risk are able to exercise substantive kick-out rights. Kick-out rights are generally defined as the ability to remove the general partner/manager or to dissolve the entity without cause. Generally, if the limited partners with equity at risk are not able to exercise substantive kick-out rights, the entity is a VIE unless the limited partners have been granted substantive participating rights. The Company is also the manager of and has a variable interest in certain entities other than limited partnerships. One of the factors that the Company considers in evaluating whether these entities are VIEs is whether the investors have power through voting rights or similar rights (such as those of a common shareholder in a corporation); and if not, whether a single equity holder has the unilateral ability to exercise substantive kick-out rights. If investors do not have power through voting rights or similar rights or a single equity holder does not have the unilateral ability to exercise substantive kick-out rights, then the entity is a VIE. These analyses require judgment.

A VIE must be consolidated by its primary beneficiary. The primary beneficiary of a VIE is generally defined as the party who has a controlling financial interest in the VIE. The Company would be deemed to have a controlling financial interest in a VIE if it and its related parties under common control as a group, where applicable, have (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to the Company are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. This analysis requires judgment.

The Company has elected to early adopt ASU 2015-2 in the fourth quarter of 2015. As a result of its evaluation, management determined that RSO is no longer a VIE and, therefore, it was deconsolidated from the Company's financial statements. Pelium Capital Partners, L.P. ("Pelium") was determined to be a VIE that the Company manages and in which it has invested $5.0 million for a 20% limited partner interest. The Company concluded that it should consolidate Pelium under the new guidance. The Company has elected to retrospectively reflect the deconsolidation of RSO and the consolidation of Pelium for all periods presented. In connection with the deconsolidation of RSO, the Company’s December 31, 2013 opening equity reflects reclass adjustments of $14.6 million and $(119,000), which in total increased Accumulated deficit with an offsetting reduction of Accumulated other comprehensive loss. These entries were recorded to reflect a permanent impairment charge on the Company’s investment in RSO common stock that occurred during 2009.

All intercompany transactions and balances have been eliminated in the Company's consolidated financial statements.

Use of Estimates

Preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting period. The Company makes estimates of its allowance for credit losses, the valuation allowance against its deferred tax assets, discounts and collectability of management fees, the valuation of stock-based compensation, and in determining whether a decrease in the fair value of an investment is an other-than-temporary impairment. The real estate and financial fund management segments make assumptions in determining the fair value of investments in investment securities. Actual results could differ from these estimates.

Investments in Unconsolidated Loan Manager

The Company accounts for its investment in CVC Credit Partners on the equity method since the Company has the ability to exercise significant influence over the partnership.

The Company accounts for its preferred equity interest in Apidos-CVC on the cost method. As the incentive fees underlying the preferred equity are received, 75% will be distributed to the Company which will initially be recorded as income, net of any contractual amounts due to third parties. On a quarterly basis, the Company will evaluate the book value of the investment by estimating the fair value of the expected future cash flows from the incentive management fees. To the extent that the estimated fair value is less than the cost basis of the investment, such shortfall will be recorded as a reduction of the preferred equity interest. To the extent that the investment in preferred equity has been reduced to zero, all subsequent distributions will be recorded as income.

Investments in Unconsolidated Entities

The Company accounts for the investments it has in the real estate, financial fund management and commercial finance investment entities it has sponsored and manages primarily under the equity method of accounting since the Company has the ability to exercise significant influence over the operating and financial decisions of these entities. To the extent that there is a negative balance in the investment for any of these entities, these balances are reclassified to reduce any receivable from such entities. The Company accounts for its investments in Opportunity REIT I and Opportunity REIT II on the cost method since the Company owns less than 1% of the respective shares outstanding. The Company evaluates these investments for impairment on a quarterly basis. For the year ended December 31, 2015, there were no identified events that had a significant adverse effect on these investments and, as such, no impairment was recorded.

Real estate. In the real estate operations, the Company holds the following interests in unconsolidated entities:


•	general and limited partnership interests in five real estate limited partnerships that invest in multifamily residential properties;


•	one joint venture structured as a limited liability company that manages institutional real estate investments;


•	interest in three public non-traded REITs, two of which invest in multifamily residential properties and one invests in office properties;


•	interests in four TIC programs that invest in multifamily residential properties and;


•	one publicly-offered interval fund, an alternative real estate income mutual fund that invests across global securities, credit and unlisted real estate funds.

Financial fund management. In the financial fund management operations, the Company holds the following interests in unconsolidated entities:


•	general and limited partnership interests in seven company-sponsored and managed partnerships that invest in regional banks, and a limited partnership interest in an affiliated partnership organized as a credit opportunities fund that invests in bank loans and high yield bonds;


•	a 24% equity interest in a holding company that has direct investments in five CVC-sponsored and managed entities; and


•	equity interests in two unconsolidated management companies which manage trust preferred securities held by thirteen separate CDO issuers.

Commercial finance. The Company has general and limited partnership interests in one company-sponsored commercial finance investment partnership.

Concentration of Credit Risk

The Company’s receivables from managed entities are comprised of unsecured amounts due from its investment entities and other affiliated entities, which the Company has sponsored and manages. The Company evaluates the collectability of these receivables and records an allowance to the extent any portion of that receivable is determined to be uncollectible. Additionally, the Company records a discount where it determines that any of the entities will be unable to repay the Company in the near term. In the event that any of these entities fail, the corresponding receivable balance would be at risk.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of periodic temporary investments of cash and restricted cash. The Company places its temporary cash investments and restricted cash in high quality short-term money market instruments with high-quality financial institutions and brokerage firms.

Foreign Currency Translation

Foreign currency transaction gains and losses of the Company’s foreign operations as well as translation adjustments related to its European operations, including a Euro-denominated loan receivable, are included in net income.

Revenue Recognition

Revenue Recognition – Fee Income

RSO management fees. The Company earns base management and incentive management fees for managing RSO. In addition, the Company is reimbursed for its expenses incurred on behalf of RSO and its operations and for property management fees. Management fees, property management fees and reimbursed expenses are recognized monthly when earned. In addition, in February 2011, the Company entered into a services agreement with RSO to provide sub-advisory collateral management and administrative services for five CLOs holding approximately $1.7 billion in bank loans. In connection with the sub-advisory services provided, RSO pays CVC Credit Partners 10% of all senior and additional collateral management fees and 50% of all incentive collateral management fees it collects.

The quarterly incentive compensation that the Company can earn is payable seventy-five percent (75%) in cash and twenty-five percent (25%) in restricted shares of RSO common stock. The Company may elect to receive more than 25% of its incentive compensation in RSO restricted stock. However, the Company’s ownership percentage in RSO, direct and indirect, cannot exceed 15%. All shares are fully vested upon issuance, provided that the Company may not sell such shares for one year after the incentive compensation becomes due and payable. The restricted stock is valued at the average of the closing price of RSO's common stock over the thirty-day period ending three days prior to the issuance of such shares.

Under a fee agreement, in connection with the April 2012 sale of Apidos to CVC, the Company must remit a portion of the base management fee and incentive compensation it receives from RSO to Apidos-CVC for advisory services in managing a portfolio of CLOs in which RSO has an investment. The percentage paid to Apidos-CVC is determined by dividing the equity RSO holds in Apidos CLOs (one CLO as of December 31, 2015) by the calculated equity used to determine the senior management fee. Any incentive compensation paid to Apidos-CVC excludes non-recurring items unrelated to Apidos-CVC.

Real estate fees. The fees the Company earns from its public non-traded REITs are reflected separately below from its other investment entities (e.g. the real estate limited partnerships, interval fund and TIC programs).

Non-public traded REITs:


•	Acquisition fees - fixed 2.0% of the cost of equity investments acquired, plus any capital expenditure reserves allocated, or the amount funded to acquire loans, including acquisition expenses and any debt attributable to such investments.

•

Monthly Asset Management fees - one-twelfth of 1% of the higher of the cost or the independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves. The asset management fee is based only on the portion of the costs or value attributable to the REIT's investment in an asset if it does not own all or a majority of an asset and does not manage or control the asset.


•	Disposition fees - lesser of one-half of the brokerage commission paid or, if none is paid, 1.0% to 2.75% of the contract sales price. For loans, this fee is not paid if the REIT takes ownership of the property securing the loan.


•	Construction management fees - 5.0% of actual costs to construct improvements, or to repair, rehab, or reconstruct a property.


•	Property management fees - 4.5% of the gross receipts from investment properties.


•	Debt financing fees - 0.5% of the amount available under any debt financing obtained for which it provided substantial services.


•	Debt servicing fees - 2.75% on payments received from loans held for investment.


•	Expense reimbursements - REITs also pay directly or reimburse the Company for all of the expenses paid or incurred on behalf of REITs or in connection with the services provided in relation to public offerings, including ongoing distribution reinvestment plan offerings. This includes all organization and offering costs up to 2.50% of gross offering proceeds.

Other real estate investment entities:


•	Monthly property management fees - 4.5% to 5.0% of the cash receipts or gross operating revenues from the underlying properties.


•	Monthly debt management fees - 0.167% (2.0% per year) of the gross offering proceeds deployed in debt investments.


•	Annual investment management fees - 1.0% of the gross offering proceeds of each limited partnership.


•	Annual asset management fees - TIC programs pay a fee of 1.0% to 2.0% of the gross revenues from the properties.

Financial fund management fees. The Company earns monthly investment and management fees on assets held in CDOs on behalf of institutional and individual investors. These investment management fees and asset management fees are recognized monthly when earned and discounted to the extent that these fees are deferred. Additionally, the Company records fees for managing the assets held by the partnerships or funds it has sponsored and for managing their general operations.

The Company also enters into management or advisory agreements for managing the assets held by third parties. These fees, which vary by agreement, are recognized monthly when earned.

Introductory agent fees. The Company earns fees for acting as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies. The Company recognizes these fees monthly when earned.

Commercial finance fees. The Company had recorded management fees from its four investment entities for managing and servicing their leased assets. The payment of these fees to the Company by each entity was contingent upon the limited partners receiving specified annual distributions. During 2015, 2014 and 2013, the Company permanently waived $109,000, $683,000 and $1.8 million, respectively, of management fees from these commercial finance investment entities since the distributions to the limited partners were less than the annual specified amounts. The management fees that were waived are not deferrals and, accordingly, will not be paid. During 2015, one of the partnerships was liquidated and two of these partnerships were liquidated in 2014.

Revenue Recognition – Rental income

Rental revenue is primarily derived from an 86-room boutique hotel located in Savannah, Georgia, which is 80.0% owned by the Company. The Company recognizes the room rental revenue on a daily basis. The Company also derives rental revenue on retail space in the hotel as well as from office space in the office building in which the Company has an ownership interest located in Philadelphia, Pennsylvania. The income from these leases is recognized over the term of the lease as earned. Rent abatements and scheduled rent increases over the lease terms are accounted for on a straight-line basis. Tenant reimbursements are recognized in the period that the related costs are incurred. Percentage rent is recognized when the tenant's reported sales have reached certain levels as specified in the lease.

Rental revenue is also derived from the Company's interest in a master lease entity, which owns a multifamily apartment complex. Lease agreements are generally one year or less. The Company recognizes revenue in the period that the rent is earned, which is on a monthly basis. The Company recognizes rent as income on a straight-line basis over the term of the related lease. The underlying property was sold in July 2015 and the Master Lease agreement was terminated at the time of sale.

Stock-Based Compensation

The Company values the restricted stock it issues based on the closing price of its stock on the date of grant. For stock option awards, the Company determines the fair value by applying the Black-Scholes pricing model. These equity awards are amortized to compensation expense over the respective vesting period, net of an estimate for forfeitures.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“Basic EPS”) is determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period, including participating securities. Diluted earnings (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the sum of the weighted average number of shares of common stock outstanding including participating securities, as well as after giving effect to the potential dilution from the exercise of securities, such as stock options and warrants, into shares of common stock as if those securities were exercised.

Financing Receivables - Receivables from Managed Entities

The Company performs a review of the collectability of its receivables from managed entities on a quarterly basis by analyzing future cash flows by managed entity. With respect to the receivables from its commercial finance investment partnerships, this takes into consideration several assumptions by management, primarily concerning estimates of future bad debts and recoveries. For the receivables from the real estate investment entities, the Company estimates the cash flows through the sale of the underlying properties based on projected net operating income as a multiple of published capitalization rates, as reduced by the underlying mortgage balances and priority distributions due to the investors.

Investment Securities

The Company’s investments in available-for-sale securities, including investments in the CLO and CDO issuers it sponsored, are carried at fair value. The fair value of the CLO and CDO investments is based primarily on internally-generated expected cash flow models that require significant management judgment and estimates due to the lack of market activity and the use of unobservable pricing inputs. Investments in affiliated entities, including its holdings in The Bancorp, Inc. (“TBBK”) (NASDAQ: TBBK), RSO, Resource Real Estate Diversified Income Fund ("DIF") (NASDAQ: RREDX) and Resource Credit Income Fund (a new interval fund, or "CIF"), are valued at the closing prices of the respective publicly-traded stocks. The Company sold its investment in Resource Real Estate Global Property Securities ("RREGPS"), a Company-sponsored Australian investment fund which was reflected at its net asset value, in July 2015. The cumulative net unrealized gains (losses) on these available-for-sale investment securities, net of tax, is reported through accumulated other comprehensive income (loss). Realized gains (losses) on the sale of investments are determined on the trade date on the basis of specific identification and are included in net operating results.

Periodically, the Company reviews the carrying value of its available-for-sale securities. If it is probable there has been an adverse change in a security and the Company deems this to be other-than-temporary, it will record an impairment charge. The Company’s process for identifying other-than-temporary declines in the fair value of its investments involves consideration of (i) the duration of a significant decline in value, (ii) the liquidity, business prospects and overall financial condition of the issuer, (iii) the magnitude of the decline, often measured by change in the estimated cash flows of the security holder (iv) the collateral structure and other credit support, as applicable, and (v) the more-than-likely intention of the Company to hold the investment until the value recovers. When the analysis of the above factors results in a conclusion that a decline in fair value is other-than-temporary, an impairment charge is recorded and the cost of the investment is written down to its fair value. The cost basis adjustment for an other-than-temporary impairment would be recoverable only upon the sale or maturity of the security.

Trading securities, which are held principally for resale in the near term, are recorded at fair value with unrealized holding gains and losses reported in revenues by operating segment. The Company utilizes trade date accounting to record the purchases and sales of trading securities. The cost of a security is determined using the specific identification method. Earnings from trading securities, primarily reported net, include realized and unrealized gains and losses from the sale of trading securities, mark to market adjustments to fair value, and foreign currency gains and losses. The Company utilizes the services of a third-party valuation expert to provide an estimate of the fair value of its trading securities. Included in trading securities are the securities held in the Pelium fund, a consolidated VIE, which includes investments in CDOs, CMBS and loans.

The Company recognizes dividend income on its investment securities classified as available-for-sale on the ex-dividend date.

Property and Equipment

Property and equipment, which includes amounts recorded under capital leases, are stated at cost. Depreciation and amortization are based on cost, less estimated salvage value, using the straight-line method over the asset’s estimated useful life. Maintenance and repairs are expensed as incurred. Major renewals and improvements that extend the useful lives of property and equipment are capitalized. The amortization of assets classified under capital leases is included in depreciation and amortization expense.

Accounting for Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns.

The Company adjusts the balance of its deferred taxes to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted. Valuation allowances are established and adjusted, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The Company assesses its ability to realize deferred tax assets primarily based on tax planning strategies.

A tax position should only be recognized if it is more likely than not that the position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies any tax penalties as general and administrative expenses and any interest as interest expense. The Company does not have any unrecognized tax benefits that would affect the effective tax rate.

Recent Accounting Standards

Newly-Adopted Accounting Principles

The Company adopted the following standards during 2015:

Consolidation. In February 2015, the Financial Accounting Standards Board ("FASB") issued guidance that requires an entity to evaluate whether it should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The Company elected to early adopt this guidance in the fourth quarter of 2015 and has revised the financial statements to reflect the deconsolidation of RSO and the consolidation of Pelium for the periods presented.

Discontinued Operations. In April 2014, the FASB issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required. This guidance was effective for the Company as of January 1, 2015. The Company's adoption of this guidance did not have a material impact on its consolidated financial position, results of operations or cash flows.

Accounting Standards Issued But Not Yet Effective

The following accounting standards were not yet effective for the Company as of December 31, 2015:

Revenue Recognition. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which will replace most of the existing revenue recognition guidance in GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Company beginning January 1, 2018, including interim periods in 2018, and allows for both retrospective and prospective methods of adoption. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its consolidated financial statements.

Stock Compensation. In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The guidance is effective for the Company as of January 1, 2016. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and has not yet selected a transition approach to implement the standard.

Extraordinary Items. In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates from GAAP the concept of an extraordinary item. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings per share data applicable to an extraordinary item. However, presentation and disclosure guidance for items that are unusual in nature and occur infrequently will be retained. Adoption of this ASU will be required on a prospective or retrospective basis beginning with the quarter ending March 31, 2016 and is not expected to have a material impact on the Company's consolidated financial statements.

Financial Assets. On January 5, 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e. securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for non-public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is to be required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance is effective for the Company beginning with the quarter ending March 31, 2018, and early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.