Equity Method Investments

12 Months Ended

Dec. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

Note 5 – Equity Method Investments

In November 2018, CPFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets among partners in a joint venture. In March 2020, HGC Origination I LLC and HGC Funding I LLC were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In April 2022, KNFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. In December 2022, DHC8 LLC, of which the Company holds a 13.33% share was formed to provide funding and receive principal and interest payments as a result of the initial investment. In May 2023, HGC MPG Funding LLC, of which the Company holds a 25% share, was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In December 2023, KNFH II LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. CPFH LLC, KNFH LLC, DHC8 LLC and KNFH II LLC are joint ventures formed in connection with the Company’s Industrial Assets division, whereas HGC Origination I LLC, HGC Funding I LLC, and HGC MPG Funding LLC were formed in connection with the Financial Assets division. The Company has significant influence over the operations and financial policies of each of its equity method investments.

In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis for each of its specialty lending investments. For the year ended December 31, 2023, the Company’s share of the joint venture’s provision for credit losses was approximately $0.7 million. As of December 31, 2023, the Company's share of the allowance for credit losses was approximately $0.9 million, representing a credit loss rate of 4.3% specific to its equity method investments, which was primarily related to HGC Origination I LLC and HGC MPG Funding LLC. The provision for credit losses was primarily driven by weakening economic conditions for the underlying charged-off and nonperforming portfolio collections and increases in loan balances. As of December 31, 2023, the Company has recorded no actual credit losses through its equity method investments.

Based on the nature of our equity method investments, the joint venture entities' revenues and gross profit are not materially different and furthermore, operating income and net income have no material differences. The table below details the Company’s joint venture revenues and earnings (in thousands):

	Year Ended December 31,
	2023			2022
Revenues and gross profit:
CPFH LLC	$	—		$	31,072
KNFH LLC		303			22,183
DHC8 LLC		1,533			—
KNFH II LLC		—			—
HGC Funding I LLC and Origination I LLC		4,942			2,665
HGC MPG Funding LLC		1,400			—
Total revenues and gross profit	$	8,178		$	55,920
Operating income (loss) and net income (loss):
CPFH LLC	$	—		$	15,357
KNFH LLC		(146	)		9,930
DHC8 LLC		1,305			—
KNFH II LLC		—			—
HGC Funding I LLC and Origination I LLC		4,378			2,645
HGC MPG Funding LLC		1,395			—
Total operating income (loss) and net income (loss)	$	6,932		$	27,932

The table below details the summarized components of assets and liabilities of the Company’s joint ventures (in thousands):

	December 31,		December 31,
	2023		2022
Assets:
CPFH LLC		—		—
KNFH LLC		292		—
DHC8 LLC		7,061		8,561
KNFH II LLC		8,150		—
HGC Funding I LLC and Origination I LLC		28,389		53,385
HGC MPG Funding LLC		38,081		—
Total assets	$	81,973	$	61,946
Liabilities:
CPFH LLC		—		—
KNFH LLC		289		47
DHC8 LLC		1,102		1,028
KNFH II LLC		4,000		—
HGC Funding I LLC and Origination I LLC		10		1,504
HGC MPG Funding LLC		—		—
Total liabilities	$	5,401	$	2,579