Notes Receivable, Net

9 Months Ended

Sep. 30, 2017

Accounts and Notes Receivable, Net [Abstract]

Notes Receivable, Net

Notes Receivable, Net

The Company’s notes receivable, net were collateralized either by the underlying properties or the borrower’s ownership interest in the entities that own the properties, and were as follows (dollars in thousands):

	September 30,		December 31,		September 30, 2017
Description	2017		2016		Number	Maturity Date	Interest Rate
Core Portfolio	$	198,395	$	216,400	4	June 2018 - September 2019	6.0% - 8.7%
Fund II	31,593		31,007		1	May 2020	2.5%
Fund III	4,956		4,506		1	July 2020	18.0%
Fund IV	15,250		24,250		1	February 2021	15.3%
	$	250,194	$	276,163	7

During the nine months endedSeptember 30, 2017, the Company:

• recovered the full value of a $12.0 million Core note receivable, which was previously in default, plus accrued interest and fees aggregating $16.8 million as further described below;

• exchanged a $16.0 million Core note receivable plus accrued interest thereon of $0.3 million for an additional undivided interest in one of the properties in the Brandywine Portfolio (Note 4);

• funded an additional $10.0 million on an existing Core note receivable, which had a total commitment of $20.0 million;

• entered into an agreement to extend the maturity of a $15.0 million Core note receivable to June 1, 2018;

• increased the balance of a Fund II note receivable by the interest accrued of $0.6 million;

• advanced an additional $0.5 million on a Fund III note receivable; and

• exchanged a $9.0 million Fund IV note receivable plus accrued interest of $0.1 million thereon for an investment in a shopping center in Windham, Maine (Note 2).

During the year ended December 31, 2016, the Company:

• issued one Core note receivable and three Fund IV notes receivable aggregating $47.5 million with a weighted-average effective interest rate of 9.8%, which were collateralized by four mixed-use real estate properties;

• received total collections of $42.8 million, including full repayment of five notes issued in prior periods aggregating $29.6 million; and

• restructured a $30.9 million Core mezzanine loan, which bore interest at 15.0%, and replaced it with a new $153.4 million loan collateralized by a first mortgage in the borrower’s tenancy-in-common interest. The loan bears interest at 8.1% (Note 4).

At December 31, 2016, one of the Core notes receivable in the amount of $12.0 million was in default; however, no principal reserve was established because the estimated fair value of the real estate collateral exceeded the estimated carrying value of the note. In February 2017, there was an auction pursuant to an Order of the United States Bankruptcy Court for the Southern District of New York for the property which is collateral for this note. The winning bid was in excess of the Company’s carrying value and accrued interest. The sale of this property was approved by Order of the Bankruptcy Court confirming the Chapter 11 Plan of Reorganization of the note issuer and closed during the second quarter of 2017. In connection with this sale, the Company recovered its full carrying value of principal and interest and recognized additional interest income and expense reimbursements of $2.2 million in the first quarter of 2017 and $1.4 million in the second quarter of 2017 upon settlement of this transaction.

The Company monitors the credit quality of its notes receivable on an ongoing basis and considers indicators of credit quality such as loan payment activity, the estimated fair value of the underlying collateral, the seniority of the Company’s loan in relation to other debt secured by the collateral and the prospects of the borrower.

Earnings from these notes and mortgages receivable are reported within the Company’s Structured Financing segment (Note 12).