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DEBT
 3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
DEBT
7. DEBT
The following table summarizes the debt balances as of March 31, 2024 and December 31, 2023, and the debt activity for the three months ended March 31, 2024 (in thousands):
During the Three Months Ended March 31, 2024
Balances as of December 31, 2023Debt Issuances & AssumptionsRepayments Accretion & (Amortization)Balances as of March 31, 2024
Mortgages Payable:
Fixed rate mortgages payable$163,700 $— $— $— $163,700 
Variable rate mortgage payable87,000 — — — 87,000 
250,700 — — — 250,700 
Deferred debt origination costs — Mortgages Payable(954)— — 277 (677)
Total Mortgages Payable249,746 — — 277 250,023 
Secured Borrowings — Government Guaranteed Loans:
Outstanding Balance3,007 — (560)— 2,447 
Unamortized premiums100 — — (39)61 
Total Secured Borrowings — Government Guaranteed Loans3,107 — (560)(39)2,508 
Other Debt:
2022 credit facility revolver97,000 5,000 — — 102,000 
2022 credit facility term loan56,230 — — — 56,230 
Junior subordinated notes27,070 — — — 27,070 
SBA 7(a) loan-backed notes41,394 — (3,615)— 37,779 
Deferred debt origination costs — other(1,588)— — 164 (1,424)
Discount on junior subordinated notes(1,398)— — 25 (1,373)
Total Other Debt218,708 5,000 (3,615)189 220,282 
Total Debt, Net$471,561 $5,000 $(4,175)$427 $472,813 
Fixed Rate Mortgage Payable—The Company’s fixed rate mortgages payable are secured by a deed of trust on the properties underlying such mortgages and assignments of rents receivable. As of March 31, 2024, the Company’s fixed rate mortgages payable had fixed interest rates of 4.14% and 6.25% per annum, respectively, with payments of interest only due on July 1, 2026 and June 7, 2024, respectively. In regards to the mortgage payable maturing on June 7, 2024, the Company exercised its one-year extension option in April 2024, extending the maturity of the mortgage by one year. These loans are non-recourse.
Variable Rate Mortgages Payable—The Company’s variable rate mortgage payable is secured by a deed of trust on the property and assignment of rents receivable. As of March 31, 2024, the Company’s variable rate mortgage payable had a variable interest rate of SOFR plus 3.36%, with monthly payments of interest only due on July 7, 2025 with an extension option subject to certain conditions being met. The loan is non-recourse.
The Company has been in discussions with the lender under the variable rate mortgage to restructure the terms of the mortgage, as rent payments from the property will likely be insufficient to meet debt service payments under the mortgage. There can be no assurance that such restructuring will occur. If the Company and the lender under the variable rate mortgage cannot agree on a modification of the mortgage and the Company fails to make a required monthly debt service payment, such failure will constitute an event of default under the mortgage and the lender may, among other remedies, declare principal and interest under the mortgage loan to be immediately due and payable. The mortgage relates to Channel House, a multifamily property in Oakland, California.
Secured Borrowings—Government Guaranteed Loans—Secured borrowings—government guaranteed loans represent sold loans which are treated as secured borrowings because the loan sales did not meet the derecognition criteria provided for in ASC 860-30, Secured Borrowing and Collateral. These loans included cash premiums that are amortized as a reduction to interest expense over the life of the loan using the effective interest method and are fully amortized when the underlying loan is repaid in full. As of March 31, 2024, the Company’s secured borrowings-government guaranteed loans included $898,000 of loans sold for a premium and excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 9.29% at March 31, 2024, and $1.5 million of loans sold for an excess spread, with a variable rate, reset quarterly, based on prime rate with weighted average coupon rate of 6.88% at March 31, 2024.
2022 Credit Facility—In December 2022, the Company refinanced its 2018 credit facility and replaced it with a new 2022 credit facility, entered into with a bank syndicate, that includes a $56.2 million term loan (the “2022 Credit Facility Term Loan”) as well as a revolver allowing the Company to borrow up to $150.0 million (the “2022 Credit Facility Revolver”), both of which are collectively subject to a borrowing base calculation. The 2022 Credit Facility is secured by certain properties in the Company’s real estate portfolio: six office properties and one hotel property (as well as the hotel’s adjacent parking garage and retail property). The 2022 Credit Facility bears interest at (A) the base rate plus 1.50% or (B) SOFR plus 2.60%. As of March 31, 2024, the variable interest rate was 7.93%. The 2022 Credit Facility Revolver is also subject to an unused commitment fee of 0.15% or 0.25% depending on the amount of aggregate unused commitments. The 2022 Credit Facility is guaranteed by the Company and the Company is subject to certain financial maintenance covenants. The 2022 Credit Facility matures in December 2025 and provides for two one-year extension options under certain conditions, including providing notice of the election and paying an extension fee of 0.15% of each lender’s commitment being extended on the effective date of such extension. As of March 31, 2024 and December 31, 2023, $48.0 million and $53.0 million, respectively, was available for future borrowings.
As of March 31, 2024, the Company was not in compliance with a financial covenant under the 2022 credit facility. Such non-compliance constituted an event of default under the 2022 credit facility. On May 14, 2024, lenders under the 2022 credit facility and the Company entered into an agreement (the “Modification Agreement”) pursuant to which the lenders waived such event of default with respect to the test period ending March 31, 2024. Pursuant to the Modification Agreement, the Company will not be able to borrow under the 2022 credit facility without the consent of the lenders until certain conditions are satisfied, including delivery of a revised business plan acceptable to the lenders and re-establishing compliance with the financial covenant. There can be no assurance as to when or if such conditions will be satisfied. The Company believes that it could rely on other sources for its liquidity needs, including (i) obtaining new or modifying existing credit facilities and term loans (ii) offerings of shares of Common Stock, preferred stock or other equity and or debt securities of the Company; (iii) the addition of senior recourse or non-recourse debt using existing assets as collateral; (iv) the sale of existing assets; (v) partnering with co-investors; and or (vi) cash flows from operations. Among other restrictions, the Modification Agreement also prohibits subsidiaries of the Company that own properties that secured the 2022 credit facility from making any distributions to its parent entities. The Modification Agreement did not waive compliance with the financial covenant for the test period ending June 30, 2024 or any future period.
The Company has been in discussion with the administrative agent of the 2022 credit facility to obtain a long-term amendment to the terms of the 2022 credit facility. While the Company believes that it will be able to obtain such amendment, there can be no assurance that such amendment will be executed. If the Company is unsuccessful in amending the 2022 credit facility, and is not able to re-establish compliance with the financial covenant for the test period ending June 30, 2024 or any future period, lenders thereunder may, among other remedies, declare their commitment thereunder to be terminated and/or declare the unpaid principal amount of all outstanding loans, all interest accrued and unpaid thereon, to be immediately due and payable, and foreclose on or take other secured creditor remedies with respect to the properties that secure the 2022 credit facility.
Junior Subordinated Notes—The Company has junior subordinated notes with a variable interest rate which resets quarterly based on the three-month SOFR plus 3.51%, with quarterly interest only payments. The junior subordinated balance is due at maturity on March 30, 2035. The junior subordinated notes may be redeemed at par at the Company’s option.
SBA 7(a) Loan-Backed Notes—On March 9, 2023, the Company completed a securitization of the unguaranteed portion of certain of its SBA 7(a) loans receivable with the issuance of $54.1 million of unguaranteed SBA 7(a) loan-backed notes (with net proceeds of approximately $43.3 million, after payment of fees and expenses in connection with the securitization and the funding of a reserve account and an escrow account). The SBA 7(a) loan-backed notes are collateralized by the right to receive payments and other recoveries attributable to the unguaranteed portions of certain of our SBA 7(a) loans receivable. The SBA 7(a) loan-backed notes mature on March 20, 2048, with monthly payments due as payments on the collateralized loans are received. The SBA 7(a) loan-backed notes bear interest at a per annum rate equal to the lesser of (i) 30-
day average compounded SOFR plus 2.90% and (ii) prime rate minus 0.35%. As of March 31, 2024, the variable interest rate was 8.15%. The Company reflects the SBA 7(a) loans receivable as assets on its consolidated balance sheet and the SBA 7(a) loan-backed notes as debt on its consolidated balance sheet. The restricted cash on the Company’s consolidated balance sheets included funds related to the Company’s SBA 7(a) loan-backed notes was $4.6 million as of March 31, 2024.
Other—Deferred debt issuance costs, which represent legal and third-party fees incurred in connection with the Company’s borrowing activities, are capitalized and amortized to interest expense on a straight-line or effective interest method over the life of the related loan. Deferred debt issuance costs are presented net of accumulated amortization and are a reduction to total debt.
As of March 31, 2024 and December 31, 2023, accrued interest and unused commitment fees payable of $1.6 million and $1.8 million, respectively, were included in accounts payable and accrued expenses.
Future principal payments on the Company’s debt (face value) as of March 31, 2024 are as follows (in thousands):
Years Ending December 31,
Mortgage Payable(1)
Secured Borrowings Principal (2)
2022 Credit Facility
Other (2) (3)
Total
2024 (Nine months ending December 31, 2024)$66,600 $114 $— $8,424 $75,138 
202587,000 163 158,230 9,947 255,340 
202697,100 176 — 8,504 105,780 
2027— 189 — 10,904 11,093 
2028— 204 — — 204 
Thereafter— 1,601 — 27,070 28,671 
$250,700 $2,447 $158,230 $64,849 $476,226 
______________________
(1)With regards to the $66.6 million mortgage payable maturing on June 7, 2024, the Company exercised its one-year extension option in April 2024, extending the maturity of the mortgage by one year.
(2)Principal payments on secured borrowings and SBA 7(a) loan-backed notes, which are included in Other, are generally dependent upon cash flows received from the underlying loans. The Company’s estimate of their repayment is based on scheduled payments on the underlying loans. The Company’s estimate will differ from actual amounts to the extent the Company experiences prepayments and/or loan liquidations or charge-offs.
(3)Represents the junior subordinated notes and SBA 7(a) loan-backed notes.