| LOANS HELD-FOR-INVESTMENT | NOTE 8 — LOANS HELD-FOR-INVESTMENT The Company’s loans held-for-investment consisted of the following as of June 30, 2024 and December 31, 2023 (in thousands): As of June 30, As of December 31, 2024 2023 First mortgage loans (1) $ 3,652,970 $ 3,648,351 Total CRE loans held-for-investment and related receivables, net 3,652,970 3,648,351 Liquid corporate senior loans 342,351 537,990 Corporate senior loans 208,088 210,722 Loans held-for-investment and related receivables, net $ 4,203,409 $ 4,397,063 Less: Current expected credit losses $ (409,750) $ (132,598) Total loans held-for-investment and related receivables, net $ 3,793,659 $ 4,264,465 ____________________________________ (1) As of June 30, 2024 and December 31, 2023, first mortgage loans included $20.2 million of contiguous mezzanine loan components that, as a whole, have expected credit quality similar to that of a first mortgage loan. The following table details overall statistics for the Company’s loans held-for-investment as of June 30, 2024 and December 31, 2023 (dollar amounts in thousands): CRE Loans (1) (2) Liquid Corporate Senior Loans Corporate Senior Loans June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Number of loans 33 33 159 237 18 21 Principal balance $ 3,671,057 $ 3,669,116 $ 347,043 $ 543,837 $ 211,532 $ 214,650 Net book value $ 3,254,681 $ 3,539,111 $ 334,424 $ 518,252 $ 204,554 $ 207,102 Weighted-average interest rate (3) 8.7 % 8.7 % 9.3 % 9.3 % 11.7 % 11.9 % Weighted-average maximum years to maturity 2.4 2.8 (4) 4.1 4.2 3.4 3.8 Unfunded loan commitments (5) $ 206,471 $ 241,708 $ 152 $ 152 $ 25,888 $ 30,592 ____________________________________ (1) As of June 30, 2024, 100% of the Company’s CRE loans by principal balance earned a floating rate of interest primarily indexed to the Secured Overnight Financing Rate (“SOFR”). (2) Maximum maturity date assumes all extension options are exercised by the borrowers and assumes all relevant conditions are met for such extensions; however, the loans may be repaid prior to such date. (3) The weighted-average interest rate is based on the relevant floating benchmark plus a spread. Excludes loans on nonaccrual status. (4) As of December 31, 2023, two of the Company’s first mortgage loans were in maturity default. During January 2024, the loans were refinanced, each with a fully extended maturity date of January 7, 2028 and are no longer in maturity default. Upon the closings of each refinance, the accrued default interest was waived. (5) Unfunded loan commitments are subject to the satisfaction of borrower milestones and are not reflected in the accompanying condensed consolidated balance sheets. Activity relating to the Company’s loans held-for-investment portfolio was as follows for the six months ended June 30, 2024 (in thousands): CRE Loans (1) Liquid Corporate Senior Loans Corporate Senior Loans Total Loan Portfolio Balance, January 1, 2024 $ 3,539,111 $ 518,252 $ 207,102 $ 4,264,465 Loan originations, acquisitions and funding 47,897 8,901 12,841 69,639 Sale of loans — (120,015) — (120,015) Principal repayments received (45,956) (74,686) (15,994) (136,636) Capitalized interest — 30 35 65 Conversion to equity securities (2) — (5,060) — (5,060) Write-offs charged (3) — (2,129) — (2,129) Deferred fees and other items (4) (329) (3,235) (466) (4,030) Accretion and amortization of fees and other items 3,008 555 950 4,513 (Provision for) reversal of credit losses (5) (289,050) 11,811 86 (277,153) Balance, June 30, 2024 $ 3,254,681 $ 334,424 $ 204,554 $ 3,793,659 ____________________________________ (1) Loan originations, acquisitions and funding include $4.9 million in protective advances while principal repayments received include $6.6 million of cost-recovery proceeds received on the Company’s nonaccrual first mortgage loans during the six months ended June 30, 2024. (2) During the six months ended June 30, 2024, two of the Company’s defaulted liquid corporate senior loans were equitized into shares of common equity and a preferred equity security, as further discussed in Note 7 — Real Estate-Related Securities and Other. (3) Includes a $2.1 million write-off on four liquid corporate senior loans as a result of distressed restructurings of the positions, which is included in increase in provision for credit losses on the Company’s condensed consolidated statements of operations. (4) Other items primarily consist of purchase discounts or premiums and deferred origination expenses. (5) Does not include current expected losses for unfunded or unsettled loan commitments. Such amounts are included in accrued expenses and accounts payable on the accompanying condensed consolidated balance sheets. As of June 30, 2024, the Company’s CRE loans had the following characteristics based on carrying value (dollar amounts in thousands): Collateral Property Type As of June 30, 2024 Office $ 1,851,024 50.6 % Multifamily 1,172,389 32.1 % Industrial 330,650 9.1 % Hospitality 104,008 2.8 % Mixed Use 69,343 1.9 % Retail 64,787 1.8 % Self-Storage 60,769 1.7 % Total first mortgage loans $ 3,652,970 100 % Less: current expected credit losses (398,289) Total first mortgage loans, net $ 3,254,681 Geographic Location As of June 30, 2024 South $ 1,482,789 40.6 % West 1,152,766 31.6 % East 767,539 21.0 % Various 249,876 6.8 % Total first mortgage loans $ 3,652,970 100 % Less: current expected credit losses (398,289) Total first mortgage loans, net $ 3,254,681 Current Expected Credit Losses Current expected credit losses reflect the Company’s current estimate of potential credit losses related to loans held-for-investment included in the Company’s condensed consolidated balance sheets. Refer to Note 2 — Summary of Significant Accounting Policies for further discussion of the Company’s current expected credit losses. The following table presents the activity in the Company’s current expected credit losses related to loans held-for-investment by loan type for the six months ended June 30, 2024 and 2023 (in thousands): First Mortgage Loans Unfunded First Mortgage Loans (1) Liquid Corporate Senior Loans Unfunded or Unsettled Liquid Corporate Senior Loans (1) Corporate Senior Loans Unfunded Corporate Senior Loans (1) Total Current expected credit losses as of January 1, 2024 $ 109,240 $ 10,062 $ 19,738 $ 3 $ 3,620 $ 495 $ 143,158 Provision for (reversal of) credit losses 77,564 (6,653) (3,719) (1) 249 (78) 67,362 Charge-offs of CECL — — (1,649) — — — (1,649) Current expected credit losses as of March 31, 2024 $ 186,804 $ 3,409 $ 14,370 $ 2 $ 3,869 $ 417 $ 208,871 Provision for (reversal of) credit losses 211,485 7,197 (5,963) (1) (335) (13) 212,370 Charge-offs of CECL — — (480) — — — (480) Current expected credit losses as of June 30, 2024 $ 398,289 $ 10,606 $ 7,927 $ 1 $ 3,534 $ 404 $ 420,761 Current expected credit losses as of January 1, 2023 $ 20,352 $ 1,890 $ 21,195 $ 377 $ 797 $ 66 $ 44,677 Provision for (reversal of) credit losses 1,949 138 (914) (121) 400 1 1,453 Current expected credit losses as of March 31, 2023 $ 22,301 $ 2,028 $ 20,281 $ 256 $ 1,197 $ 67 $ 46,130 Provision for credit losses 22,468 2,140 551 3 764 259 26,185 Current expected credit losses as of June 30, 2023 $ 44,769 $ 4,168 $ 20,832 $ 259 $ 1,961 $ 326 $ 72,315 ____________________________________ (1) Current expected losses for unfunded or unsettled loan commitments are included in accrued expenses and accounts payable on the condensed consolidated balance sheets. Changes to current expected credit losses are recognized through net (loss) income on the Company’s condensed consolidated statements of operations. During the three months ended June 30, 2024, the Company recorded a net increase of $211.9 million in the current expected credit loss reserve against the loans held-for-investment portfolio, bringing the total current expected credit loss reserve on funded and unfunded commitments to $420.8 million. The increase was primarily driven by five additional first mortgage loans, four of which are collateralized by office properties and one of which is collateralized by a multifamily property, that were moved to a risk rating of 5 during the three months ended June 30, 2024 as a result of the increased risk of potential principal loss and as collateral performance was deemed to be worse than underwriting. The current expected credit loss reserve reflects certain loans assessed for impairment as well as macroeconomic and current portfolio conditions. As of June 30, 2024, the Company had three collateral dependent risk-rated 5 first mortgage loan investments on nonaccrual status: (i) a $133.7 million commercial first mortgage loan on an office building in Massachusetts primarily due to a decrease in rent collection, reduced leasing activity, stabilization costs required, and past due interest payments during the six months ended June 30, 2024; (ii) a $127.2 million commercial first mortgage loan on an office building in Virginia primarily due to slower than anticipated leasing activity driven by COVID-accelerated office trends, decreased in-place occupancy, and past due interest payments during the six months ended June 30, 2024; and (iii) a $175.2 million commercial first mortgage loan on an office building in California primarily due to being past due on its interest payments during the six months ended June 30, 2024. During the six months ended June 30, 2024, the Company recognized $960,000, $982,000, and $1.6 million, respectively, of interest income on each of the first mortgage loans prior to payment default. As of June 30, 2024, the three risk-rated 5 first mortgage loans noted above were more than 90 days past due on their interest payments. Future interest collections related to these loans will be accounted for on a cash basis when received or as a reduction in the amortized cost basis, based on specific facts and circumstances at the time of payment. As of June 30, 2024, the Company’s asset-specific credit loss reserve totaled $341.8 million on funded and unfunded commitments, which related to the Company’s risk-rated 5 first mortgage loans and liquid corporate senior loans. The asset-specific credit loss reserve is recorded based on the Company’s estimation of the fair value of each loan’s underlying collateral, less costs to sell the underlying collateral where applicable, as of June 30, 2024. Risk Ratings As further described in Note 2 — Summary of Significant Accounting Policies, the Company evaluates its loans held-for-investment portfolio on a quarterly basis. Each quarter, the Company assesses the risk factors of each loan, and assigns a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, loan and credit structure, current LTV ratio, debt yield, collateral performance, and the quality and condition of the sponsor, borrower, and guarantor(s). Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 — Summary of Significant Accounting Policies. The Company’s primary credit quality indicator is its risk ratings, which are further discussed above. The following table presents the net book value of the Company’s loans held-for-investment portfolio as of June 30, 2024 by year of origination, loan type, and risk rating (dollar amounts in thousands): Amortized Cost of Loans Held-For-Investment by Year of Origination (1) As of June 30, 2024 Number of Loans 2024 2023 2022 2021 2020 Prior Total First mortgage loans by internal risk rating: 1 — $ — $ — $ — $ — $ — $ — $ — 2 1 — — — — 91,777 — 91,777 3 20 114,114 387,740 759,413 715,238 71,569 — 2,048,074 4 4 — — 80,774 299,379 — — 380,153 5 8 — — 446,180 635,529 — 51,257 1,132,966 Total first mortgage loans 33 114,114 387,740 1,286,367 1,650,146 163,346 51,257 3,652,970 Liquid corporate senior loans by internal risk rating: (2) 1 — — — — — — — — 2 1 — — — — 973 — 973 3 137 56,757 41,427 41,648 129,637 34,112 — 303,581 4 20 12,048 1,107 11,595 10,131 — — 34,881 5 1 — — 2,916 — — — 2,916 Total liquid corporate senior loans 159 68,805 42,534 56,159 139,768 35,085 — 342,351 Corporate senior loans by internal risk rating: 1 — — — — — — — — 2 — — — — — — — — 3 17 36,173 103,689 56,487 — — — 196,349 4 1 — 11,739 — — — — 11,739 5 — — — — — — — — Total corporate senior loans 18 36,173 115,428 56,487 — — — 208,088 Less: Current expected credit losses (409,750) Total loans held-for-investment and related receivables, net 210 $ 3,793,659 Weighted Average Risk Rating (3) 3.6 Gross charge-offs (4) — — — (853) (1,276) — $ (2,129) ____________________________________ (1) Date loan was originated or acquired by the Company. Origination dates are subsequently updated to reflect material loan modifications. (2) As of June 30, 2024, two of the Company’s liquid corporate senior loan investments were on nonaccrual status with an aggregate carrying value of $3.3 million, which represented less than 1% of the carrying value of the Company’s liquid corporate senior loans portfolio. (3) Weighted average risk rating calculated based on carrying value at period end. (4) Represents gross charge-offs by year of origination during the six months ended June 30, 2024. Loan Modifications The Company may amend or modify a loan depending on the loan’s specific facts and circumstances, which are disclosable under ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) . Such modifications generally provide borrowers with additional time to refinance or sell the collateral property, interest payment adjustments, deferral of scheduled principal repayments, and/or adjustments or waivers of performance tests that are prerequisite to the extension of a loan maturity. Loan modifications that allow for the option to pay interest in-kind (“PIK”) result in the interest being capitalized and added to the outstanding principal balance of the respective loan. |
