SALE OF COMMERCIAL REAL ESTATE BUSINESS

6 Months Ended

Jun. 30, 2021

Discontinued Operations and Disposal Groups [Abstract]


9. SALE OF COMMERCIAL REAL ESTATE BUSINESS

On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $2.33 billion. The transaction includes equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also intends to sell nearly all of the remaining CRE business assets that are not included in the transaction with Slate. A real estate property that was held for sale, which is not included in the transaction with Slate, was sold during the quarter ended June 30, 2021 and resulted in the recognition of a gain of $4.8 million in Business divestiture-related gains (losses) in the Consolidated Statements of Comprehensive Income (Loss). As of June 30, 2021, the Company met the conditions for held-for-sale accounting which requires that assets and liabilities be carried at the lower of cost or fair value less costs to sell on the Consolidated Statements of Financial Condition. In connection with the execution of the definitive agreement to sell the CRE business, during the three months ended March 31, 2021 the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $71.8 million. During the three and six months ended June 30, 2021, the Company reported Business divestiture-related gains (losses) of $1.5 million and ($248.0) million, respectively, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the assets as held for sale and estimated transaction costs. In addition, as a result of classifying the loans as held for sale, the previously recognized allowance for loan losses of $135.0 million, which includes $5.1 million on unfunded loan commitments, was reversed during the three months ended March 31, 2021. Since assets held for sale are recorded at lower of cost or fair value, any gains on sale will not be recorded until such sale closes. The pretax income (loss) of the CRE business was $42.0 million and ($30.7) million for the three and six months ended June 30, 2021, respectively and ($66.9) million and ($162.3) million for the three and six months ended June 30, 2020, respectively. Certain employees who primarily support the CRE business will join Slate in connection with the sale. Subject to customary closing conditions, including applicable regulatory approvals, the disposition of the CRE business is expected to be completed in the second half of 2021.

The carrying values of the major classes of assets and liabilities of the disposal group held for sale as of June 30, 2021 are presented in the table below:


	June 30, 2021
	(dollars in thousands)









Cash and cash equivalents	$	14,175
Securities	55,172
Loans, net	478,274
Assets transferred or pledged to securitization vehicles	2,139,944
Real estate, net	566,477
Intangible assets, net	14,528






Other assets	33,431
Total assets of disposal group held for sale	$	3,302,001

Repurchase agreements	$	270,650
Debt issued by securitization vehicles	1,610,109
Mortgages payable	425,873



Interest payable	1,230

Other liabilities	54,828
Total liabilities of disposal group held for sale	$	2,362,690

Certain assets and liabilities of the disposal group held for sale are in VIEs that are consolidated by the Company because it is the primary beneficiary.

The securities in the disposal group held for sale are carried at fair value and are categorized in Level 2 of the fair value measurement hierarchy as the valuation is based upon quoted prices in active markets for similar assets. The loans and assets pledged to securitization vehicles held for sale are carried at lower of cost or fair value and as such those loans that required a valuation allowance had a nonrecurring fair value measurement at June 30, 2021. These fair value measurements are categorized as Level 2 if they are based upon quoted prices in active markets for similar assets. If quotes were unavailable, a discounted cash flow or market based valuation technique based upon the underlying property to project property cash flows was used. In projecting these cash flows, the Company reviewed the borrower financial statements, rent rolls, economic trends and other factors management deems important. These nonrecurring fair value measurements are categorized as Level 3 of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value. The real estate held for sale is carried at lower of cost or fair value and was based upon the sale price and allocated to individual properties to determine if a valuation allowance was necessary. These fair value measurements are considered Level 3 of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value. The repurchase agreements and debt issued by securitization vehicles are categorized in Level 2 of the fair value measurement hierarchy as the valuation is based upon quoted market prices for similar liabilities. The mortgage loans payable fair value measurement are valued using Level 3 inputs.

At June 30, 2021, the repurchase agreements included in the liabilities of disposal group held for sale had remaining maturities of over 119 days with commercial loans pledged as collateral.