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FAIR VALUE MEASUREMENTS | 6 Months Ended
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Jun. 30, 2023
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. GAAP guidance defines three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3 – Unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and, depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. Changes in the type of inputs may result in a reclassification for certain assets. The Company does not expect that changes in classifications between levels will be frequent. Items Measured at Fair Value on a Recurring Basis The following table presents information about the Company’s assets measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, aggregated by the level in the fair value hierarchy within which those instruments fall (dollars in thousands):
| Level 1 |  | Level 2 |  | Level 3 |  | Balance as of June 30, 2023
Assets: |  |  |  |  |  |  |
Mortgage secured loans receivable | $ | — |  |  | $ | — |  |  | $ | 144,192 |  |  | $ | 144,192 |
Mezzanine loans receivable | — |  |  | — |  |  | 22,630 |  |  | 22,630 |
Total | $ | — |  |  | $ | — |  |  | $ | 166,822 |  |  | $ | 166,822 |
| Level 1 |  | Level 2 |  | Level 3 |  | Balance as of December 31, 2022
Assets: |  |  |  |  |  |  |
Mortgage secured loans receivable | $ | — |  |  | $ | — |  |  | $ | 117,684 |  |  | $ | 117,684 |
Mezzanine loans receivable | — |  |  | — |  |  | 38,684 |  |  | 38,684 |
Total | $ | — |  |  | $ | — |  |  | $ | 156,368 |  |  | $ | 156,368 |
The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs (dollars in thousands):
| Investments in Real Estate Secured Loans |  | Investments in Mezzanine Loans
Balance at December 31, 2022 | $ | 117,684 |  |  | $ | 38,684 |
Loan originations | 28,243 |  |  | — |
Accrued interest, net | (21) |  |  | (163) |
Unrealized losses on other real estate related investments, net | (1,714) |  |  | (891) |
Repayments | — |  |  | (15,000) |
Balance as of June 30, 2023 | $ | 144,192 |  |  | $ | 22,630 |
Real estate secured and mezzanine loans receivable: The fair value of the secured and mezzanine loans receivables were estimated using an internal valuation model that considered the expected future cash flows of the investment, the underlying collateral value, market interest rates and other credit enhancements. As such, the Company classifies each instrument as Level 3 due to the significant unobservable inputs used in determining market interest rates for investments with similar terms. During the three months ended June 30, 2023, the Company recorded an unrealized loss of $1.9 million related to three mortgage loans and one mezzanine loan receivable due to rising interest rates and a $0.3 million loss due to a loan origination fee paid. During the six months ended June 30, 2023, the Company recorded an unrealized loss of $2.8 million related to three mortgage loans and one mezzanine loan receivable due to rising interest rates, partially offset by a reversal of a previously recognized unrealized loss of $0.5 million related to the repayment of one mezzanine loan receivable. Future changes in market interest rates or collateral value could materially impact the estimated discounted cash flows that are used to determine the fair value of the secured and mezzanine loans receivable. As of June 30, 2023 and December 31, 2022, the Company did not have any loans that were 90 days or more past due. The following table shows the quantitative information about unobservable inputs related to the Level 3 fair value measurements comprising the investments in secured and mezzanine loans receivables as of June 30, 2023:
Type | Book Value as of June 30, 2023 |  | Valuation Technique |  | Unobservable Inputs |  | Range
Mortgage secured loans receivable | $ | 144,192 |  |  | Discounted cash flow |  | Discount Rate |  | 10% - 14%
Mezzanine loan receivable | 22,630 |  |  | Discounted cash flow |  | Discount Rate |  | 12% - 14%
For the six months ended June 30, 2023, there were no classification changes in assets and liabilities with Level 3 inputs in the fair value hierarchy. Items Disclosed at Fair Value Considerable judgment is necessary to estimate the fair value disclosure of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. A summary of the face value, carrying amount and fair value of the Notes (as defined in Note 7, Debt, below) as of June 30, 2023 and December 31, 2022 using Level 2 inputs is as follows (dollars in thousands):
|  |  | June 30, 2023 |  | December 31, 2022
| Level |  | Face Value |  | Carrying Amount |  | Fair Value |  | Face Value |  | Carrying Amount |  | Fair Value
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Senior unsecured notes payable | 2 |  | $ | 400,000 |  |  | $ | 395,594 |  |  | $ | 346,588 |  |  | $ | 400,000 |  |  | $ | 395,150 |  |  | $ | 345,036 |
Cash and cash equivalents, accounts and other receivables, accounts payable, and accrued liabilities: The carrying values for these instruments approximate their fair values due to the short-term nature of these instruments. Senior unsecured notes payable: The fair value of the Notes was determined using third-party quotes derived from orderly trades. Unsecured revolving credit facility and senior unsecured term loan: The fair values approximate their carrying values as the interest rates are variable and approximate prevailing market interest rates for similar debt arrangements.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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