Note 3 — Loans and Investments

The following table sets forth the composition of the Company’s loan and investment portfolio at September 30, 2014 and December 31, 2013:

	September 30, 2014			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	First Dollar LTV Ratio (2)		Last Dollar LTV Ratio (3)

Bridge loans	$	1,213,584,295		73	%	98	5.25	%	16.8	0	%	74	%
Mezzanine loans	90,762,106			6	%	22	9.15	%	39.6	50	%	81	%
Junior participation loans	199,106,125			12	%	5	4.52	%	15.6	62	%	80	%
Preferred equity investments	152,465,838			9	%	18	5.68	%	50.0	63	%	84	%
	1,655,918,364			100	%	143	5.41	%	21.0	16	%	76	%
Unearned revenue	(12,889,851		)
Allowance for loan losses	(116,386,526		)
Loans and investments, net	$	1,526,641,987

	December 31, 2013			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	First Dollar LTV Ratio (2)		Last Dollar LTV Ratio (3)

Bridge loans	$	1,171,783,914		71	%	95	5.11	%	18.5	0	%	76	%
Mezzanine loans	118,550,172			7	%	27	7.02	%	58.2	56	%	83	%
Junior participation loans	248,337,542			15	%	7	4.21	%	19.6	60	%	81	%
Preferred equity investments	121,523,673			7	%	15	7.20	%	45.5	58	%	79	%
	1,660,195,301			100	%	144	5.26	%	23.5	17	%	77	%
Unearned revenue	(14,218,237		)
Allowance for loan losses	(122,277,411		)
Loans and investments, net	$	1,523,699,653

(1)

“Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balances of each loan in the Company’s portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements. Certain loans and investments that require an additional rate of interest “Accrual Rate” to be paid at the maturity are not included in the weighted average pay rate as shown in the table.

(2)

The “First Dollar LTV Ratio” is calculated by comparing the total of the Company’s senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will absorb a total loss of its position.

(3)

The “Last Dollar LTV Ratio” is calculated by comparing the total of the carrying value of the Company’s loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will initially absorb a loss.

Concentration of Credit Risk

The Company operates in one portfolio segment, commercial mortgage loans and investments. Commercial mortgage loans and investments can potentially subject the Company to concentrations of credit risk. The Company is subject to concentration risk in that, as of September 30, 2014, the unpaid principal balance related to 24 loans with five different borrowers represented approximately 24% of total assets. At December 31, 2013, the unpaid principal balance related to 28 loans with five different borrowers represented approximately 30% of total assets. The Company measures its relative loss position for its mezzanine loans, junior participation loans, and preferred equity investments by determining the point where the Company will be exposed to losses based on its position in the capital stack as compared to the fair value of the underlying collateral. The Company determines its loss position on both a first dollar loan-to-value (“LTV”) and a last dollar LTV basis. First dollar LTV is calculated by comparing the total of the Company’s senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will absorb a total loss of its position. Last dollar LTV is calculated by comparing the total of the carrying value of the Company’s loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which the Company will initially absorb a loss.

The Company assigns a credit risk rating to each loan and investment. Individual ratings range from one to five, with one being the lowest risk and five being the highest. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves. Other factors such as guarantees, market strength, remaining loan term, and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan. This metric provides a helpful snapshot of portfolio quality and credit risk. Given the Company’s asset management approach, however, the risk rating process does not result in differing levels of diligence contingent upon credit rating. That is because all portfolio assets are subject to the level of scrutiny and ongoing analysis consistent with that of a “high-risk” loan. All assets are subject to, at minimum, a thorough quarterly financial evaluation in which historical operating performance is reviewed, and forward-looking projections are created. Generally speaking, given the Company’s typical loan and investment profile, a risk rating of three suggests that the Company expects the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired. A risk rating of four indicates the Company anticipates that the loan will require a modification of some kind. A risk rating of five indicates the Company expects the loan to underperform over its term, and that there could be loss of interest and/or principal. Ratings of 3.5 and 4.5 generally indicate loans that have characteristics of both the immediately higher and lower classifications. Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, condition of the market of the underlying collateral, additional collateral or other credit enhancements, or loan terms, may result in a rating that is higher or lower than might be indicated by any risk rating matrix.

As a result of the loan review process at September 30, 2014 and December 31, 2013, the Company identified loans and investments that it considers higher-risk loans that had a carrying value, before loan loss reserves, of approximately $186.8 million and $187.5 million, respectively, and a weighted average last dollar LTV ratio of 93%, respectively.

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class as of September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	First Dollar LTV Ratio		Last Dollar LTV Ratio

Multi-family	$	1,112,022,423	67.2	%	3.0	12	%	74	%
Office	340,165,641		20.5	%	3.2	32	%	78	%
Land	125,846,967		7.6	%	3.9	6	%	87	%
Hotel	66,250,000		4.0	%	3.8	32	%	85	%
Retail	9,933,333		0.6	%	2.5	23	%	70	%
Commercial	1,700,000		0.1	%	3.5	63	%	67	%
Total	$	1,655,918,364	100.0	%	3.2	16	%	76	%

	December 31, 2013
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	First Dollar LTV Ratio		Last Dollar LTV Ratio

Multi-family	$	1,068,529,815	64.4	%	3.3	14	%	75	%
Office	358,832,526		21.6	%	3.2	32	%	82	%
Land	116,751,563		7.0	%	4.0	3	%	88	%
Hotel	69,181,252		4.2	%	3.8	26	%	84	%
Commercial	24,900,145		1.5	%	3.0	3	%	49	%
Condo	15,250,000		0.9	%	3.7	41	%	65	%
Retail	6,750,000		0.4	%	2.5	0	%	63	%
Total	$	1,660,195,301	100.0	%	3.3	17	%	77	%

Geographic Concentration Risk

As of September 30, 2014, 35% and 13% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York and Florida, respectively. As of December 31, 2013, 36% and 10% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York and Texas, respectively.

Impaired Loans and Allowance for Loan Losses

The Company performs an evaluation of the loan portfolio quarterly to assess the performance of its loans and whether a reserve for impairment should be recorded. The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.

During the three and nine months ended September 30, 2014, the Company recognized provision for loan losses totaling $2.9 million and $7.8 million, respectively. During these periods, the Company also recorded net recoveries of previously recorded loan losses totaling $1.5 million and $7.2 million, respectively, resulting in a provision for loan losses, net of recoveries totaling $1.3 million and $0.6 million, respectively.

During the three and nine months ended September 30, 2013, the Company recognized a provision for loan losses totaling $1.5 million and $5.5 million, respectively. During these periods, the Company also recorded net recoveries of previously recorded loan losses totaling $0.7 million and $1.4 million, respectively, resulting in a provision for loan losses, net of recoveries totaling $0.8 million and $4.1 million, respectively.

The provision for loan losses recorded in the third quarter of 2014 was comprised of two loans with an aggregate carrying value of $144.7 million, while the provision for the nine months ended September 30, 2014 was comprised of four loans with an aggregate carrying value of $158.5 million.

The provision for loan losses recorded in the third quarter of 2013 was comprised of one loan with a carrying value of $5.4 million, while the provision for the nine months ended September 30, 2013 was comprised of four loans with an aggregate carrying value of $26.7 million.

A summary of the changes in the allowance for loan losses is as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013

Allowance at beginning of the period	$	115,059,988		$	146,563,765		$	122,277,411		$	161,706,313
Provision for loan losses	2,860,000			1,500,000			7,810,000			5,500,000
Charge-offs (1)	—			(4,295,506		)	(6,501,079		)	(22,756,836		)
Recoveries of reserves	(1,533,462		)	(749,768		)	(7,199,806		)	(1,430,986		)
Allowance at end of the period	$	116,386,526		$	143,018,491		$	116,386,526		$	143,018,491

(1)

Comprised of a $6.5 million write off of a mezzanine loan for the nine months ended September 30, 2014; $2.8 million write off of a junior participation loan and a $1.5 million charge-off to previously recorded reserves for the three months ended September 30, 2013; and $21.3 million from writing off a bridge loan, two mezzanine loans and two junior participation loans as well as a $1.5 million charge-off to previously recorded reserves for the nine months ended September 30, 2013.

A summary of charge-offs and recoveries by asset class is as follows:

	Three Months Ended						Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013

Charge-offs:
Multi-family	$	—		$	—		$	(6,501,079	)	$	(4,789,815	)
Office	—			(4,295,506		)	—			(4,295,506		)
Hotel	—			—			—			(3,671,515		)
Condo	—			—			—			(10,000,000		)
Total	$	—		$	(4,295,506	)	$	(6,501,079	)	$	(22,756,836	)

Recoveries:
Multi-family	$	(1,533,462	)	$	(45,274	)	$	(7,199,806	)	$	(726,492	)
Office	—			(704,494		)	—			(704,494		)
Total	$	(1,533,462	)	$	(749,768	)	$	(7,199,806	)	$	(1,430,986	)

Net Recoveries (Charge-offs)	$	1,533,462		$	(3,545,738	)	$	698,727		$	(21,325,850	)

Ratio of net recoveries (charge-offs) during the period to average loans and investments outstanding during the period	0.1		%	(0.2		)%	0.0		%	(1.3		)%

There were no loans for which the fair value of the collateral securing the loan was less than the carrying value of the loan for which the Company had not recorded a provision for loan loss as of September 30, 2014 and 2013.

The Company has seven loans with an unpaid principal balance totaling approximately $114.3 million at September 30, 2014, which mature in September 2017, that are collateralized by a land development project. The loans do not carry a pay rate of interest, but four of the loans with an unpaid principal balance totaling approximately $101.9 million entitle the Company to a weighted average accrual rate of interest of approximately 9.60%. The Company suspended the recording of the accrual rate of interest on these loans, as these loans were impaired and management deemed the collection of this interest to be doubtful. The Company has recorded cumulative allowances for loan losses of $45.3 million related to these loans as of September 30, 2014. The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the development’s outputs upon completion of the project, and litigation risk. Additionally, these loans were not classified as non-performing as the borrower is in compliance with all of the terms and conditions of the loans.

A summary of the Company’s impaired loans by asset class is as follows:

	September 30, 2014						Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014
Asset Class	Unpaid Principal Balance		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized		Average Recorded Investment (2)		Interest Income Recognized
Multi-family	$	39,855,812	$	39,820,259	$	37,085,812	$	44,727,875	$	257,014	$	52,795,793	$	689,284
Office	45,086,582		39,220,375		25,472,444		45,086,582		517,319		40,586,582		1,303,615
Land	119,130,578		115,285,638		50,128,270		118,752,869		—		117,608,264		—
Hotel	34,750,000		34,249,959		3,700,000		34,875,000		231,808		17,375,000		403,182
Total	$	238,822,972	$	228,576,231	$	116,386,526	$	243,442,326	$	1,006,141	$	228,365,639	$	2,396,081

	December 31, 2013						Three Months Ended September 30, 2013				Nine Months Ended September 30, 2013
Asset Class	Unpaid Principal Balance		Carrying Value (1)		Allowance for Loan Losses		Average Recorded Investment (2)		Interest Income Recognized		Average Recorded Investment (2)		Interest Income Recognized
Multi-family	$	65,735,773	$	65,186,623	$	50,786,697	$	72,793,867	$	932,323	$	66,119,346	$	2,314,028
Office	36,086,582		29,474,065		23,972,444		42,403,007		292,982		38,203,007		1,245,497
Land	116,085,950		112,810,558		47,518,270		139,074,948		—		139,061,228		—
Total	$	217,908,305	$	207,471,246	$	122,277,411	$	254,271,822	$	1,225,305	$	243,383,581	$	3,559,525

(1)

Represents the unpaid principal balance of impaired loans less unearned revenue and other holdbacks and adjustments by asset class. Comprised of 12 loans at September 30, 2014 and 15 loans at December 31, 2013.

(2)

Represents an average of the beginning and ending unpaid principal balance of each asset class.

As of September 30, 2014, two loans with an aggregate net carrying value of approximately $6.3 million, net of related loan loss reserves of $34.0 million, were classified as non-performing, both of which had loan loss reserves. Income from non-performing loans is generally recognized on a cash basis only to the extent it is received. Full income recognition will resume when the loan becomes contractually current and performance has recommenced. As of December 31, 2013, five loans with an aggregate net carrying value of approximately $10.7 million, net of related loan loss reserves of $39.6 million, were classified as non-performing, of which one loan with a carrying value of $0.6 million did not have a loan loss reserve.

A summary of the Company’s non-performing loans by asset class as of September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014						December 31, 2013
Asset Class	Carrying Value		Less Than 90 Days Past Due		Greater Than 90 Days Past Due		Carrying Value		Less Than 90 Days Past Due		Greater Than 90 Days Past Due

Multi-family	$	32,000,000	$	—	$	32,000,000	$	42,054,539	$	32,000,000	$	10,054,539
Office	8,277,775		—		8,277,775		8,277,844		—		8,277,844
Total	$	40,277,775	$	—	$	40,277,775	$	50,332,383	$	32,000,000	$	18,332,383

During the quarter and nine months ended September 30, 2014, the Company refinanced and/or modified one loan with a unpaid principal balance of $35.0 million which was considered by the Company to be a troubled debt restructuring. During the quarter ended September 30, 2013, the Company did not refinance and/or modify or extend any loans considered to be trouble debt restructurings. During the nine months ended September 30, 2013, the Company refinanced and/or modified two loans with an aggregate unpaid principal balance of $27.3 million, which were not considered by the Company to be troubled debt restructurings, however, two loans with a combined unpaid principal balance of $14.6 million that were extended during the period were considered to be trouble debt restructurings. The Company had no unfunded commitments on the modified and extended loans which were considered troubled debt restructurings as of September 30, 2014 and 2013.

A summary of loan modifications and extensions by asset class that the Company considered to be troubled debt restructurings during the three and nine months ended September 30, 2014 were as follows:

	Three Months Ended September 30, 2014									Nine Months Ended September 30, 2014
Asset Class	Number of Loans	Original Unpaid Principal Balance		Original Rate of Interest		Extended Unpaid Principal Balance		Extended Rate of Interest		Number of Loans	Original Unpaid Principal Balance		Original Weighted Average Rate of Interest		Modified Unpaid Principal Balance		Modified Weighted Average Rate of Interest

Hotel	1	$	35,000,000	1.95	%	$	34,750,000	2.95	%	1	$	35,000,000	1.95	%	$	34,750,000	2.95	%

A summary of loan modifications and extensions by asset class that the Company considered to be troubled debt restructurings during the three and nine months ended September 30, 2013 were as follows:

	Three Months Ended September 30, 2013							Nine Months Ended September 30, 2013
Asset Class	Number of Loans	Original Unpaid Principal Balance		Original Rate of Interest	Extended Unpaid Principal Balance		Extended Rate of Interest	Number of Loans	Original Unpaid Principal Balance		Original Weighted Average Rate of Interest		Modified Unpaid Principal Balance		Modified Weighted Average Rate of Interest

Multifamily	—	$	—	—	$	—	—	1	$	6,192,666	5.96	%	$	6,192,666	5.96	%
Office	—	—		—	—		—	1	8,400,000		8.24	%	8,400,000		8.24	%
Total	—	$	—	—	$	—	—	2	$	14,592,666	7.27	%	$	14,592,666	7.27	%

There were no loans in which the Company considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of September 30, 2014 and 2013 and no additional loans were considered to be impaired due to the Company’s troubled debt restructuring analysis for the three and nine months ended September 30, 2014 and 2013. These loans were modified to increase the total recovery of the combined principal and interest from the loan.

As of September 30, 2014, the Company had total interest reserves of $15.8 million on 53 loans with an aggregate unpaid principal balance of $715.9 million.