Note 3 — Loans and Investments

The following table sets forth the composition of our loan and investment portfolio:

	June 30, 2015			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	Wtd. Avg. First Dollar LTV Ratio (2)		Wtd. Avg. Last Dollar LTV Ratio (3)

Bridge loans	$	1,346,226,583		84	%	111	5.51	%	17.7	0	%	75	%
Mezzanine loans	61,952,792			4	%	14	9.44	%	44.8	47	%	82	%
Junior participation loans	94,256,582			6	%	3	4.05	%	8.1	92	%	90	%
Preferred equity investments	93,270,827			6	%	18	6.86	%	39.3	49	%	80	%

	1,595,706,784			100	%	146	5.65	%	19.4	10	%	76	%


Unearned revenue	(9,577,179		)
Allowance for loan losses	(117,563,544		)

Loans and investments, net	$	1,468,566,061

	December 31, 2014			Percent of Total		Loan Count	Wtd. Avg. Pay Rate (1)		Wtd. Avg. Remaining Months to Maturity	Wtd. Avg. First Dollar LTV Ratio (2)		Wtd. Avg. Last Dollar LTV Ratio (3)

Bridge loans	$	1,273,439,238		80	%	101	5.19	%	19.8	0	%	74	%
Mezzanine loans	76,392,650			5	%	17	9.78	%	37.1	47	%	81	%
Junior participation loans	104,091,952			7	%	4	4.62	%	12.3	86	%	88	%
Preferred equity investments	133,505,658			8	%	17	6.11	%	45.5	62	%	84	%

	1,587,429,498			100	%	139	5.45	%	22.3	13	%	76	%


Unearned revenue	(12,466,528		)
Allowance for loan losses	(115,487,320		)

Loans and investments, net	$	1,459,475,650

(1)

“Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balances of each loan in our 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 our 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 we will absorb a total loss of our position.

(3)

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

During the first quarter of 2015, we acquired a $116.0 million defaulted first mortgage, at par. We financed this acquisition primarily with a new $87.0 million warehouse repurchase facility. In April 2015, the first mortgage paid off and as a result, we repaid the $87.0 million warehouse facility and recognized income totaling $6.7 million, net of fees and expenses. The $6.7 million of income is comprised of other interest income totaling $7.9 million, partially offset by $1.2 million of expenses related to this transaction that were recorded in employee compensation and benefits.

Concentration of Credit Risk

We operate in one portfolio segment, commercial mortgage loans and investments. Commercial mortgage loans and investments can potentially subject us to concentrations of credit risk. We are subject to concentration risk in that, at June 30, 2015, the unpaid principal balance (“UPB”) related to 17 loans with five different borrowers represented approximately 19% of total assets. At December 31, 2014, the UPB related to 31 loans with five different borrowers represented approximately 23% of total assets. We measure our relative loss position for our mezzanine loans, junior participation loans, and preferred equity investments by determining the point where we will be exposed to losses based on our position in the capital stack as compared to the fair value of the underlying collateral. We determine our 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 our 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 we will absorb a total loss of our position. Last dollar LTV is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.

We assign 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 our 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. Assets are subject to, at minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed. Generally speaking, given our typical loan and investment profile, a risk rating of three suggests that we expect 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 we anticipate that the loan will require a modification of some kind. A risk rating of five indicates we expect the loan to underperform over its term, and 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 June 30, 2015 and December 31, 2014, we identified loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of approximately $192.0 million and $189.4 million, respectively, and a weighted average last dollar LTV ratio of 95% and 94%, respectively.

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class is as follows:

	June 30, 2015
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio

Multi-family	$	1,093,772,546	68.5	%	2.9	7	%	74	%
Office	207,730,937		13.0	%	3.3	27	%	82	%
Land	188,844,968		11.8	%	3.6	4	%	85	%
Hotel	66,250,000		4.2	%	3.5	32	%	83	%
Other	39,108,333		2.5	%	2.6	9	%	66	%

Total	$	1,595,706,784	100.0	%	3.1	10	%	76	%

	December 31, 2014
Asset Class	Unpaid Principal Balance		Percentage of Portfolio		Wtd. Avg. Internal Risk Rating	Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio

Multi-family	$	1,157,462,400	72.9	%	2.9	10	%	73	%
Office	230,491,164		14.5	%	3.3	29	%	79	%
Land	128,367,601		8.1	%	3.9	6	%	88	%
Hotel	66,250,000		4.2	%	3.5	32	%	83	%
Other	4,858,333		0.3	%	2.9	69	%	75	%

Total	$	1,587,429,498	100.0	%	3.1	13	%	76	%

Geographic Concentration Risk

As of June 30, 2015, 28%, 14%, 13% and 10% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Florida, Texas and California, respectively. As of December 31, 2014, 28%, 14% and 10% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Florida and Texas, respectively.

Impaired Loans and Allowance for Loan Losses

We perform an evaluation of the loan portfolio quarterly to assess the performance of our loans and whether a reserve for impairment should be recorded. We consider a loan impaired when, based upon current information and events, it is probable that we 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 six months ended June 30, 2015, we recognized provision for loan losses totaling $1.1 million and $2.1 million, respectively. During these periods, we also recorded net recoveries of previously recorded loan losses totaling less than $0.1 million, resulting in a provision for loan losses, net of recoveries totaling $1.1 million and $2.1 million, respectively.

During the three and six months ended June 30, 2014 we recognized a provision for loan losses totaling $4.0 million and $5.0 million, respectively. During these periods, we also recorded net recoveries of previously recorded loan losses totaling $4.8 million and $5.7 million, respectively, resulting in a provision for loan losses, net of recoveries totaling $(0.9) million and $(0.7) million, respectively.

The provision for loan losses recorded in the three months ended June 30, 2015 was on one loan with a carrying value before reserves of $114.8 million, while the provision for the six months ended June 30, 2015 was comprised of three loans with an aggregate carrying value of $127.8 million.

The provision for loan losses recorded in the three months ended June 30, 2014 was comprised of three loans with an aggregate carrying value of $153.7 million, while the provision for the six months ended June 30, 2014 was comprised of four loans with an aggregate carrying value of $158.6 million.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014

Allowance at beginning of the period	$	116,470,000		$	116,743,412		$	115,487,320		$	122,277,411
Provision for loan losses	1,110,629			3,950,000			2,110,629			4,950,000
Charge-offs	—			(832,737		)	—			(6,501,079		)
Recoveries of reserves	(17,085		)	(4,800,687		)	(34,405		)	(5,666,344		)

Allowance at end of the period	$	117,563,544		$	115,059,988		$	117,563,544		$	115,059,988

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014

Charge-offs:
Multi-family	$	—		$	(832,737	)	$	—		$	(6,501,079	)

Total	$	—		$	(832,737	)	$	—		$	(6,501,079	)


Recoveries:
Multi-family	$	(17,085	)	$	(4,800,687	)	$	(34,405	)	$	(5,666,344	)

Total	$	(17,085	)	$	(4,800,687	)	$	(34,405	)	$	(5,666,344	)


Net Recoveries (Charge-offs)	$	17,085		$	3,967,950		$	34,405		$	(834,735	)


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

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 we had not recorded a provision for loan loss as of June 30, 2015 and 2014.

We have six loans with a carrying value totaling $114.8 million at June 30, 2015, which mature in September 2017, that are collateralized by a land development project. The loans do not carry a current pay rate of interest, but four of the loans with a carrying value totaling $97.5 million entitle us to a weighted average accrual rate of interest of 9.60%. We 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. We have recorded cumulative allowances for loan losses of $47.6 million related to these loans as of June 30, 2015. 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 our impaired loans by asset class is as follows:

	June 30, 2015						Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
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	$	39,205,489	$	39,285,454	$	36,935,489	$	39,214,032	$	73,892	$	39,222,692	$	143,981
Office	36,086,582		31,013,198		24,472,444		36,086,582		282,192		36,086,582		557,045
Land	124,056,631		119,598,388		52,455,611		123,196,757		—		122,933,516		—
Hotel	34,750,000		34,488,888		3,700,000		34,750,000		260,898		34,750,000		518,028

Total	$	234,098,702	$	224,385,928	$	117,563,544	$	233,247,371	$	616,982	$	232,992,790	$	1,219,054

	December 31, 2014						Three Months Ended June 30, 2014				Six Months Ended June 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	$	39,239,894	$	39,232,710	$	36,469,894	$	54,400,857	$	218,529	$	57,667,857	$	432,270
Office	36,086,582		30,498,273		23,972,444		40,586,582		511,501		40,586,582		786,296
Land	121,810,400		117,621,457		51,344,982		117,409,169		—		117,230,555		—
Hotel	34,750,000		34,249,959		3,700,000		17,500,000		171,374		17,500,000		171,374

Total	$	231,886,876	$	221,602,399	$	115,487,320	$	229,896,608	$	901,404	$	232,984,994	$	1,389,940

(1)

Represents the UPB of impaired loans less unearned revenue and other holdbacks and adjustments by asset class and was comprised of 10 loans at both June 30, 2015 and December 31, 2014.

(2)

Represents an average of the beginning and ending UPB of each asset class.

As of June 30, 2015, three loans with an aggregate net carrying value of $6.5 million, net of related loan loss reserves on two of the loans of $34.5 million, were classified as non-performing. 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, 2014, three loans with an aggregate net carrying value of $7.0 million, net of related loan loss reserves on the two loans of $34.0 million, were classified as non-performing.

A summary of our non-performing loans by asset class is as follows:

	June 30, 2015						December 31, 2014
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	$	32,765,799	$	—	$	32,765,799	$	32,765,799	$	765,799	$	32,000,000
Office	8,277,720		—		8,277,720		8,277,757		—		8,277,757

Total	$	41,043,519	$	—	$	41,043,519	$	41,043,556	$	765,799	$	40,277,757

At June 30, 2015, we did not have any loans contractually past due 90 days or more that are still accruing interest.

A summary of loan modifications, refinancings and/or extensions by asset class that we considered to be troubled debt restructurings were as follows:

	Three Months Ended June 30, 2015									Six Months Ended June 30, 2015
Asset Class	Number of Loans	Original Unpaid Principal Balance		Original Rate of Interest		Modified Unpaid Principal Balance		Modified Weighted Average 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	4	$	29,416,456	4.95	%	$	29,416,456	4.95	%	5	$	35,609,122	5.12	%	$	35,609,122	5.12	%

During the quarter and six months ended June 30, 2014, we had not refinanced, modified or extended any loans which we considered to be troubled debt restructurings.

There were no loans in which we considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of June 30, 2015 and 2014 and no additional loans were considered to be impaired due to our troubled debt restructuring analysis for the three and six months ended June 30, 2015 and 2014. We had no unfunded commitments on the extended loans which were considered troubled debt restructurings as of June 30, 2015.

Given the transitional nature of some of our real estate loans, we may require funds to be placed into an interest reserve, based on contractual requirements, to cover debt service costs. As of June 30, 2015, we had total interest reserves of $17.7 million on 54 loans with an aggregate UPB of $756.4 million.