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Loans and Investments | 9 Months Ended
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Sep. 30, 2017
Loans and Investments |
Loans and Investments | Note 4 — Loans and Investments The following tables set forth the composition of our structured loan and investment portfolio:
|  | September 30, 2017 |  | 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 |  | $ | 1,841,484,888 |  | 88 | % | 129 |  | 5.89 | % | 19.0 |  | 0 | % | 72 | %
Preferred equity investments |  | 155,306,620 |  | 7 | % | 11 |  | 6.92 | % | 68.3 |  | 62 | % | 88 | %
Mezzanine loans |  | 72,328,033 |  | 4 | % | 8 |  | 10.24 | % | 26.9 |  | 29 | % | 69 | %
Junior participation loan (4) |  | 25,256,582 |  | 1 | % | 1 |  | — |  | — |  | 100 | % | 100 | %
|  | 2,094,376,123 |  | 100 | % | 149 |  | 6.04 | % | 22.7 |  | 7 | % | 74 | %
Allowance for loan losses |  | (83,255,922 | ) |  |  |  |  |  |  |  |  |  |  |  |
Unearned revenue |  | (13,564,216 | ) |  |  |  |  |  |  |  |  |  |  |  |
Loans and investments, net |  | $ | 1,997,555,985 |  |  |  |  |  |  |  |  |  |  |  |  |
|  | December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |
Bridge loans |  | $ | 1,602,658,179 |  | 90 | % | 120 |  | 5.59 | % | 16.4 |  | 0 | % | 73 | %
Preferred equity investments |  | 68,120,639 |  | 4 | % | 10 |  | 6.83 | % | 23.8 |  | 42 | % | 91 | %
Mezzanine loans |  | 57,124,566 |  | 3 | % | 12 |  | 9.09 | % | 17.9 |  | 36 | % | 75 | %
Junior participation loans |  | 62,256,582 |  | 3 | % | 2 |  | 4.50 | % | 4.0 |  | 83 | % | 84 | %
|  | 1,790,159,966 |  | 100 | % | 144 |  | 5.71 | % | 16.3 |  | 6 | % | 75 | %
Allowance for loan losses |  | (83,711,575 | ) |  |  |  |  |  |  |  |  |  |  |  |
Unearned revenue |  | (10,716,040 | ) |  |  |  |  |  |  |  |  |  |  |  |
Loans and investments, net |  | $ | 1,695,732,351 |  |  |  |  |  |  |  |  |  |  |  |  |
| (1) |  | “Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balance (“UPB”) 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 maturity are not included in the weighted average pay rate as shown in the table.
| (2) |  | The “First Dollar Loan-to-Value (“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.
| (4) |  | This loan is currently past its maturity and is fully reserved.
Concentration of Credit Risk We are subject to concentration risk in that, at September 30, 2017, the UPB related to 32 loans with five different borrowers represented 15% of total assets. At December 31, 2016, the UPB related to 35 loans with five different borrowers represented 16% of total assets. During both the nine months ended September 30, 2017 and the year ended December 31, 2016, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue. Effective January 1, 2017, we revised our methodology used to assign a credit risk rating to each loan and investment to be consistent with the method used by our Agency Business. We now assign ratings of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, instead of a one to five rating. Similar to our previous methodology, there are five ratings, each generally consistent with our prior ratings (i.e., pass is equivalent to a one rating, pass/watch is equivalent to a two rating, etc.), with a pass rating being the lowest risk and a doubtful rating being the highest. The benchmark guidelines and other factors used in our revised methodology are substantially the same as our previous methodology. 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, and 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 profile, risk ratings of pass, pass/watch and special mention suggest 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 substandard indicates we anticipate the loan may require a modification of some kind. A risk rating of doubtful indicates we expect the loan to underperform over its term, and there could be loss of interest and/or principal. Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, market strength or asset quality 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, 2017 and December 31, 2016, we identified loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of $147.5 million and $150.5 million, respectively, and a weighted average last dollar LTV ratio of 94% and 95%, respectively. A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class is presented below. The internal risk ratings as of December 31, 2016 have been converted to reflect the revised methodology described above.
|  | September 30, 2017 |
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 |
Multifamily |  | $ | 1,556,114,399 |  | 75 | % | pass/watch |  | 5 | % | 73 | %
Land |  | 140,054,798 |  | 7 | % | substandard |  | 0 | % | 88 | %
Commercial |  | 133,230,000 |  | 6 | % | pass |  | 1 | % | 71 | %
Office |  | 133,143,446 |  | 6 | % | pass/watch |  | 19 | % | 71 | %
Hotel |  | 90,725,147 |  | 4 | % | special mention |  | 39 | % | 83 | %
Retail |  | 36,483,333 |  | 2 | % | pass/watch |  | 8 | % | 66 | %
Healthcare |  | 4,625,000 |  | <1 | % | special mention |  | 0 | % | 73 | %
Total |  | $ | 2,094,376,123 |  | 100 | % | pass/watch |  | 7 | % | 74 | %
|  | December 31, 2016 |
Multifamily |  | $ | 1,421,731,108 |  | 79 | % | special mention |  | 1 | % | 73 | %
Land |  | 137,255,369 |  | 8 | % | substandard |  | 2 | % | 92 | %
Commercial |  | 9,205,000 |  | <1 | % | special mention |  | 12 | % | 69 | %
Office |  | 141,710,156 |  | 8 | % | pass/watch |  | 43 | % | 73 | %
Hotel |  | 70,750,000 |  | 4 | % | special mention |  | 30 | % | 74 | %
Retail |  | 3,958,333 |  | <1 | % | special mention |  | 81 | % | 91 | %
Healthcare |  | 5,550,000 |  | <1 | % | special mention |  | 0 | % | 63 | %
Total |  | $ | 1,790,159,966 |  | 100 | % | special mention |  | 6 | % | 75 | %
Geographic Concentration Risk As of September 30, 2017, 20%, 16%, 11% and 8% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Texas, California and Georgia, respectively. As of December 31, 2016, 25%, 15%, 14% and 13% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, California, Florida and Texas, respectively. Impaired Loans and Allowance for Loan Losses We evaluate each loan in our portfolio quarterly to assess the performance of our loans and whether a reserve for impairment should be recorded. 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 LTV and a last dollar LTV basis, as defined above. A summary of the changes in the allowance for loan losses is as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
|  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Allowance at beginning of period |  | $ | 81,255,922 |  | $ | 83,831,575 |  | $ | 83,711,575 |  | $ | 86,761,575 |
Provision for loan losses |  | 2,000,000 |  | — |  | 2,000,000 |  | 59,005 |
Charge-offs |  | — |  | — |  | — |  | (2,959,005 | )
Recoveries of reserves |  | — |  | (15,000 | ) | (2,455,653 | ) | (45,000 | )
Allowance at end of period |  | $ | 83,255,922 |  | $ | 83,816,575 |  | $ | 83,255,922 |  | $ | 83,816,575 |
During the three and nine months ended September 30, 2017, we determined that the fair value of the underlying collateral securing a preferred equity investment with an aggregate carrying value of $34.8 million was less than the net carrying value of the investment, resulting in a $2.0 million provision for loan losses. In addition, during the nine months ended September 30, 2017, a fully reserved mezzanine loan with a UPB of $1.8 million paid off in full, which resulted in a $1.8 million reserve recovery, and we recorded a reserve recovery of $0.7 million on a multifamily bridge loan. During the nine months ended September 30, 2016, we received a $1.8 million discounted payoff on an impaired bridge loan with an aggregate carrying value before reserves of $4.8 million, resulting in the recognition of an additional provision for loan losses of $0.1 million and a charge-off of $3.0 million. The recoveries of reserves for all periods presented were related to multifamily loans and the ratio of net recoveries to the average loans and investments outstanding during the nine months ended September 30, 2017 was 0.1%. The ratio of net charge-offs to the average loans and investments outstanding during the three and nine months ended September 30, 2016 were de minimis and (0.2)%, respectively. 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 September 30, 2017 and 2016. We have six loans with a carrying value totaling $120.5 million at September 30, 2017 that are collateralized by a land development project. These loans were scheduled to mature in September 2017 and were extended to September 2018. The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling $111.2 million entitle us to a weighted average accrual rate of interest of 8.50%. In 2008, we suspended the recording of the accrual rate of interest on these loans, as they were impaired and we deemed the collection of this interest to be doubtful. As of September 30, 2017, we have cumulative allowances for loan losses of $49.1 million related to these loans. 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:
|  | September 30, 2017 |  | Three Months Ended September 30, 2017 |  | Nine Months Ended September 30, 2017 |
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 |
Land |  | $ | 131,085,948 |  | $ | 125,325,106 |  | $ | 53,883,478 |  | $ | 131,085,948 |  | $ | — |  | $ | 131,085,948 |  | $ | — |
Hotel |  | 34,750,000 |  | 34,750,000 |  | 5,700,000 |  | 34,750,000 |  | — |  | 34,750,000 |  | 370,877 |
Office |  | 27,549,082 |  | 22,764,944 |  | 21,972,444 |  | 27,551,332 |  | 27,728 |  | 27,555,832 |  | 79,065 |
Commercial |  | 1,700,000 |  | 1,700,000 |  | 1,700,000 |  | 1,700,000 |  | — |  | 1,700,000 |  | — |
Multifamily |  | — |  | — |  | — |  | — |  | — |  | 1,271,058 |  | 22,063 |
Total |  | $ | 195,085,030 |  | $ | 184,540,050 |  | $ | 83,255,922 |  | $ | 195,087,280 |  | $ | 27,728 |  | $ | 196,362,838 |  | $ | 472,005 |
|  | December 31, 2016 |  | Three Months Ended September 30, 2016 |  | Nine Months Ended September 30, 2016 |
Land |  | $ | 131,085,948 |  | $ | 125,925,677 |  | $ | 53,883,478 |  | $ | 130,012,569 |  | $ | — |  | $ | 128,740,618 |  | $ | — |
Hotel |  | 34,750,000 |  | 34,496,296 |  | 3,700,000 |  | 34,750,000 |  | 291,542 |  | 34,750,000 |  | 857,459 |
Office |  | 27,562,582 |  | 22,778,444 |  | 21,972,444 |  | 27,569,332 |  | 23,601 |  | 27,573,832 |  | 69,763 |
Commercial |  | 1,700,000 |  | 1,700,000 |  | 1,700,000 |  | 1,700,000 |  | — |  | 1,700,000 |  | — |
Multifamily |  | 2,542,115 |  | 2,450,618 |  | 2,455,653 |  | 2,654,615 |  | 22,937 |  | 5,004,615 |  | 134,142 |
Total |  | $ | 197,640,645 |  | $ | 187,351,035 |  | $ | 83,711,575 |  | $ | 196,686,516 |  | $ | 338,080 |  | $ | 197,769,065 |  | $ | 1,061,364 |
| (1) |  | Represents the UPB of six and eight impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at September 30, 2017 and December 31, 2016, respectively.
| (2) |  | Represents an average of the beginning and ending UPB of each asset class.
At September 30, 2017, five loans with an aggregate net carrying value of $32.6 million, net of related loan loss reserves of $27.9 million, were classified as non-performing. At December 31, 2016, three fully reserved loans with an aggregate carrying value of $22.9 million were classified as non-performing. Income from non-performing loans is generally recognized on a cash basis when it is received. Full income recognition will resume when the loan becomes contractually current and performance has recommenced. A summary of our non-performing loans by asset class is as follows:
|  | September 30, 2017 |  | December 31, 2016 |
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 |
Hotel |  | $ | 34,750,000 |  | $ | — |  | $ | 34,750,000 |  | $ | — |  | $ | — |  | $ | — |
Office |  | 20,472,444 |  | — |  | 20,472,444 |  | 20,472,444 |  | — |  | 20,472,444 |
Multifamily |  | 2,601,528 |  | — |  | 2,601,528 |  | 680,653 |  | — |  | 680,653 |
Commercial |  | 1,700,000 |  | — |  | 1,700,000 |  | 1,700,000 |  | — |  | 1,700,000 |
Retail |  | 990,667 |  | — |  | 990,667 |  | — |  | — |  | — |
Total |  | $ | 60,514,639 |  | $ | — |  | $ | 60,514,639 |  | $ | 22,853,097 |  | $ | — |  | $ | 22,853,097 |
At September 30, 2017 and December 31, 2016, we did not have any loans contractually past due 90 days or more that were 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 September 30, 2017 |  | Nine Months Ended September 30, 2017 |
Asset Class |  | Number of Loans |  | Original Unpaid Principal Balance |  | Original Wtd. Avg. Rate of Interest |  | Modified Unpaid Principal Balance |  | Modified Wtd. Avg. Rate of Interest |  | Number of Loans |  | Original Unpaid Principal Balance |  | Original Wtd. Avg. Rate of Interest |  | Modified Unpaid Principal Balance |  | Modified Wtd. Avg. Rate of Interest |
Hotel |  | — |  | $ | — |  | — |  | $ | — |  | — |  | 1 |  | $ | 34,750,000 |  | 4.01 | % | $ | 34,750,000 |  | 4.01 | %
Three Months Ended September 30, 2016 |  | Nine Months Ended September 30, 2016 |
Multifamily |  | 1 |  | $ | 14,646,456 |  | 5.33 | % | $ | 14,646,456 |  | 5.33 | % | 1 |  | $ | 14,646,456 |  | 5.33 | % | $ | 14,646,456 |  | 5.33 | %
Office |  | 1 |  | 2,315,000 |  | 4.03 | % | 2,315,000 |  | 4.03 | % | 1 |  | 2,315,000 |  | 4.03 | % | 2,315,000 |  | 4.03 | %
|  | 2 |  | $ | 16,961,456 |  | 5.15 | % | $ | 16,961,456 |  | 5.15 | % | 2 |  | $ | 16,961,456 |  | 5.15 | % | $ | 16,961,456 |  | 5.15 | %
The loan which was modified during the nine months ended September 30, 2017 was considered a troubled debt restructuring as a result of a forbearance agreement entered into with the borrower in the second quarter of 2017 and was classified as non-performing as of September 30, 2017. There were no other loans in which we considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of September 30, 2017 and 2016 and no additional loans were considered to be impaired due to our troubled debt restructuring analysis for the three and nine months ended September 30, 2017 and 2016. These loans were modified to increase the total recovery of the combined principal and interest from the loan. 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 September 30, 2017, we had total interest reserves of $30.1 million on 70 loans with an aggregate UPB of $1.09 billion. As of December 31, 2016, we had total interest reserves of $20.4 million on 75 loans with an aggregate UPB of $1.01 billion.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5066-111524 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(4)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.6-04(6)) -URI http://asc.fasb.org/extlink&oid=6488278&loc=d3e603758-122996 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02(3)) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5162-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03(a)(5)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.9-03(7)) -URI http://asc.fasb.org/extlink&oid=6876686&loc=d3e534808-122878 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=84173941&loc=d3e5074-111524 + Details
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