Loans and Investments

9 Months Ended

Sep. 30, 2023

Our Structured Business loan and investment portfolio consists of ($ in thousands):


	September 30, 2023		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 (4)	$	12,790,972	97	%	664	8.85	%	13.8	0	%	77	%
Mezzanine loans	233,805		2	%	47	8.35	%	54.7	45	%	79	%
Preferred equity investments	87,924		1	%	10	3.03	%	62.0	47	%	84	%
Other loans (5)	9,694		<1%		2	9.72	%	15.6	0	%	62	%
	13,122,395		100	%	723	8.80	%	14.9	1	%	77	%
Allowance for credit losses	(184,069)
Unearned revenue	(45,530)
Loans and investments, net	$	12,892,796

	December 31, 2022
Bridge loans (4)	$	14,096,054	98	%	692	8.17	%	19.8	0	%	76	%
Mezzanine loans	213,499		1	%	44	8.13	%	63.1	42	%	77	%
Preferred equity investments	110,725		1	%	8	7.63	%	39.2	46	%	79	%
Other loans (5)	35,845		<1%		3	8.76	%	32.8	0	%	58	%
	14,456,123		100	%	747	8.17	%	20.6	1	%	76	%
Allowance for credit losses	(132,559)
Unearned revenue	(68,890)
Loans and investments, net	$	14,254,674

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(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 required to be paid monthly as stated in the individual loan agreements. Certain loans and investments that require an 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)At September 30, 2023 and December 31, 2022, bridge loans included 311 and 241, respectively, of SFR loans with a total gross loan commitment of $2.05 billion and $1.57 billion, respectively, of which $1.16 billion and $927.4 million, respectively, was funded.

(5)Other loans represents variable rate SFR permanent loans.

Concentration of Credit Risk

We are subject to concentration risk in that, at September 30, 2023, the UPB related to 92 loans with five different borrowers represented 12% of total assets. At December 31, 2022, the UPB related to 38 loans with five different borrowers represented 11% of total assets. During both the three and nine months ended September 30, 2023 and the year ended December 31, 2022, no single loan or investment represented more than 10% of our total assets and no single investor group generated over 10% of our revenue. See Note 17 for details on our concentration of related party loans and investments.

We assign a credit risk rating of pass, pass/watch, special mention, substandard or doubtful to each loan and investment, with a pass rating being the lowest risk and a doubtful rating being the highest risk. 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. All portfolio assets are subject to, at a minimum, a

thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed, however, we maintain a higher level of scrutiny and focus on loans that we consider “high risk” and that possess deteriorating credit quality.

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. 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.

A summary of the loan portfolio’s internal risk ratings and LTV ratios by asset class at September 30, 2023 is as follows ($ in thousands):


	UPB by Origination Year												Total			Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio
Asset Class / Risk Rating	2023		2022		2021		2020		2019		Prior
Multifamily:
Pass	$	97,186	$	131,266	$	97,269	$	2,010	$	—	$	20,300	$	348,031
Pass/Watch	673,165		2,378,519		3,015,502		81,560		112,416		58,394		6,319,556
Special Mention	799		1,830,803		2,353,938		219,050		140,685		—		4,545,275
Substandard	—		290,492		153,697		24,099		—		—		468,288
Doubtful	—		—		13,930		—		9,765		—		23,695
Total Multifamily	$	771,150	$	4,631,080	$	5,634,336	$	326,719	$	262,866	$	78,694	$	11,704,845		1	%	78	%
Single-Family Rental:	Percentage of portfolio												89		%
Pass	$	22,208	$	—	$	—	$	—	$	—	$	—	$	22,208
Pass/Watch	161,976		466,391		355,176		86,347		20,965		—		1,090,855
Special Mention	—		22,924		12,852		24,503		—		—		60,279
Total Single-Family Rental	$	184,184	$	489,315	$	368,028	$	110,850	$	20,965	$	—	$	1,173,342		0	%	63	%
Land:	Percentage of portfolio												9		%
Pass/Watch	$	—	$	—	$	—	$	4,600	$	—	$	—	$	4,600
Special Mention	—		—		—		3,500		—		—		3,500
Substandard	—		—		—		—		—		127,928		127,928
Total Land	$	—	$	—	$	—	$	8,100	$	—	$	127,928	$	136,028		0	%	98	%
Office:	Percentage of portfolio												1		%
Special Mention	$	—	$	—	$	—	$	35,410	$	—	$	—	$	35,410
Substandard	—		—		—		—		—		45,025		45,025
Total Office	$	—	$	—	$	—	$	35,410	$	—	$	45,025	$	80,435		0	%	90	%
Retail:	Percentage of portfolio												1		%
Pass/Watch	$	—	$	—	$	—	$	—	$	4,000	$	—	$	4,000
Special Mention	—		—		—		—		—		3,445		3,445
Substandard	—		—		—		—		—		18,600		18,600
Total Retail	$	—	$	—	$	—	$	—	$	4,000	$	22,045	$	26,045		11	%	71	%
Other:	Percentage of portfolio												< 1%
Doubtful	$	—	$	—	$	—	$	—	$	—	$	1,700	$	1,700
Total Other	$	—	$	—	$	—	$	—	$	—	$	1,700	$	1,700		63	%	63	%
	Percentage of portfolio												< 1%
Grand Total	$	955,334	$	5,120,395	$	6,002,364	$	481,079	$	287,831	$	275,392	$	13,122,395		1	%	77	%

Geographic Concentration Risk

At September 30, 2023, underlying properties in Texas and Florida represented 24% and 16%, respectively, of the outstanding balance of our loan and investment portfolio. At December 31, 2022, underlying properties in Texas and Florida represented 22% and 14%, respectively, of the outstanding balance of our loan and investment portfolio. No other states represented 10% or more of the total loan and investment portfolio.

Allowance for Credit Losses

A summary of the changes in the allowance for credit losses is as follows (in thousands):


	Three Months Ended September 30, 2023
	Multifamily		Land		Office		Retail		Commercial		Single-Family Rental		Other		Total
Allowance for credit losses:
Beginning balance	$	74,295	$	77,902	$	8,246	$	5,819	$	1,700	$	1,077	$	15	$	169,054
Provision for credit losses (net of recoveries)	14,884		60		(76)		—		—		162		(15)		15,015
Ending balance	$	89,179	$	77,962	$	8,170	$	5,819	$	1,700	$	1,239	$	—	$	184,069

	Three Months Ended September 30, 2022
Allowance for credit losses:
Beginning balance	$	27,958	$	77,918	$	7,031	$	5,819	$	1,700	$	725	$	180	$	121,331
Provision for credit losses (net of recoveries)	(675)		(8)		306		—		—		1,326		16		965
Ending balance	$	27,283	$	77,910	$	7,337	$	5,819	$	1,700	$	2,051	$	196	$	122,296

	Nine Months Ended September 30, 2023
Allowance for credit losses:
Beginning balance	$	37,961	$	78,068	$	8,162	$	5,819	$	1,700	$	781	$	68	$	132,559
Provision for credit losses (net of recoveries)	51,218		(106)		8		—		—		458		(68)		51,510
Ending balance	$	89,179	$	77,962	$	8,170	$	5,819	$	1,700	$	1,239	$	—	$	184,069

	Nine Months Ended September 30, 2022
Allowance for credit losses:
Beginning balance	$	18,707	$	77,970	$	8,073	$	5,819	$	1,700	$	320	$	652	$	113,241
Provision for credit losses (net of recoveries)	8,576		(60)		(736)		—		—		1,731		(456)		9,055
Ending balance	$	27,283	$	77,910	$	7,337	$	5,819	$	1,700	$	2,051	$	196	$	122,296

During the three and nine months ended September 30, 2023, we recorded a $15.0 million and a $51.5 million provision for credit losses, respectively. The increase in the provision for credit losses during the three and nine months ended September 30, 2023 was primarily attributable to the impact from the macroeconomic outlook of the commercial real estate market. Our estimate of allowance for credit losses on our structured loans and investments, including related unfunded loan commitments, was based on a reasonable and supportable forecast period that reflects recent observable data, including an increase in interest rates, higher unemployment forecasts, and continuing inflationary pressures, including an estimated continual decline in real estate values and other market factors.

The expected credit losses over the contractual period of our loans also include the obligation to extend credit through our unfunded loan commitments. Our current expected credit loss (“CECL”) allowance for unfunded loan commitments is adjusted quarterly and corresponds with the associated outstanding loans. At September 30, 2023 and December 31, 2022, we had outstanding unfunded commitments of $1.08 billion and $1.15 billion, respectively, that we are obligated to fund as borrowers meet certain requirements.

At September 30, 2023 and December 31, 2022, accrued interest receivable related to our loans totaling $116.4 million and $108.5 million, respectively, was excluded from the estimate of credit losses and is included in other assets on the consolidated balance sheets.

All of our structured loans and investments are secured by real estate assets or by interests in real estate assets, and, as such, the measurement of credit losses may be based on the difference between the fair value of the underlying collateral and the carrying value of the assets as of the period end. A summary of our specific loans considered impaired by asset class is as follows ($ in thousands):


	September 30, 2023
Asset Class	UPB (1)		Carrying Value		Allowance for Credit Losses		Wtd. Avg. First Dollar LTV Ratio		Wtd. Avg. Last Dollar LTV Ratio
Land	$	134,215	$	127,868	$	77,869	0	%	99	%
Multifamily	90,070		87,995		17,750		0	%	100	%
Office	45,025		45,025		7,951		0	%	99	%
Retail	22,045		17,670		5,817		13	%	78	%
Commercial	1,700		1,700		1,700		63	%	63	%
Total	$	293,055	$	280,258	$	111,087	1	%	97	%

	December 31, 2022
Land	$	134,215	$	127,868	$	77,869	0	%	99	%
Retail	22,045		17,563		5,817		14	%	79	%
Commercial	1,700		1,700		1,700		63	%	63	%
Total	$	157,960	$	147,131	$	85,386	3	%	96	%

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(1)Represents the UPB of thirteen and seven impaired loans (less unearned revenue and other holdbacks and adjustments) by asset class at September 30, 2023 and December 31, 2022, 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 credit loss at September 30, 2023 and December 31, 2022.

Loans are classified as non-performing once the contractual payments reach 60 days past due. 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. At September 30, 2023, twelve loans with an aggregate net carrying value of $137.9 million, net of loan loss reserves of $12.6 million, were classified as non-performing and, at December 31, 2022, four loans with an aggregate net carrying value of $2.6 million, net of related loan loss reserves of $5.1 million, were classified as non-performing.

A summary of our non-performing loans by asset class is as follows (in thousands):


	September 30, 2023						December 31, 2022
	UPB		Less Than 90 Days Past Due		Greater Than 90 Days Past Due		UPB		Less Than 90 Days Past Due		Greater Than 90 Days Past Due
Multifamily	$	152,717	$	122,847	$	29,870	$	2,605	$	—	$	2,605
Retail	3,445		—		3,445		3,445		—		3,445
Commercial	1,700		—		1,700		1,700		—		1,700
Total	$	157,862	$	122,847	$	35,015	$	7,750	$	—	$	7,750

At both September 30, 2023 and December 31, 2022, we had no loans contractually past due 90 days or more that are still accruing interest. During the nine months ended September 30, 2023 and 2022, we received $2.8 million and zero, respectively, of interest income on non-accrual loans.

In addition, we have six loans with a carrying value totaling $121.4 million at September 30, 2023, that are collateralized by a land development project. The loans do not carry a current pay rate of interest, however, five of the loans with a carrying value totaling $112.1 million entitle us to a weighted average accrual rate of interest of 7.91%. 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. At both September 30, 2023 and December 31, 2022, we had a cumulative allowance for credit losses of $71.4 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 compliant with all of the terms and conditions of the loans.

In the second quarter of 2023, a borrower of a $70.5 million multifamily bridge loan, with an interest rate of SOFR plus 3.40% and a maturity date of September 2024, defaulted on its interest payments and, as a result, this loan was classified as a non-performing loan. In September 2023, the borrower sold the underlying property to a third party who assumed our loan. At the time of the property sale, we entered into a loan modification agreement with the new borrower to extend the maturity to September 2025 and reduce the interest rate to a fixed pay rate of 3.00% and an accrual rate of 3.00% for a total fixed rate of 6.00% for a period of eighteen months, after which the interest rate resumes to the original rate for the duration of the loan. The new borrower was also required to fund $10.5 million over time: $2.5 million in interest reserves, which was funded at the closing of the loan assumption, and $8.0 million in capital improvements within fifteen months. If the new borrower fails to timely complete the required capital improvements, it will be required to fund a renovation reserve at the lesser of (1) $2.5 million and (2) the difference between the $8.0 million capital commitment and the costs actually incurred for such capital improvements. The key principal is also personally guaranteeing the $8.0 million capital improvement.

There were no other loan modifications, refinancings and/or extensions during the three and nine months ended September 30, 2022 to borrowers experiencing financial difficulty.

In April 2023, we exercised our right to foreclose on a group of properties in Houston, Texas that are the underlying collateral for four bridge loans with a total UPB of $217.4 million. We simultaneously sold these properties to a significant equity investor in the original bridge loans and provided new bridge loan financing as part of the sale. We did not record a loss on the original bridge loans and recovered all the outstanding interest owed to us as part of this restructuring.

During the second quarter of 2022, we sold a bridge loan and mezzanine loans totaling $110.5 million, that were collateralized by a land development project, at a discount for $102.2 million. In connection with this transaction, we had $66.3 million of capital returned to us to be used in future investments and recorded a $9.2 million loss (including fees and expenses), which was included in other income (loss), net on the consolidated statements of income. We have the potential to recover up to $2.8 million depending on the future performance of the loan.

In July 2022, we sold four bridge loans with an aggregate UPB of $296.9 million at par less shared loan origination fees and selling costs totaling $2.0 million and had $78.0 million of capital returned to us to be used in future investments. The shared loan origination fees and selling costs were recorded as an unrealized impairment loss in the second quarter of 2022 and included in other income (loss), net on the consolidated statements of income. We have retained the right to service these loans. During the three months ended June 30, 2023, we repurchased two of these bridge loans with an aggregate UPB of $182.0 million at par.

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. At September 30, 2023 and December 31, 2022, we had total interest reserves of $125.8 million and $123.7 million, respectively, on 516 loans and 480 loans, respectively, with an aggregate UPB of $8.31 billion and $7.70 billion, respectively.