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Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net | 12 Months Ended
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Dec. 31, 2019
Receivables [Abstract] |
Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net | Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net Our loan portfolio was comprised of the following at December 31, 2019 and 2018 ($ in thousands):
Loan Type |  | December 31, 2019 |  | December 31, 2018
Commercial mortgage loans, net |  | $ | 5,326,967 |  |  | $ | 3,878,981 |
Subordinate loans and other lending assets, net |  | 1,048,126 |  |  | 1,048,612 |
Total loans, net |  | $ | 6,375,093 |  |  | $ | 4,927,593 |
Our loan portfolio consisted of 95% and 91% floating rate loans, based on amortized cost, as of December 31, 2019 and 2018, respectively. Activity relating to our loan investment portfolio, for the year ended December 31, 2019, was as follows ($ in thousands):
|  | Principal Balance |  | Deferred Fees/Other Items (1) |  | Provision for Loan Loss (2) |  | Carrying Value
December 31, 2018 |  | $ | 4,982,514 |  |  | $ | (17,940 | ) |  | $ | (36,981 | ) |  | $ | 4,927,593 |
New loan fundings |  | 3,019,401 |  |  | — |  |  | — |  |  | 3,019,401 |
Add-on loan fundings (3) |  | 416,056 |  |  | — |  |  | — |  |  | 416,056 |
Loan repayments |  | (2,037,322 | ) |  | — |  |  | — |  |  | (2,037,322 | )
Gain (loss) on foreign currency translation |  | 44,338 |  |  | (689 | ) |  | — |  |  | 43,649 |
Realized loss on investment, net of provision for loan loss reversal (2) |  | (12,513 | ) |  | — |  |  | 15,000 |  |  | 2,487 |
Provision for loan losses |  | — |  |  | — |  |  | (35,000 | ) |  | (35,000 | )
Deferred fees |  | — |  |  | (46,275 | ) |  | — |  |  | (46,275 | )
PIK interest, amortization of fees and other items |  | 55,368 |  |  | 29,136 |  |  | — |  |  | 84,504 |
December 31, 2019 |  | $ | 6,467,842 |  |  | $ | (35,768 | ) |  | $ | (56,981 | ) |  | $ | 6,375,093 |
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(1) | Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses, as well as $1.4 million in cost recovery proceeds from a commercial mortgage loan secured by a retail center in Cincinnati, OH.
(2) | In addition to the $57.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our consolidated balance sheet. During the second quarter of 2019, the underlying collateral on a commercial mortgage loan and a contiguous subordinate loan secured by a multifamily property located in Williston, ND was sold resulting in a realized loss of $12.5 million. Consequently, the previously recorded $15.0 million loan loss provision was reversed.
(3) | Represents fundings for loans closed prior to 2019.
The following table details overall statistics for our loan portfolio at the dates indicated ($ in thousands):
|  | December 31, 2019 |  | December 31, 2018
Number of loans |  | 72 |  |  | 69 |
Principal balance |  | $ | 6,467,842 |  |  | $ | 4,982,514 |
Carrying value |  | $ | 6,375,093 |  |  | $ | 4,927,593 |
Unfunded loan commitments (1) |  | $ | 1,952,887 |  |  | $ | 1,095,598 |
Weighted-average cash coupon (2) |  | 6.5 | % |  | 8.4 | %
Weighted-average remaining term (3) |  | 3.3 years |  |  | 2.8 years |
Weighted-average expected maturity (4) |  | 1.8 years |  |  | 1.9 years |
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(1) | Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date.
(2) | For floating rate loans, based on applicable benchmark rates as of the specified dates.
(3) | Assumes all extension options are exercised.
(4) | Expected maturity represents our estimated timing of repayments as of December 31, 2019.
Property Type The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):
|  | December 31, 2019 |  | December 31, 2018
Property Type |  | Carrying Value |  | % of Portfolio |  | Carrying Value |  | % of Portfolio
Hotel |  | $ | 1,660,162 |  |  | 26.0 | % |  | $ | 1,286,590 |  |  | 26.1 | %
Office |  | 1,401,400 |  |  | 22.0 | % |  | 832,620 |  |  | 16.9 | %
Residential-for-sale: construction |  | 692,816 |  |  | 10.9 | % |  | 528,510 |  |  | 10.7 | %
Residential-for-sale: inventory |  | 321,673 |  |  | 5.1 | % |  | 577,053 |  |  | 11.7 | %
Urban Retail |  | 643,706 |  |  | 10.1 | % |  | — |  |  | — | %
Urban Predevelopment |  | 409,864 |  |  | 6.4 | % |  | 683,886 |  |  | 13.9 | %
Healthcare |  | 371,423 |  |  | 5.8 | % |  | 156,814 |  |  | 3.2 | %
Other |  | 874,049 |  |  | 13.7 | % |  | 862,120 |  |  | 17.5 | %
Total |  | $ | 6,375,093 |  |  | 100.0 | % |  | $ | 4,927,593 |  |  | 100.0 | %
Geography The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):
|  | December 31, 2019 |  | December 31, 2018
Geographic Location |  | Carrying Value |  | % of Portfolio |  | Carrying Value |  | % of Portfolio
Manhattan, NY |  | $ | 1,793,570 |  |  | 28.1 | % |  | $ | 1,669,145 |  |  | 33.9 | %
Brooklyn, NY |  | 373,917 |  |  | 5.9 | % |  | 346,056 |  |  | 7.0 | %
Northeast |  | 110,771 |  |  | 1.7 | % |  | 23,479 |  |  | 0.5 | %
West |  | 728,182 |  |  | 11.4 | % |  | 614,160 |  |  | 12.5 | %
Midwest |  | 614,337 |  |  | 9.6 | % |  | 631,710 |  |  | 12.8 | %
Southeast |  | 564,166 |  |  | 8.9 | % |  | 559,043 |  |  | 11.3 | %
United Kingdom |  | 1,274,390 |  |  | 20.0 | % |  | 700,460 |  |  | 14.2 | %
Other |  | 915,760 |  |  | 14.4 | % |  | 383,540 |  |  | 7.8 | %
Total |  | $ | 6,375,093 |  |  | 100.0 | % |  | $ | 4,927,593 |  |  | 100.0 | %
Risk Rating We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows: 1. Very low risk 2. Low risk 3. Moderate/average risk 4. High risk/potential for loss: a loan that has a risk of realizing a principal loss 5. Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss or an impairment has been recorded The following table allocates the carrying value of our loan portfolio based on our internal risk ratings at the dates indicated ($ in thousands):
|  | December 31, 2019 |  | December 31, 2018
Risk Rating |  | Number of Loans |  | Carrying Value |  | % of Loan Portfolio |  | Number of Loans |  | Carrying Value |  | % of Loan Portfolio
1 |  | — |  | $ | — |  |  | — | % |  | — |  | $ | — |  |  | — | %
2 |  | 8 |  | 348,324 |  |  | 5 | % |  | 3 |  | 138,040 |  |  | 3 | %
3 |  | 61 |  | 5,707,555 |  |  | 90 | % |  | 63 |  | 4,573,930 |  |  | 93 | %
4 |  | 1 |  | 182,910 |  |  | 3 | % |  | — |  | — |  |  | — | %
5 |  | 2 |  | 136,304 |  |  | 2 | % |  | 3 |  | 215,623 |  |  | 4 | %
|  | 72 |  | $ | 6,375,093 |  |  | 100 | % |  | 69 |  | $ | 4,927,593 |  |  | 100 | %
Weighted-average risk rating |  |  |  |  |  | 3.0 |  |  |  |  |  |  | 3.1 |
Provision for Loan Losses and Impairment We evaluate our loans for possible impairment on a quarterly basis. We regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the property’s liquidation value. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, we consider the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. Such loan loss analysis is completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants. An allowance for loan loss is established when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring and/or substantial modification, under ASC 310, "Receivables." During the second quarter of 2018, we determined that a modification of one commercial mortgage loan, secured by a retail center in Cincinnati, OH, with a principal balance of $171.2 million constituted a TDR as the interest rate spread was reduced from 5.5% over LIBOR to 3.0% over LIBOR. The entity in which we own an interest and which owns the underlying property was deemed to be a VIE and it was determined that we are not the primary beneficiary of that VIE. During the fourth quarter of 2018, we recorded a loan loss provision of $15.0 million and due to factors including continued weakness in the retail sector, we recorded an additional $32.0 million loan loss provision during the third quarter of 2019, bringing the total provision for loan loss to $47.0 million. The carrying value, as a result of the provision, of the loan was $124.6 million and $156.1 million as of December 31, 2019 and 2018, respectively. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using the direct capitalization method. The significant unobservable input used in determining the collateral value was the capitalization rate which was 7.75% and 6.75% as of December 31, 2019 and 2018, respectively. Effective September 30, 2019, we ceased accruing all interest associated with the loan and account for the loan on a cost-recovery basis (all proceeds are applied towards the carrying value of the loan for accounting purposes). During the year ended December 31, 2019, $1.4 million of interest paid was applied towards reducing the carrying value of the loan to $124.6 million at December 31, 2019. As of December 31, 2019 and 2018, this loan was assigned a risk rating of 5. We recorded an aggregate $13.0 million loan loss provision and impairment against a commercial mortgage loan secured by fully-built, for-sale residential condominium units located in Bethesda, MD. Each of the loan loss provisions were due to factors including slower than expected sales pace of the underlying condominium units and were comprised of (i) $3.0 million loan loss recorded during the third quarter of 2019, (ii) $5.0 million loan loss recorded during the second quarter of 2018, and (iii) $2.0 million loan loss provision and $3.0 million of impairment recorded during the second quarter of 2017. The impairment was recorded on an investment previously recorded under other assets on our consolidated balance sheet. After the loan loss provisions and related impairment, the amortized cost balance of the loan was $11.7 million and $27.2 million as of December 31, 2019 and 2018, respectively. The loan loss provision and impairment were based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision and related impairment). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were sales price per square foot and discount rate which were an average of $573 and $662 per square foot across properties and 10% and 15% as of December 31, 2019 and 2018, respectively. Effective April 1, 2017, we ceased accruing all interest associated with the loan and account for the loan on a cost-recovery basis. As of December 31, 2019 and 2018, this loan was assigned a risk rating of 5. During 2016, we recorded a loan loss provision of $10.0 million on a commercial mortgage loan and $5.0 million on a contiguous subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were terminal capitalization rate and discount rate which were 11% and 10%, respectively. We ceased accruing interest associated with the loan and only recognized interest income upon receipt of cash. As of December 31, 2018, the amortized cost of the loan, net of the loan loss provision, was $32.4 million and was assigned a risk rating of 5. During the second quarter of 2019, the remaining underlying collateral was sold resulting in a realized loss of $12.5 million. Consequently, the previously recorded $15.0 million loan loss provision was reversed. As of December 31, 2019 and 2018, the aggregate loan loss provision was $57.0 million and $37.0 million for commercial mortgage loans and subordinate loans, respectively. Non-Accrual On December 31, 2019, the borrower of a $180 million first mortgage predevelopment loan secured by properties in Miami, Florida, ceased paying interest. As of December 1, 2019, we transferred this loan to non-accrual status and will recognize income on a cash basis. The loan was evaluated for potential impairment and we determined that the loan is not impaired. As of December 31, 2019, and 2018 the loan had carrying value of $182.9 million and $222.0 million and was assigned a risk rating of 4 and 3, respectively. The underlying properties are being marketed for sale. Other Loan and Lending Assets Activity During the year ended December 31, 2019, we sold a $30.3 million and a $122.3 million (both fully funded at close) subordinate position of our $470.8 million loans for an urban retail property in New York, NY. As of December 31, 2019, our exposure to the property is limited to a $318.1 million mortgage loan. This transaction was evaluated under ASC 860 - Transfers and Servicing and we determined that it qualified as a sale and was accounted for as such. During the year ended December 31, 2018, we sold a $75.0 million ($17.7 million funded) subordinate position of our $265.0 million loans for the construction of an office campus in Renton, WA. As of December 31, 2019, our exposure to the property is limited to a $190.0 million ($128.0 million funded) mortgage loan. This transaction was evaluated under ASC 860 - Transfers and Servicing and we determined that it qualified as a sale and was accounted for as such. During the years ended December 31, 2019, 2018 and 2017, we recognized PIK interest of $54.6 million, $43.5 million and $25.2 million, respectively. During the years ended December 31, 2019, 2018 and 2017, we collected PIK of $16.5 million, $75.7 million, and $0.0 million, respectively. During the years ended December 31, 2019, 2018 and 2017, we recognized pre-payment penalties and accelerated fees of $6.1 million, $2.3 million and $5.4 million, respectively. We previously held CMBS where we elected the fair value option, which were all sold in 2017 resulting in a net realized loss of $5.5 million. Our portfolio includes two other lending assets, which are subordinate risk retention interests in securitization vehicles. The underlying mortgages related to our subordinate risk retention interests are secured by a portfolio of properties located throughout the United States. Our maximum exposure to loss from the subordinate risk retention interests is limited to the book value of such interests of $68.3 million as of December 31, 2019. These interests have a weighted average fully-extended maturity of 6.81 years. We are not obligated to provide, and do not intend to provide financial support to these subordinate risk retention interests. Both interests are accounted for as held-to-maturity and recorded at amortized cost on the consolidated balance sheet. We did not hold any collateral securing our subordinate risk retention interests as of December 31, 2018. Loan Proceeds Held by Servicer Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as of the balance sheet date which were remitted to us subsequent to the balance sheet date. Loan proceeds held by servicer were $8.3 million and $1.0 million as of December 31, 2019 and 2018, respectively.

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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/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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