Assets and Liabilities Related to Real Estate Owned, Held for Sale

6 Months Ended

Jun. 30, 2022

Assets and Liabilities Related to Real Estate Owned, Held for Sale

In 2017, we originated a subordinate loan junior to a $33.0 million third-party mortgage, secured by a hotel in Anaheim, CA. In December 2020, due to non-performance, we assumed legal title through the execution of a deed-in-lieu of foreclosure. We intended to sell the hotel and, as such, as of the date of the title assumption, we recorded the hotel property on our condensed consolidated balance sheet at its fair market value less costs to sell, net of a realized loss of $2.4 million, that was previously recorded as Specific CECL Allowance.

As of March 31, 2021, there was an increase in our expected costs to sell the property, and therefore, we recorded a $0.6 million loss during the three months ended March 31, 2021, as realized losses and impairments on real estate owned in our condensed consolidated statement of operations. During the second quarter of 2021 the property was sold at our cost basis and no additional gain or loss was recorded. The $33.0 million first mortgage was repaid upon the sale of the property.

In 2017, we originated a $20.0 million junior mezzanine loan which was subordinate to: (i) a $110.0 million mortgage loan, and (ii) a $24.5 million senior mezzanine loan, secured by a full-service luxury hotel in Washington, D.C. During the first quarter of 2020, we recorded a $10.0 million Specific CECL Allowance and placed our junior mezzanine loan on non-accrual status.

On May 24, 2021, we purchased the $24.5 million senior mezzanine loan at par and acquired legal title to the hotel through a deed-in-lieu of foreclosure. We assumed the hotel’s assets and liabilities (including the $110.0 million mortgage loan) and recorded an additional $10.0 million charge reflecting the difference between the fair value of the hotel’s net assets and the carrying amount of the loan. This $10.0 million loss on title assumption plus the previously recorded Specific CECL Allowance of $10.0 million resulted in a $20.0 million realized loss on investments included in our condensed consolidated statement of operations during the second quarter of 2021.

On May 24, 2021, in accordance with ASC 805, "Business Combinations," we allocated the fair value of the hotel’s

acquired assets and assumed debt. On June 29, 2021, we repaid the $110.0 million mortgage loan against the property. As of March 1, 2022, the hotel assets and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment." As of March 1, 2022, we ceased recording depreciation on the building and furniture, fixtures, and equipment on the condensed consolidated statement of operations.

Below are the hotel's assets and liabilities as of June 30, 2022 on our condensed consolidated balance sheet ($ in thousands):


	June 30, 2022
Assets:
Cash	$	7,304
Land	58,742
Buildings	86,973
Furniture, fixtures, and equipment	8,801
Accumulated depreciation	(3,349)
Other assets	4,375
Total Assets	$	162,846
Liabilities:

Accounts payable, accrued expenses and other liabilities	7,156
Total Liabilities	$	7,156
Net Real Estate Assets	$	155,690

For the three and six months ended June 30, 2022 and 2021, we recorded the operating revenue, expenses and fixed asset depreciation and amortization in our condensed consolidated income statement as shown below ($ in thousands):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Operations related to real estate owned:
Revenue from operations	$	18,630	$	1,374	$	27,670	$	1,374
Operating expenses	(13,134)		(1,994)		(22,786)		(1,994)
Depreciation and amortization	—		(452)		(704)		(452)
Net income (loss) from real estate owned	$	5,496	$	(1,072)	$	4,180	$	(1,072)