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Real Estate Owned | 3 Months Ended
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Mar. 31, 2023
Real Estate [Abstract] |
Real Estate Owned | Real Estate Owned Real Estate Owned, Held for Investment As of March 31, 2023, assets and liabilities related to real estate owned, held for investment consisted of three properties: the D.C. Hotel, a full-service luxury hotel in Washington, D.C., the Brooklyn Development, a multifamily development property located in downtown Brooklyn, NY, and the Atlanta Hotel, a hotel in Atlanta, GA. D.C. Hotel 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 the D.C. Hotel. 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 within realized gain (loss) on investments in our 2021 consolidated statement of operations. On May 24, 2021, in accordance with ASC 805, "Business Combinations" ("ASC 805"), we allocated the fair value of the hotel’s acquired assets and assumed debt. The non-recurring fair value measurement was classified as Level III within the fair value hierarchy due to the use of significant unobservable inputs. On June 29, 2021, we repaid the $110.0 million mortgage loan against the property. As of March 1, 2022, the hotel assets, comprised of land, building, furniture fixtures, and equipment, and accumulated depreciation (collectively "REO Fixed Assets"), and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment." Accordingly, as of March 1, 2022, we ceased recording depreciation on the building and furniture, fixtures, and equipment on the condensed consolidated statement of operations. As of March 1, 2023, due to current market conditions, we have curtailed active marketing efforts, and reclassified the REO Fixed Assets and liabilities from real estate owned, held for sale to real estate owned, held for investment, net in accordance with ASC Topic 360. The REO Fixed Assets were reclassified to their carrying value before classifying as held for sale in March of 2022 and $4.0 million in depreciation, representing the amount that would have been recorded had the asset remained as held for investment, was recognized. All other assets and liabilities were reclassified to the corresponding line items on the condensed consolidated balance sheet. No realized gain or loss was recorded in connection with this reclassification. As of March 31, 2023 and December 31, 2022, the value of net real estate assets related to the D.C. Hotel was $154.2 million and $155.9 million, respectively. For the three months ended March 31, 2023 and 2022, we recorded a net loss from operations of $1.9 million and $1.3 million, respectively. Brooklyn Development In 2015, we originated a $122.2 million multifamily development commercial mortgage loan secured by an assemblage of properties in downtown Brooklyn, NY. In 2020, the loan went into default and we recorded a $30.0 million Specific CECL Allowance, due to the deterioration of market conditions attributable to COVID-19. As a result of improved market conditions we reversed $20 million of Specific CECL Allowance during the second quarter of 2021. In the second quarter of 2022, we reversed the remaining $10 million Specific CECL Allowance as a result of market rent growth and value created from development activities at the underlying property. On August 3, 2022, we acquired legal title of the property through a deed-in-lieu of foreclosure and accounted for the asset acquisition in accordance with ASC 805. At that time, our amortized cost basis in the commercial mortgage loan was $226.5 million. We recorded the real estate assumed at a fair value of $270.1 million based on the market value of the land. We recognized a realized gain of $43.6 million, recorded within realized gain (loss) on investments on our consolidated statement of operations, which reflects the difference between the fair value of the property and the carrying value of the loan at the time of acquisition. The non-recurring fair value measurement was classified as Level III within the fair value hierarchy due to the use of significant unobservable inputs, including comparable sales of similar properties in the market. Since title acquisition, we have capitalized an additional $46.5 million of construction and financing costs, including $13.9 million capitalized during the three months ended March 31, 2023. As of March 31, 2023 and December 31, 2022, our cost basis in the property was $316.6 million and $302.7 million, respectively. Upon taking title, we concurrently contributed the property to a joint venture with a third-party real estate developer. The entity was deemed to be a VIE, of which we were determined to be the primary beneficiary. Through our wholly owned subsidiaries, we hold a 100% equity ownership interest in the joint venture and our partner is only entitled to profit upon achievement of certain returns under our joint venture agreement. Concurrently with taking title to the property, we obtained $164.8 million in construction financing on the property. As of March 31, 2023 and December 31, 2022, the carrying value of the construction financing included within debt related to real estate owned, held for investment, net on our condensed consolidated balance sheets was $160.6 million, net of $4.2 million in deferred financing costs and $160.3 million, net of $4.5 million in deferred financing costs, respectively. The construction financing includes a maximum commitment of $388.4 million, an interest rate of term one-month SOFR+2.55%, and current maturity of August 2026, with an option to extend for one year, contingent upon meeting certain conditions. The construction financing agreement contains covenants requiring our unencumbered liquidity be greater than $100.0 million and our net worth be greater than $600.0 million. Under these covenants, our General CECL Allowance is added back to our net worth calculation. As of both March 31, 2023 and December 31, 2022, we were in compliance with these covenants. Atlanta Hotel In March 2017, we originated a first mortgage secured by the Atlanta Hotel. During the second quarter of 2022, due to slower than expected recovery from the COVID-19 pandemic, we deemed the borrower to be experiencing financial difficulty. Accordingly, we ceased accruing interest on the loan and recorded a $7.0 million Specific CECL Allowance. During the fourth quarter of 2022, we wrote off the $7.0 million previously recorded Specific CECL Allowance and reduced the principal balance of the loan which was recorded as a realized loss within net realized loss on investments in our December 31, 2022 consolidated statement of operations. On March 31, 2023, we acquired legal title of the Atlanta Hotel through a deed-in-lieu foreclosure. In accordance with ASC 805, we allocated the fair value of the assumed assets and liabilities on the March 31, 2023 acquisition date as follows:
| March 31, 2023
Assets: |
Cash | $ | 569 |
Buildings | 50,152 |
Land | 16,628 |
Furniture, fixtures, and equipment | 8,220 |
Other assets | 2,827 |
Total Assets | $ | 78,396 |
Liabilities: |
Accounts payable, accrued expenses and other liabilities | $ | 3,396 |
Total Liabilities | $ | 3,396 |
Net Real Estate Assets | $ | 75,000 |
We determined the $75.0 million fair value of net real estate assets in accordance with ASC 820, "Fair Value Measurements and Disclosures" utilizing significant unobservable inputs. As such, the fair value of real estate owned is categorized within Level III of the fair value hierarchy set forth by ASC 820. See "Note 3 - Fair Value Disclosure" for discussion of our non-recurring fair value measurements. Additionally, we recognized a realized loss of $4.8 million, recorded within net realized loss on investments on our condensed consolidated statement of operations. The realized loss represents the difference between the original loan's amortized cost and the fair value of the net assets acquired. We recorded no income or loss from the hotel's operations for the three months ended March 31, 2023.

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 970 -URI https://asc.fasb.org/topic&trid=2156125 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 978 -URI https://asc.fasb.org/topic&trid=2134977 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 976 -URI https://asc.fasb.org/topic&trid=2134846 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 974 -URI https://asc.fasb.org/topic&trid=2156429 Reference 5: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 972 -URI https://asc.fasb.org/topic&trid=2134617 + Details
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