Loans Receivable and Other Lending Investments, net

9 Months Ended

Sep. 30, 2020

Loans Receivable and Other Lending Investments, net

The following is a summary of the Company's loans receivable and other lending investments by class ($ in thousands):


	As of
	September 30, 2020		December 31, 2019
Construction loans
Senior mortgages	$	467,774	$	518,992
Corporate/Partnership loans	85,032		95,394
Subtotal - gross carrying value of construction loans(1)	552,806		614,386



Loans
Senior mortgages	52,855		53,592
Corporate/Partnership loans	21,845		24,424
Subordinate mortgages	11,445		10,877
Subtotal - gross carrying value of loans	86,145		88,893






Other lending investments
Financing receivables (refer to Note 5)	45,704		44,339
Held-to-maturity debt securities	89,234		84,981
Available-for-sale debt securities	24,631		23,896
Subtotal - other lending investments	159,569		153,216
Total gross carrying value of loans receivable and other lending investments	798,520		856,495
Allowance for loan losses	(33,447)		(28,634)
Total loans receivable and other lending investments, net	$	765,073	$	827,861

____________________________________________________________

(1)As of September 30, 2020, 47%, or $262.1 million, gross carrying value of construction loans had completed construction and 4%, or $22.5 million, gross carrying value of construction loans had substantially completed construction.

Allowance for Loan Losses—Changes in the Company's allowance for loan losses were as follows for the three months ended September 30, 2020 ($ in thousands):


	General Allowance
		Construction Loans		Loans		Held to Maturity Debt Securities		Financing Receivables		Specific Allowance		Total
Allowance for loan losses at beginning of period		$	11,736	$	905	$	111	$	1,159	$	21,701	$	35,612

(Recovery of) provision for loan losses(1)		(2,598)		(427)		(56)		17		899		(2,165)

Allowance for loan losses at end of period		$	9,138	$	478	$	55	$	1,176	$	22,600	$	33,447

____________________________________________________________

(1)During the three months ended September 30, 2020, the Company recorded a recovery of loan losses of $2.0 million in its consolidated statement of operations resulting from the reversal of CECL allowances on loans that repaid in full in the third quarter 2020 and a more favorable economic outlook on commercial real estate markets in the third quarter 2020 as compared to the second quarter 2020. Of this amount, $0.7 million related to a recovery of credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities" and $0.9 million related to a provision on a non-performing loan that was recorded as a reduction to "Accrued interest and operating lease income receivable, net."

Changes in the Company's allowance for loan losses were as follows for the nine months ended September 30, 2020 ($ in thousands):


	General Allowance
		Construction Loans		Loans		Held to Maturity Debt Securities		Financing Receivables		Specific Allowance		Total
Allowance for loan losses at beginning of period		$	6,668	$	265	$	—	$	—	$	21,701	$	28,634
Adoption of new accounting standard(1)		(353)		98		20		964		—		729
Provision for loan losses(2)		2,823		115		35		212		899		4,084

Allowance for loan losses at end of period		$	9,138	$	478	$	55	$	1,176	$	22,600	$	33,447

____________________________________________________________

(1)On January 1, 2020, the Company recorded an increase to its allowance for loan losses of $3.3 million upon the adoption of ASU 2016-13 (refer to Note 3), of which $2.5 million related to expected credit losses for unfunded loan commitments and was recorded in "Accounts payable, accrued expenses and other liabilities."

(2)During the nine months ended September 30, 2020, the Company recorded a provision for loan losses of $4.1 million in its consolidated statement of operations resulting from the macroeconomic impact of COVID-19 on commercial real estate markets, of which $0.9 million related to a recovery of credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities" and $0.9 million related to a provision on a non-performing loan that was recorded as a reduction to "Accrued interest and operating lease income receivable, net."

The Company's investment in loans and other lending investments and the associated allowance for loan losses were as follows as of September 30, 2020 and December 31, 2019 ($ in thousands):


	Individually Evaluated for Impairment(1)		Collectively Evaluated for Impairment		Total
As of September 30, 2020
Construction loans(2)	$	50,257	$	502,549	$	552,806
Loans(2)	37,020		49,125		86,145

Financing receivables	—		45,704		45,704
Held-to-maturity debt securities	—		89,234		89,234
Available-for-sale debt securities(3)	—		24,631		24,631
Less: Allowance for loan losses	(22,600)		(10,847)		(33,447)
Total	$	64,677	$	700,396	$	765,073
As of December 31, 2019
Construction loans(2)	$	—	$	614,386	$	614,386
Loans(2)	37,820		51,073		88,893

Financing receivables	—		44,339		44,339
Held-to-maturity debt securities	—		84,981		84,981
Available-for-sale debt securities(3)	—		23,896		23,896
Less: Allowance for loan losses	(21,701)		(6,933)		(28,634)
Total	$	16,119	$	811,742	$	827,861

_______________________________________________________________________________

(1)The carrying value of these loans includes an unamortized discount of $0.6 million and $0.1 million as of September 30, 2020 and December 31, 2019, respectively. The Company's loans individually evaluated for impairment represents two loans on non-accrual status and the unamortized amounts associated with these loans are not currently being amortized into income.

(2)The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs totaling net discounts of $0.3 million and $0.7 million as of September 30, 2020 and December 31, 2019, respectively.

(3)Available-for-sale debt securities are evaluated for impairment under ASC 326-30.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. Risk ratings, which range from 1 (lower risk) to 5 (higher risk), are based on judgments, which are inherently uncertain, and there can be no assurance that actual performance will be similar to current expectation. The Company designates loans as non-performing at such time as: (1) interest payments become 90 days delinquent; (2) the loan has a maturity default; or (3) management determines it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan. All non-performing loans are placed on non-accrual status and income is only recognized in certain cases upon actual cash receipt.

The Company's amortized cost basis in performing senior mortgages, corporate/partnership loans, subordinate mortgages and financing receivables, presented by year of origination and by credit quality, as indicated by risk rating, as of September 30, 2020 were as follows ($ in thousands):


	Year of Origination
	2020		2019		2018		2017		2016		Prior to 2016		Total
Senior mortgages
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		—		—		—		—		—		—
2.5	—		—		123,519		—		—		—		123,519
3.0	—		13,296		106,465		144,011		41,931		4,130		309,833


3.5	—		—		—		—		—		—		—
4.0	—		—		—		—		—		—		—
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal(1)	$	—	$	13,296	$	229,984	$	144,011	$	41,931	$	4,130	$	433,352

Corporate/partnership loans
Risk rating
1.0	$	—	$	—	$	16,404	$	—	$	—	$	—	$	16,404
1.5	—		—		—		—		—		—		—
2.0	—		—				—		—		—		—
2.5	—		—		—		—		—		—		—
3.0	—		1,504		25,194		—		—		—		26,698
3.5	—		—		—		—		—		—		—
4.0	—		—		21,844		—		41,931		—		63,775
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	—	$	1,504	$	63,442	$	—	$	41,931	$	—	$	106,877

Subordinate mortgages
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		—		—		—		—		—		—
2.5	—		—		—		—		—		—		—
3.0	—		—		—		—		—		11,445		11,445
3.5	—		—		—		—		—		—		—
4.0	—		—		—		—		—		—		—
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	—	$	—	$	—	$	—	$	—	$	11,445	$	11,445
Financing receivables
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		45,704		—		—		—		—		45,704
2.5	—		—		—		—		—		—		—
3.0	—		—		—		—		—		—		—
3.5	—		—		—		—		—		—		—
4.0	—		—		—		—		—		—		—
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	—	$	45,704	$	—	$	—	$	—	$	—	$	45,704
Total	$	—	$	60,504	$	293,426	$	144,011	$	83,862	$	15,575	$	597,378

____________________________________________________________

(1)As of September 30, 2020, excludes $87.3 million for two loans on non-accrual status.

The Company's amortized cost basis in loans, aged by payment status and presented by class, was as follows ($ in thousands):


	Current		Less Than and Equal to 90 Days		Greater Than 90 Days(1)		Total Past Due		Total
As of September 30, 2020
Senior mortgages	$	483,609	$	—	$	37,020	$	37,020	$	520,629
Corporate/Partnership loans	106,877		—		—		—		106,877
Subordinate mortgages	11,445		—		—		—		11,445
Total	$	601,931	$	—	$	37,020	$	37,020	$	638,951
As of December 31, 2019
Senior mortgages	$	534,765	$	—	$	37,820	$	37,820	$	572,585
Corporate/Partnership loans	119,818		—		—		—		119,818
Subordinate mortgages	10,877		—		—		—		10,877
Total	$	665,460	$	—	$	37,820	$	37,820	$	703,280

_______________________________________________________________________________

(1)As of September 30, 2020 and December 31, 2019, the Company had one loan which was greater than 90 days delinquent and was in various stages of resolution, including legal and environmental matters, and was 11.3 years and 10.5 years outstanding, respectively.

Impaired Loans—The Company's impaired loans were as follows ($ in thousands):


	As of September 30, 2020						As of December 31, 2019
	Amortized Cost		Unpaid Principal Balance		Related Allowance		Amortized Cost		Unpaid Principal Balance		Related Allowance




With an allowance recorded:
Senior mortgages(1)	$	87,277	$	86,627	$	(22,600)	$	37,820	$	37,923	$	(21,701)

Total	$	87,277	$	86,627	$	(22,600)	$	37,820	$	37,923	$	(21,701)

____________________________________________________________

(1)The Company has two non-accrual loans as of September 30, 2020 and one non-accrual loan as of December 31, 2019 that are considered impaired and included in the table above. The Company did not record any interest income on impaired loans for the three and nine months ended September 30, 2020 and 2019.

Other lending investments—Other lending investments includes the following securities ($ in thousands):


	Face Value		Amortized Cost Basis		Net Unrealized Gain		Estimated Fair Value		Net Carrying Value
As of September 30, 2020
Available-for-Sale Securities
Municipal debt securities	$	20,680	$	20,680	$	3,951	$	24,631	$	24,631
Held-to-Maturity Securities
Debt securities	100,000		89,234		—		89,234		89,234
Total	$	120,680	$	109,914	$	3,951	$	113,865	$	113,865
As of December 31, 2019
Available-for-Sale Securities
Municipal debt securities	$	21,140	$	21,140	$	2,756	$	23,896	$	23,896
Held-to-Maturity Securities
Debt securities	100,000		84,981		—		84,981		84,981
Total	$	121,140	$	106,121	$	2,756	$	108,877	$	108,877

As of September 30, 2020, the contractual maturities of the Company's securities were as follows ($ in thousands):


	Held-to-Maturity Debt Securities				Available-for-Sale Debt Securities
	Amortized Cost Basis		Estimated Fair Value		Amortized Cost Basis		Estimated Fair Value
Maturities
Within one year	$	—	$	—	$	—	$	—
After one year through 5 years	89,234		89,234		—		—
After 5 years through 10 years	—		—		—		—
After 10 years	—		—		20,680		24,631
Total	$	89,234	$	89,234	$	20,680	$	24,631