Loans Receivable and Other Lending Investments, net

3 Months Ended

Mar. 31, 2021

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
	March 31, 2021		December 31, 2020
Construction loans
Senior mortgages	$	277,253	$	449,733
Corporate/Partnership loans	20,623		65,100
Subtotal - gross carrying value of construction loans(1)	297,876		514,833



Loans
Senior mortgages	49,758		35,922
Corporate/Partnership loans	19,653		20,567
Subordinate mortgages	11,839		11,640
Subtotal - gross carrying value of loans	81,250		68,129






Other lending investments
Financing receivables (refer to Note 5)	47,409		46,549
Held-to-maturity debt securities	92,196		90,715
Available-for-sale debt securities	24,043		25,274
Subtotal - other lending investments	163,648		162,538
Total gross carrying value of loans receivable and other lending investments	542,774		745,500
Allowance for loan losses	(9,058)		(13,170)
Total loans receivable and other lending investments, net	$	533,716	$	732,330

____________________________________________________________

(1)As of March 31, 2021, 85%, or $254.4, gross carrying value of construction loans had completed construction.

Allowance for Loan Losses—Changes in the Company's allowance for loan losses were as follows for the three months ended March 31, 2021 ($ 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		$	6,541	$	1,643	$	3,093	$	1,150	$	743	$	13,170

(Recovery of) provision for loan losses(1)		(3,648)		172		(408)		(152)		(76)		(4,112)

Allowance for loan losses at end of period		$	2,893	$	1,815	$	2,685	$	998	$	667	$	9,058

____________________________________________________________

(1)During the three months ended March 31, 2021, the Company recorded a recovery of loan losses of $3.8 million in its consolidated statement of operations due primarily to the repayment of loans during the three months ended March 31, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. Of this amount, $0.3 million related to a provision for credit losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities."

Changes in the Company's allowance for loan losses were as follows for the three months ended March 31, 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)		3,409		323		33		136		—		3,901

Allowance for loan losses at end of period		$	9,724	$	686	$	53	$	1,100	$	21,701	$	33,264

____________________________________________________________

(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, 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 three months ended March 31, 2020, the Company recorded a provision for loan losses of $4.0 million due primarily to the adoption of ASU 2016-13, of which $0.1 million related to expected credit losses for unfunded loan commitments and was recorded as a reduction to "Accounts payable, accrued expenses and other liabilities."

The Company's investment in loans and other lending investments and the associated allowance for loan losses were as follows as of March 31, 2021 and December 31, 2020 ($ in thousands):


	Individually Evaluated for Impairment(1)		Collectively Evaluated for Impairment		Total
As of March 31, 2021
Construction loans(2)	$	56,343	$	241,533	$	297,876
Loans(2)	—		81,250		81,250

Financing receivables	—		47,409		47,409
Held-to-maturity debt securities	—		92,196		92,196
Available-for-sale debt securities(3)	—		24,043		24,043
Less: Allowance for loan losses	(667)		(8,391)		(9,058)
Total	$	55,676	$	478,040	$	533,716
As of December 31, 2020
Construction loans(2)	$	53,305	$	461,528	$	514,833
Loans(2)	—		68,129		68,129

Financing receivables	—		46,549		46,549
Held-to-maturity debt securities	—		90,715		90,715
Available-for-sale debt securities(3)	—		25,274		25,274
Less: Allowance for loan losses	(743)		(12,427)		(13,170)
Total	$	52,562	$	679,768	$	732,330

_______________________________________________________________________________

(1)The carrying value of this loan includes an unamortized discount of $0.8 million and $0.8 million as of March 31, 2021 and December 31, 2020, respectively. The Company's loans individually evaluated for impairment represent 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 $2.2 million and $2.3 million as of March 31, 2021 and December 31, 2020, 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 March 31, 2021 were as follows ($ in thousands):


	Year of Origination
	2021		2020		2019		2018		2017		Prior to 2017		Total
Senior mortgages
Risk rating
1.0	$	—	$	—	$	—	$	—	$	75,014	$	—	$	75,014
1.5	—		—		—		—		—		—		—
2.0	—		—		—		—		—		—		—
2.5	—		—		—		—		—		—		—
3.0	33,419		—		—		113,154		—		3,714		150,287


3.5	—		—		—		—		—		—		—
4.0	—		—		—		45,366		—		—		45,366
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal(1)	$	33,419	$	—	$	—	$	158,520	$	75,014	$	3,714	$	270,667

Corporate/partnership loans
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		—		—		—		—		—		—
2.5	—		—		—		—		—		—		—
3.0	2,525		—		—		18,098		—		—		20,623
3.5	—		—		—		—		—		—		—
4.0	—		—		—		19,653		—		—		19,653
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	2,525	$	—	$	—	$	37,751	$	—	$	—	$	40,276

Subordinate mortgages
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		—		—		—		—		—		—
2.5	—		—		—		—		—		—		—
3.0	—		—		—		—		—		11,839		11,839
3.5	—		—		—		—		—		—		—
4.0	—		—		—		—		—		—		—
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	—	$	—	$	—	$	—	$	—	$	11,839	$	11,839
Financing receivables
Risk rating
1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.5	—		—		—		—		—		—		—
2.0	—		—		47,409		—		—		—		47,409
2.5	—		—		—		—		—		—		—
3.0	—		—		—		—		—		—		—
3.5	—		—		—		—		—		—		—
4.0	—		—		—		—		—		—		—
4.5	—		—		—		—		—		—		—
5.0	—		—		—		—		—		—		—
Subtotal	$	—	$	—	$	47,409	$	—	$	—	$	—	$	47,409
Total	$	35,944	$	—	$	47,409	$	196,271	$	75,014	$	15,553	$	370,191

____________________________________________________________

(1)As of March 31, 2021, excludes $56.3 million for one loan 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		Total Past Due		Total
As of March 31, 2021
Senior mortgages	$	327,011	$	—	$	—	—		$	327,011
Corporate/Partnership loans	40,276		—		—		—		40,276
Subordinate mortgages	11,839		—		—		—		11,839
Total	$	379,126	$	—	$	—	$	—	$	379,126
As of December 31, 2020
Senior mortgages	$	443,154	$	42,501	$	—	$	42,501	$	485,655
Corporate/Partnership loans	42,721		42,946		—		42,946		85,667
Subordinate mortgages	11,640		—		—		—		11,640
Total	$	497,515	$	85,447	$	—	$	85,447	$	582,962

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


	As of March 31, 2021						As of December 31, 2020
	Amortized Cost		Unpaid Principal Balance		Related Allowance		Amortized Cost		Unpaid Principal Balance		Related Allowance




With an allowance recorded:
Senior mortgages(1)	$	56,343	$	55,592	$	(667)	$	53,305	$	52,552	$	(743)

Total	$	56,343	$	55,592	$	(667)	$	53,305	$	52,552	$	(743)

____________________________________________________________

(1)The Company has one non-accrual loan as of March 31, 2021 and December 31, 2020 that is considered impaired and included in the table above. The Company did not record any interest income on impaired loans for the three months ended March 31, 2021 and 2020.

Loan receivable held for sale—In March 2021, the Company acquired land and simultaneously structured and entered into with the seller a Ground Lease on which a multi-family project will be constructed. The Company funded $16.1 million at closing and the Ground Lease documents provide for future funding obligations of approximately $11.9 million of deferred purchase price and $52.0 million of leasehold improvement allowance upon achievement of certain milestones. At closing, the Company entered into an agreement with SAFE pursuant to which, subject to certain conditions being met, SAFE will acquire the ground lessor from the Company. The Company determined that the transaction did not qualify as a sale leaseback transaction and recorded the Ground Lease in "Loan receivable held for sale" on the Company's consolidated balance sheet as of March 31, 2021. The Company received $2.7 million of consideration from SAFE in connection with this transaction.

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 March 31, 2021
Available-for-Sale Securities
Municipal debt securities	$	20,480	$	20,480	$	3,563	$	24,043	$	24,043
Held-to-Maturity Securities
Debt securities	100,000		92,196		—		92,196		92,196
Total	$	120,480	$	112,676	$	3,563	$	116,239	$	116,239
As of December 31, 2020
Available-for-Sale Securities
Municipal debt securities	$	20,680	$	20,680	$	4,594	$	25,274	$	25,274
Held-to-Maturity Securities
Debt securities	100,000		90,715		—		90,715		90,715
Total	$	120,680	$	111,395	$	4,594	$	115,989	$	115,989

As of March 31, 2021, 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	92,196		92,196		—		—
After 5 years through 10 years	—		—		—		—
After 10 years	—		—		20,480		24,043
Total	$	92,196	$	92,196	$	20,480	$	24,043