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Loans Receivable and Other Lending Investments, net
9 Months Ended
Sep. 30, 2021
Receivables [Abstract]  
Loans Receivable and Other Lending Investments, net

Note 7—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, 2021

   

December 31, 2020

Construction loans

Senior mortgages

$

191,697

$

449,733

Corporate/Partnership loans

 

3,516

 

65,100

Subtotal - gross carrying value of construction loans(1)

 

195,213

 

514,833

Loans

 

  

 

  

Senior mortgages

 

15,181

 

35,922

Corporate/Partnership loans

 

17,941

 

20,567

Subordinate mortgages

 

12,248

 

11,640

Subtotal - gross carrying value of loans

 

45,370

 

68,129

Other lending investments

 

  

 

  

Financing receivables (refer to Note 5)

 

48,503

 

46,549

Held-to-maturity debt securities

 

95,258

 

90,715

Available-for-sale debt securities

 

27,535

 

25,274

Subtotal - other lending investments

 

171,296

 

162,538

Total gross carrying value of loans receivable and other lending investments

 

411,879

 

745,500

Allowance for loan losses

 

(6,370)

 

(13,170)

Total loans receivable and other lending investments, net

$

405,509

$

732,330

(1)As of September 30, 2021, 98% of 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 September 30, 2021 and 2020 ($ in thousands):

    

General Allowance

    

    

    

Held to  

    

    

    

Construction 

Maturity Debt 

Financing 

Specific 

Three Months Ended September 30, 2021

Loans

Loans

Securities

Receivables

Allowance

Total

Allowance for loan losses at beginning of period

$

1,640

$

1,619

$

2,393

$

893

$

590

$

7,135

(Recovery of) provision for loan losses(1)

 

(149)

 

(865)

 

145

 

54

 

50

 

(765)

Allowance for loan losses at end of period

$

1,491

$

754

$

2,538

$

947

$

640

$

6,370

Three Months Ended September 30, 2020

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, 2021 and 2020, the Company recorded a provision for (recovery of) loan losses of ($1.6) million and ($2.0) million, respectively, in its consolidated statements of operations. The recovery in 2021 was due primarily to the repayment of loans during the three months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since June 30, 2021. Of this amount, $0.9 million related to a recovery of loan losses for unfunded loan commitments and is recorded as a reduction to "Accounts payable, accrued expenses and other liabilities." The recovery in 2020 resulted 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 loan 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, 2021 and 2020 ($ in thousands):

    

General Allowance

    

    

    

Held to  

    

    

    

Construction 

Maturity Debt 

Financing 

Specific 

Nine Months Ended September 30, 2021

Loans

Loans

Securities

Receivables

Allowance

Total

Allowance for loan losses at beginning of period

$

6,541

$

1,643

$

3,093

$

1,150

$

743

$

13,170

Recovery of loan losses(1)

 

(5,050)

 

(889)

 

(555)

 

(203)

 

(103)

 

(6,800)

Allowance for loan losses at end of period

$

1,491

$

754

$

2,538

$

947

$

640

$

6,370

Nine Months Ended September 30, 2020

Allowance for loan losses at beginning of period

$

6,668

$

265

$

$

$

21,701

$

28,634

Adoption of new accounting standard(2)

 

(353)

 

98

 

20

 

964

 

 

729

Provision for loan losses(1)

 

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)During the nine months ended September 30, 2021 and 2020, the Company recorded a provision for (recovery of) loan losses of ($7.6) million and $4.1 million, respectively, in its consolidated statements of operations. The recovery in 2021 was due primarily to the repayment of loans during the nine months ended September 30, 2021 and an improving macroeconomic forecast on commercial real estate markets since December 31, 2020. Of this amount, $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.” The provision for loan losses in 2020 resulted 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."
(2)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.”

The Company’s investment in loans and other lending investments and the associated allowance for loan losses were as follows as of September 30, 2021 and December 31, 2020 ($ in thousands):

    

Individually 

    

Collectively 

    

Evaluated for 

Evaluated for 

Impairment(1)

Impairment

Total

As of September 30, 2021

 

  

 

  

 

  

Construction loans(2)

$

58,819

$

136,394

$

195,213

Loans(2)

 

 

45,370

 

45,370

Financing receivables

 

 

48,503

 

48,503

Held-to-maturity debt securities

 

 

95,258

 

95,258

Available-for-sale debt securities(3)

 

 

27,535

 

27,535

Less: Allowance for loan losses

 

(640)

 

(5,730)

 

(6,370)

Total

$

58,179

$

347,330

$

405,509

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 September 30, 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 $0.2 million and $2.3 million as of September 30, 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 September 30, 2021 were as follows ($ in thousands):

    

Year of Origination

    

    

    

2021

    

2020

    

2019

    

2018

    

2017

    

Prior to 2017

    

Total

Senior mortgages

Risk rating

  

 

  

 

  

 

  

 

  

 

  

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

 

11,900

 

 

 

11,900

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

109,137

 

 

3,281

 

112,418

3.5

 

 

 

 

23,741

 

 

 

23,741

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal(1)

$

$

$

$

144,778

$

$

3,281

$

148,059

Corporate/partnership loans

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

3,516

 

 

 

3,516

2.0

 

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

17,941

 

 

 

17,941

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

$

21,457

$

$

$

21,457

Subordinate mortgages

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

12,248

 

12,248

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

$

$

$

12,248

$

12,248

Financing receivables

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Risk rating

 

  

 

  

 

  

 

  

 

  

 

  

 

  

1.0

$

$

$

$

$

$

$

1.5

 

 

 

 

 

 

 

2.0

 

 

 

48,503

 

 

 

 

48,503

2.5

 

 

 

 

 

 

 

3.0

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

4.5

 

 

 

 

 

 

 

5.0

 

 

 

 

 

 

 

Subtotal

$

$

$

48,503

$

$

$

$

48,503

Total

$

$

$

48,503

$

166,235

$

$

15,529

$

230,267

(1)As of September 30, 2021, excludes $58.8 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):

    

    

Less Than 

    

Greater 

    

    

or Equal 

Than 

Total 

Current

to 90 Days

90 Days

Past Due

Total

As of September 30, 2021

Senior mortgages

$

148,059

$

$

58,819

58,819

$

206,878

Corporate/Partnership loans

 

21,457

 

 

 

 

21,457

Subordinate mortgages

 

12,248

 

 

 

 

12,248

Total

$

181,764

$

$

58,819

$

58,819

$

240,583

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 September 30, 2021

    

As of December 31, 2020

    

    

Unpaid 

    

    

    

Unpaid 

    

Amortized

Principal 

Related 

Amortized

Principal 

Related 

Cost

Balance

Allowance

Cost

Balance

Allowance

With an allowance recorded:

  

 

  

 

  

  

 

  

 

  

Senior mortgages(1)

$

58,819

$

58,069

$

(640)

$

53,305

$

52,552

$

(743)

Total

$

58,819

$

58,069

$

(640)

$

53,305

$

52,552

$

(743)

(1)The Company has one non-accrual loan as of September 30, 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 nine months ended September 30, 2021 and 2020.

Loans 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 provided for future funding obligations to the Ground Lease tenant 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 would acquire the ground lessor entity from the Company. The Company determined that the transaction did not qualify as a sale leaseback transaction and recorded the Ground Lease in “Loans receivable held for sale” on the Company’s consolidated balance sheet. Subsequent to closing, the Company funded approximately $6.0 million of the deferred purchase price to the Ground Lease tenant. The Company sold the ground lessor entity (and SAFE assumed all future funding obligations to the Ground Lease tenant) to SAFE in September 2021 for $22.1 million and recorded no gain or loss on the sale.

In June 2021, the Company acquired a parcel of land for $42.0 million and simultaneously entered into a Ground Lease (refer to Note 5). The Company also concurrently entered into an agreement pursuant to which SAFE would acquire the Ground Lease from the Company. The Ground Lease was entered into with the seller of the land and did not qualify for sale leaseback accounting, and as such, was accounted for as a financing transaction and $42.0 million was recorded in “Loans receivable held for sale” on the Company’s consolidated balance sheets.

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

    

    

    

Net 

    

    

Net 

Amortized 

Unrealized 

Estimated 

Carrying 

Face Value

Cost Basis

Gain

Fair Value

Value

As of September 30, 2021

 

  

 

  

 

  

 

  

 

  

Available-for-Sale Securities

 

  

 

  

 

  

 

  

 

  

Municipal debt securities

$

23,855

$

23,855

$

3,680

$

27,535

$

27,535

Held-to-Maturity Securities

 

 

 

 

  

 

Debt securities

 

100,000

 

95,258

 

 

95,258

 

95,258

Total

$

123,855

$

119,113

$

3,680

$

122,793

$

122,793

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 September 30, 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 

Estimated 

Amortized 

Estimated 

Cost Basis

    

Fair Value

    

Cost Basis

    

Fair Value

Maturities

 

  

 

  

 

  

 

  

Within one year

$

$

$

$

After one year through 5 years

 

95,258

 

95,258

 

 

After 5 years through 10 years

 

 

 

 

After 10 years

 

 

 

23,855

 

27,535

Total

$

95,258

$

95,258

$

23,855

$

27,535