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Notes Receivable and Current Expected Credit Losses | 6 Months Ended
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Jun. 30, 2024
Receivables [Abstract] |
Notes Receivable and Current Expected Credit Losses | Notes Receivable and Current Expected Credit Losses Notes Receivable The Company had the following notes receivable outstanding as of June 30, 2024 and December 31, 2023 ($ in thousands):
|  | Outstanding loan amount |  |  |  |  |  | Interest compounding
|  | June 30, 2024 |  | December 31, 2023 |  |  |  |
Real Estate Financing Project |  | Principal |  | Accrued interest and fees |  | Total loan amount(a) |  | Total loan amount(a) |  | Maximum principal commitment |  | Interest rate
Solis City Park II |  | $ | 20,594 |  |  | $ | 5,075 |  |  | $ | 25,669 |  |  | $ | 24,313 |  |  | $ | 20,594 |  |  | 13.0 | % |  | Annually
Solis Gainesville II |  | 19,595 |  |  | 4,247 |  |  | 23,842 |  |  | 22,268 |  |  | 19,595 |  |  | 14.0 | % | (b) | Annually
Solis Kennesaw |  | 30,050 |  |  | 4,793 |  |  | 34,843 |  |  | 15,922 |  |  | 37,870 |  |  | 14.0 | % | (b) | Annually
Solis Peachtree Corners |  | 15,546 |  |  | 2,849 |  |  | 18,395 |  |  | 11,092 |  |  | 28,440 |  |  | 15.0 | % | (b) | Annually
The Allure at Edinburgh |  | 9,228 |  |  | 1,291 |  |  | 10,519 |  |  | 9,830 |  |  | 9,228 |  |  | 15.0 | % | (c) | None
Total mezzanine & preferred equity |  | $ | 95,013 |  |  | $ | 18,255 |  |  | 113,268 |  |  | 83,425 |  |  | $ | 115,727 |  |  |  |  |
Other notes receivable |  |  |  |  |  | 12,592 |  |  | 12,219 |  |  |  |  |  |  |
Allowance for credit losses(d) |  |  |  |  |  | (1,682) |  |  | (1,472) |  |  |  |  |  |  |
Total notes receivable |  |  |  |  |  | $ | 124,178 |  |  | $ | 94,172 |  |  |  |  |  |  |
________________________________________ (a) Outstanding loan amounts include any accrued and unpaid interest, and accrued fees, as applicable. (b) The interest rate varies over the life of the loans and the Company also earns an unused commitment fee on amounts not drawn on the loans. (c) The interest rate varies over the life of the loan. (d) The amounts as of June 30, 2024 and December 31, 2023 exclude $0.4 million and $0.7 million, respectively, of Current Expected Credit Losses (“CECL”) allowance that relates to the unfunded commitments, which were recorded as a liability under other liabilities in the consolidated balance sheets. Interest on the notes receivable is accrued and funded utilizing the interest reserves for each loan and such accrued interest is generally added to the loan receivable balances. The Company recognized interest income for the three and six months ended June 30, 2024 and 2023 as follows (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |
Real Estate Financing Project |  | 2024 |  | 2023 |  | 2024 |  | 2023 |
Solis City Park II |  | $ | 608 |  | (a) | $ | 732 |  | (a) | $ | 1,355 |  | (a) | $ | 1,402 |  | (a)
Solis Gainesville II |  | 786 |  | (a)(b) | 654 |  | (a)(b) | 1,572 |  | (a)(b) | 1,247 |  | (a)(b)
Solis Kennesaw |  | 1,315 |  | (a)(b) | 465 |  | (a) | 2,551 |  | (a)(b) | 465 |  | (a)
Solis Peachtree Corners |  | 913 |  | (a)(b) | — |  |  | 1,800 |  | (a)(b) | — |  |
The Allure at Edinburgh |  | 344 |  |  | — |  |  | 688 |  |  | — |  |
The Interlock(c) |  | — |  | (a) | 1,374 |  | (a) | — |  | (a) | 3,647 |  | (a)
Total mezzanine & preferred equity |  | 3,966 |  |  | 3,225 |  |  | 7,966 |  |  | 6,761 |  |
Other interest income |  | 666 |  |  | 189 |  |  | 1,292 |  |  | 372 |  |
Total interest income |  | $ | 4,632 |  |  | $ | 3,414 |  |  | $ | 9,258 |  |  | $ | 7,133 |  |
________________________________________ (a) Includes recognition of interest income related to fee amortization. (b) Includes recognition of unused commitment fees. (c) This note receivable was redeemed on May 19, 2023 in connection with the Company’s acquisition of The Interlock. Allowance for Loan Losses The Company is exposed to credit losses primarily through its real estate financing investments. As of June 30, 2024, the Company had five real estate financing investments, which are financing development projects in various stages of completion or lease-up. Each of these projects is subject to a loan that is senior to the Company’s loan. Interest on these loans is paid in kind and is generally not expected to be paid until a sale of the project after completion of the development. The Company's management performs a quarterly analysis of the loan portfolio to determine the risk of credit loss based on the progress of development activities, including leasing activities, projected development costs, and current and projected subordinated and senior loan balances. The Company estimates future losses on its notes receivable using risk ratings that correspond to probabilities of default and loss given default. The Company's risk ratings are as follows: •Pass: loans in this category are adequately collateralized by a development project with conditions materially consistent with the Company's underwriting assumptions. •Special Mention: loans in this category show signs that the economic performance of the project may suffer as a result of slower-than-expected leasing activity or an extended development or marketing timeline. Loans in this category warrant increased monitoring by management. •Substandard: loans in this category may not be fully collected by the Company unless remediation actions are taken. Remediation actions may include obtaining additional collateral or assisting the borrower with asset management activities to prepare the project for sale. The Company will also consider placing the loan on non-accrual status if it does not believe that additional interest accruals will ultimately be collected. The Company updated the risk ratings for each of its notes receivable as of June 30, 2024 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of June 30, 2024 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $2.1 million as of June 30, 2024, of which an allowance related to unfunded commitments of approximately $0.4 million as of June 30, 2024 was recorded as Other liabilities on the consolidated balance sheet. At June 30, 2024, the Company reported $124.2 million of notes receivable, net of allowances of $1.7 million. At December 31, 2023, the Company reported $94.2 million of notes receivable, net of allowances of $1.5 million. Changes in the allowance for the six months ended June 30, 2024 and 2023 were as follows (in thousands):
|  | Six Months Ended June 30, 2024 |  | Six Months Ended June 30, 2023
|  | Funded |  | Unfunded |  | Total |  | Funded |  | Unfunded |  | Total
Beginning balance |  | $ | 1,472 |  |  | $ | 732 |  |  | $ | 2,204 |  |  | $ | 1,292 |  |  | $ | 338 |  |  | $ | 1,630 |
Unrealized credit loss provision (release) |  | 210 |  |  | (355) |  |  | (145) |  |  | 412 |  |  | 231 |  |  | 643 |
Release due to redemption |  | — |  |  | — |  |  | — |  |  | (465) |  |  | — |  |  | (465) |
Ending balance |  | $ | 1,682 |  |  | $ | 377 |  |  | $ | 2,059 |  |  | $ | 1,239 |  |  | $ | 569 |  |  | $ | 1,808 |
The Company places loans on non-accrual status when the loan balance, together with the balance of any senior loan, approximately equals the estimated realizable value of the underlying development project. As of June 30, 2024, no loans were placed on non-accrual status.

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- Definition The entire disclosure for claims held for amounts due to entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/310-10/tableOfContent Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 835 -SubTopic 30 -Name Accounting Standards Codification -Section 45 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482925/835-30-45-2 + Details
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