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Notes Receivable and Current Expected Credit Losses | 9 Months Ended
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Sep. 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 September 30, 2024 and December 31, 2023 ($ in thousands):
|  |  |  | Outstanding loan amount |  |  |  |  |  |
|  |  |  | September 30, 2024 |  | December 31, 2023 |  |  |  |  |
Real Estate Financing Project(a) |  | Maturity Date |  | Principal |  | Accrued interest and fees(b) |  | Total loan amount(c) |  | Total loan amount(c) |  | Maximum principal commitment |  | Interest rate | Interest compounding
Solis Gainesville II |  | 10/3/2026 |  | 19,595 |  |  | 5,041 |  |  | 24,636 |  |  | 22,268 |  |  | 19,595 |  |  | 14.0 | % | (d) | Annually
Solis Kennesaw |  | 5/25/2027 |  | 37,870 |  |  | 6,230 |  |  | 44,100 |  |  | 15,922 |  |  | 37,870 |  |  | 14.0 | % | (d) | Annually
Solis Peachtree Corners |  | 10/31/2027 |  | 20,533 |  |  | 3,917 |  |  | 24,450 |  |  | 11,092 |  |  | 28,440 |  |  | 15.0 | % | (d) | Annually
The Allure at Edinburgh |  | 1/16/2028 |  | 9,228 |  |  | 1,639 |  |  | 10,867 |  |  | 9,830 |  |  | 9,228 |  |  | 15.0 | % | (e) | None
Solis City Park II(f) |  | 4/23/2028 |  | — |  |  | — |  |  | — |  |  | 24,313 |  |  | — |  |  | 13.0 | % |  | Annually
Solis North Creek |  | 8/8/2030 |  | 2,364 |  |  | 299 |  |  | 2,663 |  |  | — |  |  | 26,767 |  |  | 12.0 | % | (d) | Annually
Total mezzanine & preferred equity |  | $ | 89,590 |  |  | $ | 17,126 |  |  | 106,716 |  |  | 83,425 |  |  | $ | 121,900 |  |  |  |  |
Other notes receivable |  |  |  |  |  |  |  | 12,787 |  |  | 12,219 |  |  |  |  |  |  |
Allowance for credit losses(g) |  |  |  |  |  | (1,706) |  |  | (1,472) |  |  |  |  |  |  |
Total notes receivable |  |  |  |  |  |  |  | $ | 117,797 |  |  | $ | 94,172 |  |  |  |  |  |  |
________________________________________ (a) The Company does not intend to sell the real estate financing investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. (b) Reflects accrued interest and unused commitment fees, net of discounts due to unamortized equity fees. (c) Outstanding loan amounts include any accrued and unpaid interest, and accrued fees, as applicable. (d) 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. (e) The interest rate varies over the life of the loan. (f) This note receivable was redeemed on July 10, 2024. Refer below under “Solis City Park II” for further details. (g) The amounts as of September 30, 2024 and December 31, 2023 exclude $0.6 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 nine months ended September 30, 2024 and 2023 as follows (in thousands):
|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
Real Estate Financing Project |  | 2024 |  | 2023 |  | 2024 |  | 2023 |
Solis Gainesville II |  | $ | 794 |  | (a)(b) | $ | 717 |  | (a)(b) | $ | 2,366 |  | (a)(b) | $ | 1,964 |  | (a)(b)
Solis Kennesaw |  | 1,437 |  | (a)(b) | 1,164 |  | (a) | 3,988 |  | (a)(b) | 1,629 |  | (a)
Solis Peachtree Corners |  | 1,067 |  | (a)(b) | 617 |  | (a)(b) | 2,867 |  | (a)(b) | 617 |  | (a)(b)
The Allure at Edinburgh |  | 348 |  |  | 258 |  |  | 1,036 |  |  | 258 |  |
Solis City Park II(c) |  | 127 |  | (a) | 740 |  | (a) | 1,482 |  | (a) | 2,142 |  | (a)
Solis North Creek |  | 299 |  | (b) | — |  |  | 299 |  | (b) | — |  |
The Interlock(d) |  | — |  |  | — |  |  | — |  |  | 3,647 |  | (a)
Total mezzanine & preferred equity |  | 4,072 |  |  | 3,496 |  |  | 12,038 |  |  | 10,257 |  |
Other interest income |  | 629 |  |  | 194 |  |  | 1,921 |  |  | 566 |  |
Total interest income |  | $ | 4,701 |  |  | $ | 3,690 |  |  | $ | 13,959 |  |  | $ | 10,823 |  |
________________________________________ (a) Includes recognition of interest income related to fee amortization. (b) Includes recognition of unused commitment fees. (c) This note receivable was redeemed on July 10, 2024. Refer below under “Solis City Park II” for further details. (d) This note receivable was redeemed on May 19, 2023 in connection with the Company’s acquisition of The Interlock. Solis City Park II On July 10, 2024, the Company's preferred equity investment in Solis City Park II was redeemed in full for total consideration of $25.8 million, including $5.2 million of interest. Interest for the month of June 2024 was waived as part of the note redemption. Solis Gainesville II On July 10, 2024, the Company signed an amendment to the operating agreement for the entity through which the Company owns its real estate financing investment with respect to Solis Gainesville II to reduce the preference rate on the investment from 14.0% to 6.0% starting on January 1, 2025. The Company also received a call option to purchase a controlling interest in the entity that owns Solis Gainesville II at fair market value during the period from January 1, 2025 to December 31, 2025, which option also gives the Company a right of first refusal to buy the property during the same period. Solis North Creek On July 10, 2024, the Company entered into a $27.0 million preferred equity investment for the development of a multifamily property located in Huntersville, North Carolina ("Solis North Creek"). The preferred equity investment has economic terms consistent with a note receivable, including a mandatory redemption feature effective on August 8, 2030, and is accounted for as a note receivable. The Company's investment bears interest at a rate of 12.0% for the first 24 months. Beginning on July 10, 2026, the investment will bear interest at a rate of 9.0% for 12 months. On July 10, 2027, the investment will again bear interest at 12.0% through maturity. The interest compounds annually. The Company also earns an unused commitment fee of 4.5% on the unfunded portion of the investment's maximum loan commitment, which also compounds annually. The preferred equity investment was initially subject to a minimum interest guarantee of $8.9 million over the life of the investment. On August 8, 2024, the Company signed an amendment to the operating agreement for the entity through which the Company owns its real estate financing investment with respect to Solis North Creek to reduce the equity funding requirement from $27.0 million to $26.8 million and the minimum interest guarantee from $8.9 million to $8.8 million. Allowance for Loan Losses The Company is exposed to credit losses primarily through its real estate financing investments. As of September 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 September 30, 2024 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of September 30, 2024 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $2.3 million as of September 30, 2024, of which an allowance related to unfunded commitments of approximately $0.6 million as of September 30, 2024 was recorded as other liabilities on the consolidated balance sheet. At September 30, 2024, the Company reported $117.8 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 nine months ended September 30, 2024 and 2023 were as follows (in thousands):
|  | Nine Months Ended September 30, 2024 |  | Nine Months Ended September 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) |  | 294 |  |  | (181) |  |  | 113 |  |  | 817 |  |  | 519 |  |  | 1,336 |
Release due to redemption |  | (60) |  |  | — |  |  | (60) |  |  | (465) |  |  | — |  |  | (465) |
Ending balance |  | $ | 1,706 |  |  | $ | 551 |  |  | $ | 2,257 |  |  | $ | 1,644 |  |  | $ | 857 |  |  | $ | 2,501 |
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 September 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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