Use of Special Purpose Entities and Variable Interest Entities (Tables)

6 Months Ended

Jun. 30, 2018

Variable Interest Entity [Line Items]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair values of the assets and liabilities of Riverchase Landing and The Clusters at the Changeover Date (dollar amounts in thousands).



Cash	$	112
Operating real estate ⁽¹⁾	62,322
Lease intangibles ⁽¹⁾	5,340
Receivables and other assets	2,260
Total assets	70,034

Mortgages payable	51,570
Accrued expenses and other liabilities	1,519
Total liabilities	53,089

Non-controlling interest ⁽²⁾	4,462
Net assets consolidated	$	12,483


⁽¹⁾	Reclassified to real estate held for sale in consolidated variable interest entities on the condensed consolidated balance sheets in 2017 (see Note 11).


⁽²⁾	Represents third party ownership of membership interests in Riverchase Landing and The Clusters. The fair value of the non-controlling interests in Riverchase Landing and The Clusters, both private companies, was estimated using assumptions for the timing and amount of expected future cash flows from the underlying multi-family apartment communities and a discount rate.

Schedule of Assets and Liabilities of Consolidated VIE's

The following table presents the carrying value and estimated fair value of the Company’s financial instruments at June 30, 2018 and December 31, 2017, respectively (dollar amounts in thousands):



		June 30, 2018				December 31, 2017
	Fair Value Hierarchy Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	Level 1	$	84,717	$	84,717	$	95,191	$	95,191
Investment securities available for sale ⁽¹⁾	Level 2 or 3	1,290,015		1,290,015		1,413,081		1,413,081
Residential mortgage loans held in securitization trusts, net	Level 3	66,047		65,118		73,820		72,131
Distressed residential mortgage loans, at carrying value, net ⁽²⁾	Level 3	290,645		292,592		331,464		334,765
Residential mortgage loans, at fair value ⁽³⁾	Level 3	169,197		169,197		87,153		87,153
Multi-family loans held in securitization trusts	Level 3	9,345,360		9,345,360		9,657,421		9,657,421
Derivative assets	Level 2	10,543		10,543		10,101		10,101
Mortgage loans held for sale, net ⁽⁴⁾	Level 3	4,750		5,090		5,507		5,598
Mortgage loans held for investment ⁽⁴⁾	Level 3	1,760		1,900		1,760		1,900
Preferred equity and mezzanine loan investments ⁽⁵⁾	Level 3	176,741		178,848		138,920		140,129
Investments in unconsolidated entities ⁽⁶⁾	Level 3	53,671		53,737		51,143		51,212
Financial Liabilities:
Financing arrangements, portfolio investments	Level 2	1,179,961		1,179,961		1,276,918		1,276,918
Financing arrangements, residential mortgage loans	Level 2	192,233		192,233		149,063		149,063
Residential collateralized debt obligations	Level 3	62,198		59,635		70,308		66,865
Multi-family collateralized debt obligations	Level 3	8,838,841		8,838,841		9,189,459		9,189,459
Securitized debt	Level 3	61,026		65,894		81,537		87,891
Subordinated debentures	Level 3	45,000		45,000		45,000		45,002
Convertible notes	Level 2	129,738		137,338		128,749		140,060


⁽¹⁾	Includes $50.1 million and $47.9 million of investment securities for sale held in securitization trusts as of June 30, 2018 and December 31, 2017, respectively.


⁽²⁾	Includes distressed residential mortgage loans held in securitization trusts with a carrying value amounting to approximately $105.9 million and $121.8 million at June 30, 2018 and December 31, 2017, respectively, and distressed residential mortgage loans with a carrying value amounting to approximately $184.7 million and $209.7 million at June 30, 2018 and December 31, 2017, respectively.


⁽³⁾	Includes distressed residential mortgage loans with a carrying value amounting to $96.9 million and $36.9 million at June 30, 2018 and December 31, 2017, respectively, and second mortgages with a carrying value amounting to $72.3 million and $50.2 million at June 30, 2018 and December 31, 2017, respectively.


⁽⁴⁾	Included in receivables and other assets in the accompanying condensed consolidated balance sheets.


⁽⁵⁾	Includes preferred equity and mezzanine loan investments accounted for as loans (see Note 9).


⁽⁶⁾	Includes investments in unconsolidated entities accounted for under the fair value option with a carrying value of $45.2 million and $42.8 million at June 30, 2018 and December 31, 2017, respectively (see Note 8).

Summary of Classification and Carrying Value of Unconsolidated VIE's

investments consist of the following as of June 30, 2018 and December 31, 2017 (dollar amounts in thousands):



	June 30, 2018			December 31, 2017
Investment amount	$	178,372		$	140,560
Deferred loan fees, net	(1,631		)	(1,640		)
Total	$	176,741		$	138,920

The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of June 30, 2018 and December 31, 2017 are as follows:



	June 30, 2018		December 31, 2017
New York	23.9	%	24.1	%
Texas	15.7	%	24.3	%
Florida	13.5	%	3.9	%
Virginia	8.5	%	10.8	%
Tennessee	6.2	%	—
Alabama	5.7	%	7.1	%
South Carolina	5.6	%	7.0	%

The following tables present the classification and carrying value of unconsolidated VIEs as of June 30, 2018 and December 31, 2017 (dollar amounts in thousands):



	June 30, 2018
	Investment securities, available for sale, at fair value, held in securitization trusts		Receivables and other assets		Preferred equity and mezzanine loan investments		Investment in unconsolidated entities		Total
Multi-family CMBS	$	50,134	$	72	$	—	$	—	$	50,206
Preferred equity investments in multi-family properties	—		—		170,110		8,519		178,629
Mezzanine loan on multi-family properties	—		—		6,631		—		6,631
Equity investments in entities that invest in multi-family properties	—		—		—		27,302		27,302
Total assets	$	50,134	$	72	$	176,741	$	35,821	$	262,768



	December 31, 2017
	Investment securities, available for sale, at fair value, held in securitization trusts		Receivables and other assets		Preferred equity and mezzanine loan investments		Investment in unconsolidated entities		Total
Multi-family CMBS	$	47,922	$	73	$	—	$	—	$	47,995
Preferred equity investments in multi-family properties	—		—		132,009		8,320		140,329
Mezzanine loan on multi-family properties	—		—		6,911		—		6,911
Equity investments in entities that invest in multi-family properties	—		—		—		25,562		25,562
Total assets	$	47,922	$	73	$	138,920	$	33,882	$	220,797

The following table summarizes the Company’s securitized debt collateralized by multi-family CMBS and distressed residential mortgage loans (dollar amounts in thousands):



	Multi-family CMBS Re-securitization ⁽¹⁾		Distressed Residential Mortgage Loan Securitizations
Principal Amount at June 30, 2018	$	33,262	$	31,827
Principal Amount at December 31, 2017	$	33,350	$	53,089
Carrying Value at June 30, 2018 ⁽²⁾	$	29,628	$	31,398
Carrying Value at December 31, 2017 ⁽²⁾	$	29,164	$	52,373
Pass-through rate of Notes issued	5.35%		4.00%

⁽¹⁾

The Company engaged in the re-securitization transaction primarily for the purpose of obtaining non-recourse financing on a portion of its multi-family CMBS portfolio. As a result of engaging in this transaction, the Company remains economically exposed to the first loss position on the underlying multi-family CMBS transferred to the Consolidated VIE. The holders of the Note issued in this re-securitization transaction have no recourse to the general credit of the Company, but the Company does have the obligation, under certain circumstances, to repurchase assets upon the breach of certain representations and warranties. The Company will receive all remaining cash flow, if any, through its retained ownership.


⁽²⁾	Classified as securitized debt in the liability section of the Company’s accompanying condensed consolidated balance sheets.

Schedule of Contractual Maturities of Financing VIE's

The following table presents contractual maturity information about the Financing VIEs’ securitized debt as of June 30, 2018 and December 31, 2017, respectively (dollar amounts in thousands):



Scheduled Maturity (principal amount)	June 30, 2018			December 31, 2017
Within 24 months	$	31,827		$	53,089
Over 24 months to 36 months	—			—
Over 36 months	33,262			33,350
Total	65,089			86,439
Discount	(3,615		)	(4,232		)
Debt issuance cost	(448		)	(670		)
Carrying value	$	61,026		$	81,537

As of June 30, 2018, maturities for debt on the Company's condensed consolidated balance sheet are as follows (dollar amounts in thousands):



Fiscal Year	Total
2018	$	—
2019	5,026
2020	—
2021	—
2022	138,000
2023	—
Thereafter	72,554
	$	215,580

Financing VIE

Variable Interest Entity [Line Items]

Schedule of Assets and Liabilities of Consolidated VIE's

Assets and Liabilities of Consolidated VIEs as of June 30, 2018 (dollar amounts in thousands):



	Financing VIEs						Other VIEs
	Multi-family CMBS Re- securitization ⁽¹⁾		Distressed Residential Mortgage Loan Securitization ⁽²⁾		Residential Mortgage Loan Securitization		Multi- family CMBS ⁽³⁾		Other		Total
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	608	$	608
Investment securities available for sale, at fair value held in securitization trusts	50,134		—		—		—		—		50,134
Residential mortgage loans held in securitization trusts, net	—		—		66,047		—		—		66,047
Distressed residential mortgage loans held in securitization trusts, net	—		105,851		—		—		—		105,851
Multi-family loans held in securitization trusts, at fair value	1,120,473		—		—		8,224,887		—		9,345,360
Real estate held for sale in consolidated variable interest entities	—		—		—		—		29,502		29,502
Receivables and other assets	4,152		10,698		1,022		28,166		21,639		65,677
Total assets	$	1,174,759	$	116,549	$	67,069	$	8,253,053	$	51,749	$	9,663,179

Residential collateralized debt obligations	$	—	$	—	$	62,198	$	—	$	—	$	62,198
Multi-family collateralized debt obligations, at fair value	1,053,789		—		—		7,785,052		—		8,838,841
Securitized debt	29,628		31,398		—		—		—		61,026
Mortgages and notes payable in consolidated variable interest entities	—		—		—		—		32,520		32,520
Accrued expenses and other liabilities	4,136		57		14		27,830		1,111		33,148
Total liabilities	$	1,087,553	$	31,455	$	62,212	$	7,812,882	$	33,631	$	9,027,733

⁽¹⁾

The Company classified the multi-family CMBS issued by two K-Series securitizations and held by this Financing VIE as available for sale securities as the purpose is not to trade these securities. The Financing VIE consolidated one K-Series securitization that issued certain of the multi-family CMBS owned by the Company, including its assets, liabilities, income and expenses, in its financial statements, as based on a number of factors, the Company determined that it was the primary beneficiary and has a controlling financial interest in this particular K-Series securitization (see Note 7).

⁽²⁾

The Company engaged in this transaction for the purpose of financing distressed residential mortgage loans acquired by the Company. The distressed residential mortgage loans serving as collateral for the financing are comprised of performing, re-performing and, to a lesser extent, non-performing, fixed- and adjustable-rate, fully-amortizing, interest only and balloon, seasoned mortgage loans secured by first liens on one- to four- family properties. Balances as of June 30, 2018 are related to a securitization transaction that closed in April 2016 that involved the issuance of $177.5 million of Class A Notes representing the beneficial ownership in a pool of performing and re-performing seasoned mortgage loans. The Company holds 5% of the Class A Notes issued as part of the securitization transaction, which were eliminated in consolidation.


⁽³⁾	Six of the Company’s Freddie Mac-sponsored multi-family K-Series securitizations included in the Consolidated K-Series were not held in a Financing VIE as of June 30, 2018.

Assets and Liabilities of Consolidated VIEs as of December 31, 2017 (dollar amounts in thousands):



	Financing VIEs						Other VIEs
	Multi-family CMBS Re- securitization ⁽¹⁾		Distressed Residential Mortgage Loan Securitization ⁽²⁾		Residential Mortgage Loan Securitization		Multi- family CMBS ⁽³⁾		Other		Total
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	808	$	808
Investment securities available for sale, at fair value held in securitization trusts	47,922		—		—		—		—		47,922
Residential mortgage loans held in securitization trusts, net	—		—		73,820		—		—		73,820
Distressed residential mortgage loans held in securitization trusts, net	—		121,791		—		—		—		121,791
Multi-family loans held in securitization trusts, at fair value	1,157,726		—		—		8,499,695		—		9,657,421
Real estate held for sale in consolidated variable interest entities	—		—		—		—		64,202		64,202
Receivables and other assets	4,333		15,428		935		29,301		25,507		75,504
Total assets	$	1,209,981	$	137,219	$	74,755	$	8,528,996	$	90,517	$	10,041,468

Residential collateralized debt obligations	$	—	$	—	$	70,308	$	—	$	—	$	70,308
Multi-family collateralized debt obligations, at fair value	1,094,044		—		—		8,095,415		—		9,189,459
Securitized debt	29,164		52,373		—		—		—		81,537
Mortgages and notes payable in consolidated variable interest entities	—		—		—		—		57,124		57,124
Accrued expenses and other liabilities	4,316		2,957		24		28,969		1,727		37,993
Total liabilities	$	1,127,524	$	55,330	$	70,332	$	8,124,384	$	58,851	$	9,436,421

⁽¹⁾

⁽²⁾

The Company engaged in this transaction for the purpose of financing distressed residential mortgage loans acquired by the Company. The distressed residential mortgage loans serving as collateral for the financing are comprised of performing, re-performing and, to a lesser extent, non-performing, fixed- and adjustable-rate, fully-amortizing, interest only and balloon, seasoned mortgage loans secured by first liens on one- to four- family properties. Balances as of December 31, 2017 are related to a securitization transaction that closed in April 2016 that involved the issuance of $177.5 million of Class A Notes representing the beneficial ownership in a pool of performing and re-performing seasoned mortgage loans. The Company holds 5% of the Class A Notes issued as part of the securitization transaction, which have been eliminated in consolidation.


⁽³⁾	Six of the Company’s Freddie Mac-sponsored multi-family K-Series securitizations included in the Consolidated K-Series were not held in a Financing VIE as of December 31, 2017.

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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