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

12 Months Ended

Dec. 31, 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 consolidated balance sheets in the year ended December 31, 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.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed by the Company at the Acquisition Date (dollar amounts in thousands). The membership interest purchase agreement for the acquisition of RiverBanc included a post-closing working capital adjustment that was calculated at $20 thousand and settled with the sellers of RiverBanc on July 15, 2016. Additionally, the excess severance holdback amount described above was settled with the sellers of RiverBanc on July 15, 2016. The Company engaged a third party for valuations of certain intangible assets.



Cash	$	4,325
Investment in unconsolidated entities	52,176
Preferred equity and mezzanine loan investments	23,638
Real estate under development ⁽¹⁾	14,922
Receivables and other assets	911
Intangible assets ⁽¹⁾	3,490
Total identifiable assets acquired	99,462

Construction loan payable ⁽²⁾	8,499
Accrued expenses and other liabilities	2,864
Total liabilities assumed	11,363

Preferred equity ⁽³⁾	56,697

Net identifiable assets acquired	31,402

Goodwill ⁽⁴⁾	25,222
Gain on bargain purchase ⁽⁵⁾	(65		)
Non-controlling interest ⁽⁶⁾	(3,078		)
Net assets acquired	$	53,481


⁽¹⁾	Included in receivables and other assets on the consolidated balance sheets.


⁽²⁾	Construction loan payable to the Company is eliminated on the consolidated balance sheets.


⁽³⁾	Includes $40.4 million of preferred equity owned by the Company that is eliminated on the consolidated balance sheets. Remaining $16.3 million of preferred equity owned by third parties was redeemed on June 10, 2016 and June 24, 2016.


⁽⁴⁾	Goodwill recognized in the acquisition of RiverBanc.


⁽⁵⁾	Gain on bargain purchase recognized in the acquisitions of RBMI and RBDHC in the year ended December 31, 2016.

⁽⁶⁾

Represents third-party ownership of KRVI membership interests (see Note 10). The Company consolidates its investment in KRVI. The third-party ownership in KRVI is represented in the consolidated financial statements and the pro forma net income attributable to the Company's common stockholders as non-controlling interests. The fair value of the non-controlling interests in KRVI was estimated to be $3.1 million. The fair value of the non-controlling interests in KRVI, a private company, was estimated using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying real estate.

Summary of Assets and Liabilities of Consolidated VIEs

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



		December 31, 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	$	103,724	$	103,724	$	95,191	$	95,191
Investment securities available for sale	Level 2 or 3	1,512,252		1,512,252		1,413,081		1,413,081
Residential mortgage loans held in securitization trusts, net	Level 3	56,795		56,497		73,820		72,131
Distressed residential mortgage loans, at carrying value, net	Level 3	228,466		232,879		331,464		334,765
Distressed and other residential mortgage loans, at fair value	Level 3	737,523		737,523		87,153		87,153
Multi-family loans held in securitization trusts	Level 3	11,679,847		11,679,847		9,657,421		9,657,421
Derivative assets	Level 2	10,263		10,263		10,101		10,101
Mortgage loans held for sale, net ⁽¹⁾	Level 3	3,414		3,584		5,507		5,598
Mortgage loans held for investment ⁽¹⁾	Level 3	1,580		1,580		1,760		1,900
Preferred equity and mezzanine loan investments	Level 3	165,555		167,739		138,920		140,129
Investments in unconsolidated entities	Level 3	73,466		73,833		51,143		51,212
Financial Liabilities:
Financing arrangements, portfolio investments	Level 2	1,543,577		1,543,577		1,276,918		1,276,918
Financing arrangements, distressed and other residential mortgage loans	Level 2	587,928		587,928		149,063		149,063
Residential collateralized debt obligations	Level 3	53,040		50,031		70,308		66,865
Multi-family collateralized debt obligations	Level 3	11,022,248		11,022,248		9,189,459		9,189,459
Securitized debt	Level 3	42,335		45,030		81,537		87,891
Subordinated debentures	Level 3	45,000		44,897		45,000		45,002
Convertible notes	Level 2	130,762		135,689		128,749		140,060


⁽¹⁾	Included in receivables and other assets in the accompanying consolidated balance sheets.

Schedule of Securitized Debt Collateralized by Multi-family CMBS or Distressed Residential Mortgage Loans

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



	December 31, 2018		December 31, 2017
Texas	16.6	%	24.3	%
Georgia	15.3	%	3.4	%
Florida	11.3	%	3.9	%
South Carolina	9.5	%	7.0	%
Virginia	9.1	%	10.8	%
Alabama	8.6	%	7.1	%
Tennessee	6.8	%	—
Missouri	5.1	%	—

Preferred equity and mezzanine loan investments consist of the following as of December 31, 2018 and December 31, 2017 (dollar amounts in thousands):



	December 31, 2018			December 31, 2017
Investment amount	$	166,789		$	140,560
Deferred loan fees, net	(1,234		)	(1,640		)
Total	$	165,555		$	138,920

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



	Multi-family CMBS Re-securitization⁽¹⁾			Distressed Residential Mortgage Loan Securitizations
Principal Amount at December 31, 2018	$	33,177		$	12,381
Principal Amount at December 31, 2017	$	33,350		$	53,089
Carrying Value at December 31, 2018⁽²⁾	$	30,121		$	12,214
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. On February 21, 2019, the Company directed the trustee of this re-securitization transaction to exercise its right to redeem the re-securitization. On February 22, 2019, the trustee delivered a notice of the optional redemption of the re-securitization with a redemption date of March 14, 2019 (see Note 26).


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

Schedule of Maturities of Long-term Debt

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



Scheduled Maturity (principal amount)	December 31, 2018			December 31, 2017
Within 24 months	$	12,381		$	53,089
Over 24 months to 36 months	—			—
Over 36 months	33,177			33,350
Total	45,558			86,439
Discount	(2,983		)	(4,232		)
Debt issuance cost	(240		)	(670		)
Carrying value	$	42,335		$	81,537

As of December 31, 2018, maturities for debt on the Company's consolidated balance sheet are as follows (dollar amounts in thousands):



Year Ending December 31,
2019	$	3,986
2020	—
2021	—
2022	138,000
2023	—
Thereafter	72,296
Total	$	214,282

Schedule of Classification and Carrying Value of Unconsolidated VIEs

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



	December 31, 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	$	52,700	$	72	$	—	$	—	$	52,772
Preferred equity investment on multi-family properties	—		—		154,629		40,472		195,101
Mezzanine loan on multi-family properties	—		—		10,926		—		10,926
Equity investments in entities that invest in residential properties	—		—		—		10,954		10,954
Total assets	$	52,700	$	72	$	165,555	$	51,426	$	269,753



	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 investment on 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 and residential properties	—		—		—		25,562		25,562
Total assets	$	47,922	$	73	$	138,920	$	33,882	$	220,797

Financing VIE

Variable Interest Entity [Line Items]

Summary of Assets and Liabilities of Consolidated VIEs

The following tables present a summary of the assets and liabilities of these Consolidated VIEs as of December 31, 2018 and December 31, 2017, respectively. Intercompany balances have been eliminated for purposes of this presentation.

Assets and Liabilities of Consolidated VIEs as of December 31, 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	$	—	$	—	$	—	$	—	$	708	$	708
Investment securities available for sale, at fair value held in securitization trusts	52,700		—		—		—		—		52,700
Residential mortgage loans held in securitization trusts, net	—		—		56,795		—		—		56,795
Distressed residential mortgage loans held in securitization trusts, net	—		88,096		—		—		—		88,096
Multi-family loans held in securitization trusts, at fair value	1,107,071		—		—		10,572,776		—		11,679,847
Real estate held for sale in consolidated variable interest entities	—		—		—		—		29,704		29,704
Receivables and other assets	4,243		10,287		1,061		37,679		23,254		76,524
Total assets	$	1,164,014	$	98,383	$	57,856	$	10,610,455	$	53,666	$	11,984,374

Residential collateralized debt obligations	$	—	$	—	$	53,040	$	—	$	—	$	53,040
Multi-family collateralized debt obligations, at fair value	1,036,604		—		—		9,985,644		—		11,022,248
Securitized debt	30,121		12,214		—		—		—		42,335
Mortgages and notes payable in consolidated variable interest entities	—		—		—		—		31,227		31,227
Accrued expenses and other liabilities	4,228		444		26		37,022		1,166		42,886
Total liabilities	$	1,070,953	$	12,658	$	53,066	$	10,022,666	$	32,393	$	11,191,736

⁽¹⁾

The Company classified the multi-family CMBS issued by two securitizations included in the Consolidated K-Series 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 securitization included in the Consolidated K-Series 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 certain distressed residential mortgage loans acquired by the Company. The distressed residential mortgage loans serving as collateral for the financing are comprised of re-performing and, to a lesser extent, non-performing and other delinquent mortgage loans secured by first liens on one- to four family properties. Balances as of December 31, 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 this securitization transaction, which were eliminated in consolidation.


⁽³⁾	Eight of the securitizations included in the Consolidated K-Series were not held in a Financing VIE as of December 31, 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⁾

The Company classified the multi-family CMBS issued by two securitizations included in the Consolidated K-Series and held by the Financing VIE as available for sale securities as the purpose is not to trade these securities. The Financing VIE consolidated one securitization included in the Consolidated K-Series 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 certain distressed residential mortgage loans acquired by the Company. The distressed residential mortgage loans serving as collateral for the financing are comprised of re-performing and, to a lesser extent, non-performing and other delinquent 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 this securitization transaction, which have been eliminated in consolidation.


⁽³⁾	Six of the 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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