Multi-family Loans

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Multi-family Loans

The Company's multi-family loans consist of its preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets and multi-family loans held in the Consolidated K-Series. The following table presents the carrying value of the Company's multi-family loans as of December 31, 2020 and 2019, respectively (dollar amounts in thousands):


	December 31, 2020		December 31, 2019
Preferred equity and mezzanine loan investments	$	163,593	$	180,045
Consolidated K-Series	—		17,816,746
Total	$	163,593	$	17,996,791

Preferred Equity and Mezzanine Loan Investments

As of January 1, 2020, the Company has elected to account for its preferred equity and mezzanine loan investments using the fair value option (see Note 2). Accordingly, balances presented below as of December 31, 2020 are stated at fair value and changes in fair value are presented in unrealized gains (losses), net on the Company’s consolidated statements of operations. Preferred equity and mezzanine loan investments consist of the following as of December 31, 2020 and 2019, respectively (dollar amounts in thousands):


	December 31, 2020		December 31, 2019 (1)
Investment amount	$	163,392	$	181,409
Deferred loan fees, net	(1,169)		(1,364)
Unrealized gains, net	1,370		—
Total	$	163,593	$	180,045

(1)As of December 31, 2019, preferred equity and mezzanine loan investments were reported at amortized cost less impairment, if any.

For the year ended December 31, 2020, the Company recognized $1.5 million in net unrealized losses on preferred equity and mezzanine loan investments.

The table below presents the fair value and aggregate unpaid principal balance of the Company's preferred equity and mezzanine loan investments in non-accrual status as of December 31, 2020 (dollar amounts in thousands):


Days Late	Fair Value		Unpaid Principal Balance



90 +	$	3,325	$	3,363

There were no delinquent preferred equity or mezzanine loan investments as of December 31, 2019.

The geographic concentrations of credit risk exceeding 5% of the total preferred equity and mezzanine loan investment amounts as of December 31, 2020 and 2019, respectively, are as follows:


	December 31, 2020		December 31, 2019
Tennessee	14.3	%	12.3	%
Texas	11.4	%	10.6	%
Georgia	10.1	%	11.8	%
Alabama	9.7	%	10.0	%
Florida	8.5	%	12.0	%
South Carolina	7.2	%	6.3	%
New Jersey	5.8	%	5.0	%
Missouri	5.7	%	4.9	%
Ohio	5.2	%	—
Virginia	5.0	%	8.4	%

Consolidated K-Series

In March 2020, the Company sold its first loss POs and certain mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP and which we refer to as the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a corresponding realized net loss of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in Consolidated K-Series CDOs. Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.

The Company elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which required that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's consolidated statements of operations. Our investment in the Consolidated K-Series was limited to the multi-family CMBS that we owned with an aggregate net carrying value of $1.1 billion at December 31, 2019 (see Note 7).

The condensed consolidated balance sheets of the Consolidated K-Series at December 31, 2019 is as follows (dollar amounts in thousands):


Balance Sheets	December 31, 2019
Assets
Multi-family loans, at fair value	$	17,816,746
Receivables (1)	59,417
Total Assets	$	17,876,163
Liabilities and Equity
Collateralized debt obligations, at fair value	$	16,724,451
Accrued expenses (2)	57,873
Total Liabilities	16,782,324
Equity	1,093,839
Total Liabilities and Equity	$	17,876,163

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

(2)Included in other liabilities on the accompanying consolidated balance sheets.

The multi-family loans held in the Consolidated K-Series had unpaid aggregate principal balances of approximately $16.8 billion at December 31, 2019. See Note 11 for information related to the collateralized debt obligations issued by the Consolidated K-Series.

The Company did not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities owned by the Company). We elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represented the difference between the carrying values of multi-family loans held in the Consolidated K-Series less the carrying value of Consolidated K-Series CDOs, approximates the fair value of our underlying securities (see Note 14).

The condensed consolidated statements of operations of the Consolidated K-Series for the years ended December 31, 2020 (prior to the sale of first loss POs and de-consolidation of the Consolidated K-Series), 2019, and 2018, respectively, are as follows (dollar amounts in thousands):


	For the Years Ended December 31,
Statements of Operations	2020		2019		2018
Interest income	$	151,841	$	535,226	$	358,712
Interest expense	129,762		457,130		313,102
Net interest income	22,079		78,096		45,610
Unrealized (losses) gains, net	(10,951)		23,962		37,581
Net income	$	11,128	$	102,058	$	83,191

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in the Consolidated K-Series as of December 31, 2019 were as follows:


	December 31, 2019
California	15.9	%
Texas	12.4	%
Florida	6.2	%
Maryland	5.8	%