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Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) | 6 Months Ended
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Jun. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) | Use of Special Purpose Entities (SPE) and Variable Interest Entities (VIE) Financing VIEs The Company uses SPEs to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on improved terms. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement. The Company has entered into financing transactions, including residential loan securitizations and re-securitizations, which required the Company to analyze and determine whether the SPEs that were created to facilitate the transactions are VIEs in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation. As of June 30, 2022 and December 31, 2021, the Company evaluated its residential loan securitizations and concluded that the entities created to facilitate each of the financing transactions are VIEs and that the Company is the primary beneficiary of these VIEs (each a “Financing VIE” and collectively, the “Financing VIEs”). Accordingly, the Company consolidated the then-outstanding Financing VIEs as of June 30, 2022 and December 31, 2021. During the six months ended June 30, 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization with an outstanding principal balance of $14.7 million at the time of redemption and returned the assets held by the trust to the Company. Consolidated SLST The Company invests in subordinated securities that represent the first loss position of the Freddie Mac-sponsored residential loan securitization from which they were issued, and certain IOs and senior securities issued from the securitization. The Company has evaluated its investments in this securitization trust to determine whether it is a VIE and if so, whether the Company is the primary beneficiary requiring consolidation. The Company has determined that the Freddie Mac-sponsored residential loan securitization trust, which we refer to as Consolidated SLST, is a VIE as of June 30, 2022 and December 31, 2021, and that the Company is the primary beneficiary of the VIE within Consolidated SLST. Accordingly, the Company has consolidated the assets, liabilities, income and expenses of such VIE in the accompanying condensed consolidated financial statements (see Notes 2, 3 and 11). The Company has elected the fair value option on the assets and liabilities held within Consolidated SLST, which requires that changes in valuations in the assets and liabilities of Consolidated SLST be reflected in the Company’s condensed consolidated statements of operations. The Company does not have any claims to the assets or obligations for the liabilities of Consolidated SLST, other than those securities owned by the Company as of June 30, 2022 and December 31, 2021 with a fair value of $208.6 million and $230.3 million, respectively (see Note 14). The Company’s investments that are included in Consolidated SLST were not included as collateral to any Financing VIE as of June 30, 2022 and December 31, 2021. Consolidated Real Estate VIEs The Company invests in joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidates the assets, liabilities, income and expenses of these VIEs in the accompanying condensed consolidated financial statements with non-controlling interests or redeemable non-controlling interests for the third-party ownership of the joint ventures' membership interests. Additionally, during the six months ended June 30, 2022, a Consolidated VIE purchased two multi-family apartment communities. The Company accounted for the initial consolidation of the joint venture investments and the real estate acquisitions by a Consolidated VIE in accordance with asset acquisition provisions of ASC 805, as substantially all of the fair value of the assets within the entities are concentrated in either a single identifiable asset or group of similar identifiable assets. The following table summarizes the aggregate estimated fair value of the assets, liabilities and non-controlling interests associated with the initial consolidation of the joint venture entities and real estate acquisitions by a Consolidated VIE during the three and six months ended June 30, 2022, respectively (dollar amounts in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Cash |  | $ | 1,474 |  |  | $ | 973 |  |  | $ | 8,576 |  |  | $ | 2,723 |
Operating real estate (1) |  | 202,220 |  |  | 42,050 |  |  | 730,988 |  |  | 73,513 |
Lease intangibles (2) |  | 14,431 |  |  | 3,320 |  |  | 41,892 |  |  | 4,964 |
Other assets |  | 2,706 |  |  | 3,851 |  |  | 8,836 |  |  | 5,695 |
Total assets |  | 220,831 |  |  | 50,194 |  |  | 790,292 |  |  | 86,895 |
Mortgages payable on real estate, net |  | 156,494 |  |  | 36,057 |  |  | 566,250 |  |  | 61,831 |
Other liabilities |  | 1,482 |  |  | 652 |  |  | 4,662 |  |  | 797 |
Total liabilities |  | 157,976 |  |  | 36,709 |  |  | 570,912 |  |  | 62,628 |
Non-controlling interest (3) |  | 5,805 |  |  | 1,335 |  |  | 16,293 |  |  | 1,874 |
Net assets consolidated |  | $ | 57,050 |  |  | $ | 12,150 |  |  | $ | 203,087 |  |  | $ | 22,393 |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets. (2)Included in other assets in the accompanying condensed consolidated balance sheets. (3)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs. During the year ended December 31, 2020, the Company reconsidered its evaluation of its variable interest in a VIE that owns a multi-family apartment community and in which the Company held a preferred equity investment. The Company determined that it gained the power to direct the activities, and became primary beneficiary, of the VIE and consolidated this VIE into its consolidated financial statements. Subsequently, in July 2021, the VIE redeemed its non-controlling interest which resulted in an equity transaction accounted for by the Company in accordance with ASC 810. In addition, the Company reconsidered its evaluation of its investment in the entity and determined that the entity no longer met the criteria for being characterized as a VIE and is a wholly-owned subsidiary of the Company. In March 2022, the entity completed the sale of its multi-family apartment community and redeemed the Company's preferred equity investment (see Note 8). In analyzing whether the Company is the primary beneficiary of the Financing VIEs, Consolidated SLST and Consolidated Real Estate VIEs, the Company considered its involvement in each of the VIEs, including the design and purpose of each VIE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of the VIEs. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed: •whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and •whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, Consolidated SLST and Consolidated Real Estate VIEs as of June 30, 2022 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| Financing VIEs |  | Other VIEs |  |
| Residential Loan Securitizations |  |  |  | Consolidated SLST |  | Consolidated Real Estate |  | Total
Cash and cash equivalents | $ | — |  |  |  |  | $ | — |  |  | $ | 38,233 |  |  | $ | 38,233 |
Residential loans, at fair value | 1,215,095 |  |  |  |  | 920,778 |  |  | — |  |  | 2,135,873 |
Real estate, net held in Consolidated VIEs (1) | — |  |  |  |  | — |  |  | 1,649,472 |  |  | 1,649,472 |
Other assets | 77,630 |  |  |  |  | 3,314 |  |  | 48,087 |  |  | 129,031 |
Total assets | $ | 1,292,725 |  |  |  |  | $ | 924,092 |  |  | $ | 1,735,792 |  |  | $ | 3,952,609 |
Collateralized debt obligations ($1,107,091 at amortized cost, net and $710,233 at fair value) | $ | 1,107,091 |  |  |  |  | $ | 710,233 |  |  | $ | — |  |  | $ | 1,817,324 |
Mortgages payable on real estate, net in Consolidated VIEs (2) | — |  |  |  |  | — |  |  | 1,251,059 |  |  | 1,251,059 |
Other liabilities | 43,477 |  |  |  |  | 3,859 |  |  | 25,755 |  |  | 73,091 |
Total liabilities | $ | 1,150,568 |  |  |  |  | $ | 714,092 |  |  | $ | 1,276,814 |  |  | $ | 3,141,474 |
Redeemable non-controlling interest in Consolidated VIEs (3) | $ | — |  |  |  |  | $ | — |  |  | $ | 37,101 |  |  | $ | 37,101 |
Non-controlling interest in Consolidated VIEs (4) | $ | — |  |  |  |  | $ | — |  |  | $ | 34,080 |  |  | $ | 34,080 |
Net investment (5) | $ | 142,157 |  |  |  |  | $ | 210,000 |  |  | $ | 387,797 |  |  | $ | 739,954 |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets. (2)Included in mortgages payable on real estate, net in the accompanying condensed consolidated balance sheets. (3)Represents redeemable third-party ownership of membership interests in Consolidated Real Estate VIEs. See Redeemable Non-Controlling Interest in Consolidated VIEs below. (4)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs. (5)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interests, if any. The following table presents a summary of the assets, liabilities and non-controlling interests of the Company's residential loan securitizations, Consolidated SLST and Consolidated Real Estate VIEs as of December 31, 2021 (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
| Financing VIEs |  | Other VIEs |  |
| Residential Loan Securitizations |  | Consolidated SLST |  | Consolidated Real Estate |  | Total
Cash and cash equivalents | $ | — |  |  | $ | — |  |  | $ | 29,606 |  |  | $ | 29,606 |
Residential loans, at fair value | 801,429 |  |  | 1,070,882 |  |  | — |  |  | 1,872,311 |
Real estate, net held in Consolidated VIEs (1) | — |  |  | — |  |  | 927,725 |  |  | 927,725 |
Other assets | 36,767 |  |  | 3,547 |  |  | 70,557 |  |  | 110,871 |
Total assets | $ | 838,196 |  |  | $ | 1,074,429 |  |  | $ | 1,027,888 |  |  | $ | 2,940,513 |
Collateralized debt obligations ($682,802 at amortized cost, net and $839,419 at fair value) | $ | 682,802 |  |  | $ | 839,419 |  |  | $ | — |  |  | $ | 1,522,221 |
Mortgages payable on real estate, net in Consolidated VIEs (2) | — |  |  | — |  |  | 672,568 |  |  | 672,568 |
Other liabilities | 20,156 |  |  | 3,193 |  |  | 17,527 |  |  | 40,876 |
Total liabilities | $ | 702,958 |  |  | $ | 842,612 |  |  | $ | 690,095 |  |  | $ | 2,235,665 |
Redeemable non-controlling interest in Consolidated VIEs (3) | $ | — |  |  | $ | — |  |  | $ | 66,392 |  |  | $ | 66,392 |
Non-controlling interest in Consolidated VIEs (4) | $ | — |  |  | $ | — |  |  | $ | 24,359 |  |  | $ | 24,359 |
Net investment (5) | $ | 135,238 |  |  | $ | 231,817 |  |  | $ | 247,042 |  |  | $ | 614,097 |
(1)Included in real estate, net in the accompanying condensed consolidated balance sheets. (2)Included in mortgages payable on real estate, net in the accompanying condensed consolidated balance sheets. (3)Represents redeemable third-party ownership of membership interests in Consolidated Real Estate VIEs. See Redeemable Non-Controlling Interest in Consolidated VIEs below. (4)Represents third-party ownership of membership interests in Consolidated Real Estate VIEs. (5)The net investment amount is the maximum amount of the Company's investment that is at risk to loss and represents the difference between total assets and total liabilities held by VIEs, less non-controlling interests, if any. The following table presents condensed statements of operations for non-Company-sponsored VIEs for the three months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|  | Three Months Ended June 30,
|  | 2022 |  | 2021
|  | Consolidated SLST |  | Consolidated Real Estate |  | Total |  | Consolidated SLST |  | Consolidated Real Estate |  | Total
Interest income |  | $ | 9,254 |  |  | $ | — |  |  | $ | 9,254 |  |  | $ | 10,479 |  |  | $ | — |  |  | $ | 10,479 |
Interest expense |  | 6,208 |  |  | 13,148 |  |  | 19,356 |  |  | 7,151 |  |  | 430 |  |  | 7,581 |
Total net interest income (expense) |  | 3,046 |  |  | (13,148) |  |  | (10,102) |  |  | 3,328 |  |  | (430) |  |  | 2,898 |
Unrealized (losses) gains, net |  | (4,275) |  |  | — |  |  | (4,275) |  |  | 9,793 |  |  | — |  |  | 9,793 |
Income from real estate |  | — |  |  | 34,409 |  |  | 34,409 |  |  | — |  |  | 2,150 |  |  | 2,150 |
Total non-interest (loss) income |  | (4,275) |  |  | 34,409 |  |  | 30,134 |  |  | 9,793 |  |  | 2,150 |  |  | 11,943 |
Expenses related to real estate (1) |  | — |  |  | 68,337 |  |  | 68,337 |  |  | — |  |  | 3,913 |  |  | 3,913 |
Net (loss) income |  | (1,229) |  |  | (47,076) |  |  | (48,305) |  |  | 13,121 |  |  | (2,193) |  |  | 10,928 |
Net loss attributable to non-controlling interest in Consolidated VIEs |  | — |  |  | 18,922 |  |  | 18,922 |  |  | — |  |  | 1,625 |  |  | 1,625 |
Net (loss) income attributable to Company |  | $ | (1,229) |  |  | $ | (28,154) |  |  | $ | (29,383) |  |  | $ | 13,121 |  |  | $ | (568) |  |  | $ | 12,553 |
(1)See Note 8 for depreciation and amortization expenses related to operating real estate. The following table presents condensed statements of operations for non-Company-sponsored VIEs for the six months ended June 30, 2022 and 2021, respectively (dollar amounts in thousands). Intercompany balances have been eliminated for purposes of this presentation.
|  | Six Months Ended June 30,
|  | 2022 |  | 2021
|  | Consolidated SLST |  | Consolidated Real Estate |  | Total |  | Consolidated SLST |  | Consolidated Real Estate |  | Total
Interest income |  | $ | 18,635 |  |  | $ | — |  |  | $ | 18,635 |  |  | $ | 20,797 |  |  | $ | — |  |  | $ | 20,797 |
Interest expense |  | 12,186 |  |  | 19,983 |  |  | 32,169 |  |  | 14,254 |  |  | 740 |  |  | 14,994 |
Total net interest income (expense) |  | 6,449 |  |  | (19,983) |  |  | (13,534) |  |  | 6,543 |  |  | (740) |  |  | 5,803 |
Unrealized (losses) gains, net |  | (19,555) |  |  | — |  |  | (19,555) |  |  | 19,018 |  |  | — |  |  | 19,018 |
Income from real estate |  | — |  |  | 58,047 |  |  | 58,047 |  |  | — |  |  | 3,645 |  |  | 3,645 |
Total non-interest (loss) income |  | (19,555) |  |  | 58,047 |  |  | 38,492 |  |  | 19,018 |  |  | 3,645 |  |  | 22,663 |
Expenses related to real estate (1) |  | — |  |  | 114,783 |  |  | 114,783 |  |  | — |  |  | 6,837 |  |  | 6,837 |
Net (loss) income |  | (13,106) |  |  | (76,719) |  |  | (89,825) |  |  | 25,561 |  |  | (3,932) |  |  | 21,629 |
Net loss attributable to non-controlling interest in Consolidated VIEs |  | — |  |  | 33,792 |  |  | 33,792 |  |  | — |  |  | 3,034 |  |  | 3,034 |
Net (loss) income attributable to Company |  | $ | (13,106) |  |  | $ | (42,927) |  |  | $ | (56,033) |  |  | $ | 25,561 |  |  | $ | (898) |  |  | $ | 24,663 |
(1)See Note 8 for depreciation and amortization expenses related to operating real estate. Redeemable Non-Controlling Interest in Consolidated VIEs The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interests in Consolidated VIEs in mezzanine equity on the accompanying condensed consolidated balance sheets. The holders of the redeemable non-controlling interests may elect to sell their ownership interests to the Company at fair value once a year and the sales are subject to minimum and maximum amount limitations. The following table presents activity in redeemable non-controlling interest in Consolidated VIEs for the three and six months ended June 30, 2022 (dollar amounts in thousands):
| Three Months Ended June 30, 2022 |  | Six Months Ended June 30, 2022
Beginning balance | $ | 53,361 |  |  | $ | 66,392 |
Contributions | 41 |  |  | 315 |
Distributions | (1,133) |  |  | (1,810) |
Net loss attributable to redeemable non-controlling interest in Consolidated VIEs | (15,168) |  |  | (27,796) |
Ending balance | $ | 37,101 |  |  | $ | 37,101 |
Unconsolidated VIEs As of June 30, 2022 and December 31, 2021, the Company evaluated its investment securities available for sale, preferred equity and other equity investments to determine whether they are VIEs and should be consolidated by the Company. Based on a number of factors, the Company determined that, as of June 30, 2022 and December 31, 2021, it does not have a controlling financial interest and is not the primary beneficiary of these VIEs. The following tables present the classification and carrying value of unconsolidated VIEs as of June 30, 2022 and December 31, 2021, respectively (dollar amounts in thousands):
| June 30, 2022
| Multi-family loans |  | Investment securities available for sale, at fair value |  | Equity investments |  | Total
ABS | $ | — |  |  | $ | 35,588 |  |  | $ | — |  |  | $ | 35,588 |
Non-Agency RMBS | — |  |  | 31,978 |  |  | — |  |  | 31,978 |
Preferred equity investments in multi-family properties | 106,825 |  |  | — |  |  | 178,783 |  |  | 285,608 |
Joint venture equity investments in multi-family properties | — |  |  | — |  |  | 10,990 |  |  | 10,990 |
Equity investments in entities that invest in residential properties | — |  |  | — |  |  | 2,878 |  |  | 2,878 |
Maximum exposure | $ | 106,825 |  |  | $ | 67,566 |  |  | $ | 192,651 |  |  | $ | 367,042 |
| December 31, 2021
| Multi-family loans |  | Investment securities available for sale, at fair value |  |  |  |  |  |  | Equity investments |  | Total
ABS | $ | — |  |  | $ | 39,679 |  |  |  |  |  |  |  | $ | — |  |  | $ | 39,679 |
Non-Agency RMBS | — |  |  | 30,924 |  |  |  |  |  |  |  | — |  |  | 30,924 |
Preferred equity investments in multi-family properties | 120,021 |  |  | — |  |  |  |  |  |  |  | 180,798 |  |  | 300,819 |
Joint venture equity investments in multi-family properties | — |  |  | — |  |  |  |  |  |  |  | 10,440 |  |  | 10,440 |
Equity investments in entities that invest in residential properties | — |  |  | — |  |  |  |  |  |  |  | 19,143 |  |  | 19,143 |
Maximum exposure | $ | 120,021 |  |  | $ | 70,603 |  |  |  |  |  |  |  | $ | 210,381 |  |  | $ | 401,005 |

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