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Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair Value Hierarchy—Our financial instruments measured at fair value either on a recurring or a non-recurring basis are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the marketplace as discussed below:
•Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
The fair value of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rose above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (SOFR forward curves) and volatilities (Level 2 inputs). We also incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk.
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties, which we consider significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels
are determined at the end of each reporting period. In determining the fair values of our derivatives at September 30, 2024, the SOFR interest rate forward curve (Level 2 inputs) assumed a downtrend from 4.846% to 3.013% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
Investment in securities includes mortgage-backed securities. These securities are classified as available for sale and are generally reported at fair value utilizing Level 2 inputs where the Company obtains fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
Quoted Market Prices (Level 1)Significant Other
Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
September 30, 2024
Assets
Investment in securities$— $41,493 $— $41,493 
Derivative assets:
Interest rate derivatives - caps$— $480 $— $480 
(1)
Total$— $41,973 $— $41,973 
Liabilities
Derivative liabilities:
Warrants$— $— $— $— 
(2)
Net$— $41,973 $— $41,973 
Quoted Market Prices (Level 1)Significant Other
Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
December 31, 2023
Assets
Derivative assets:
Interest rate derivatives - caps$— $2,847 $— $2,847 
(1)
$— $2,847 $— $2,847 
Liabilities
Derivative liabilities:
Warrants$— $(12)$— $(12)
(2)
Net$— $2,835 $— $2,835 
__________________
(1)Reported as “derivative assets” in our condensed consolidated balance sheets.
(2)Reported as “derivative liabilities” in our condensed consolidated balance sheets.
Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our condensed consolidated statements of operations (in thousands):
Gain (Loss) Recognized in Income
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Assets
Derivative assets:
Interest rate derivatives - caps$(735)$69 
(1)
$511 $645 
Total$(735)$69 $511 $645 
Liabilities
Derivative liabilities:
Warrants$— $154 $12 $273 
Net$(735)$223 $523 $918 
Total combined
Interest rate derivatives - caps$(1,746)$(1,944)$(3,710)$(5,517)
Warrants— 154 12 273 
Unrealized gain (loss) on derivatives$(1,746)
(1)
$(1,790)
(1)
$(3,698)
(1)
$(5,244)
(1)
Realized gain (loss) on interest rate caps1,011 
(1) (2)
2,013 
(1) (2)
4,221 
(1) (2)
6,162 
(1) (2)
Net$(735)$223 $523 $918 
________
(1)Reported in “realized and unrealized gain (loss) on derivatives” in our condensed consolidated statements of operations.
(2)Represents settled and unsettled payments from counterparties on interest rate caps.
The unrealized gain (loss) on investment in securities that was recognized as a change in other comprehensive income (loss) was $(786,000) for both the three and nine months ended September 30, 2024.