Real Estate Owned

3 Months Ended

Mar. 31, 2024

Banking and Thrift, Interest [Abstract]

Real estate owned is property acquired in full or partial settlement of loan obligations generally through foreclosure or by deed in lieu of foreclosure. Upon acquisition, we allocate the fair value of the real estate owned in accordance with ASC 805, Business Combinations. Subsequent to acquisition, costs incurred related to improvements to the property are capitalized and depreciated over their estimated useful lives and costs related to the operation of the property are expensed as incurred.

In June 2023, we assumed legal title to an office property located in Yardley, PA through a deed in lieu of foreclosure. The table below presents the assets and liabilities of real estate owned in our condensed consolidated balance sheets:


	March 31, 2024		December 31, 2023
Land, building and improvements	$	11,393	$	11,393
Accumulated depreciation	(263)		(115)
Real estate owned, net	11,130		11,278
Acquired real estate leases, net (1)	3,937		4,137
Prepaid expenses and other assets, net (2)	1,576		1,352
Total assets	$	16,643	$	16,767

Accounts payable, accrued liabilities and other liabilities	$	472	$	517
Total liabilities	$	472	$	517

(1)As of March 31, 2024, the weighted average amortization period of acquired real estate leases was 7.2 years.

(2)Includes $925 and $647 and of straight line rent receivables as of March 31, 2024 and December 31, 2023, respectively.

Revenue from real estate owned represents rental income from operating leases with tenants and is recognized on a straight line basis over the lease term. We increased revenue from real estate owned to record revenue on a straight line basis by $278 for the three months ended March 31, 2024. Expenses from real estate owned represents costs related to the acquisition of the property, costs to operate the property and depreciation and amortization expense.

We regularly evaluate real estate owned for indicators of impairment. Impairment indicators may include declining tenant occupancy, lack of progress leasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property. If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized. The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. We determine the amount of any impairment loss by comparing the carrying value to estimated fair value. We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation methods.