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Loans Held for Investment | 9 Months Ended
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Sep. 30, 2021
Receivables [Abstract] |
Loans Held for Investment | Note 4. Loans Held for Investment Portfolio Summary The following table provides a summary of the Company’s loan portfolio as of September 30, 2021 and December 31, 2020:
| September 30, 2021 |  | December 31, 2020
| Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total |  | Fixed Rate |  | Floating Rate (1)(2)(3) |  | Total
Number of loans | 5 |  |  | 14 |  |  | 19 |  |  | 6 |  |  | 14 |  |  | 20 |
Principal balance | $ | 92,808,312 |  |  | $ | 389,281,253 |  |  | $ | 482,089,565 |  |  | $ | 56,335,792 |  |  | $ | 367,838,966 |  |  | $ | 424,174,758 |
Carrying value | $ | 93,656,356 |  |  | $ | 386,806,296 |  |  | $ | 480,462,652 |  |  | $ | 56,464,310 |  |  | $ | 365,816,205 |  |  | $ | 422,280,515 |
Fair value | $ | 93,571,526 |  |  | $ | 384,826,180 |  |  | $ | 478,397,706 |  |  | $ | 56,284,334 |  |  | $ | 363,122,860 |  |  | $ | 419,407,194 |
Weighted-average coupon rate | 12.94 | % |  | 7.44 | % |  | 8.50 | % |  | 12.17 | % |  | 7.95 | % |  | 8.51 | %
Weighted-average remaining term (years) | 1.23 |  | 1.12 |  | 1.14 |  | 1.78 |  | 1.44 |  | 1.48
_______________ (1)These loans pay a coupon rate of LIBOR plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.08% and 0.14% as of September 30, 2021 and December 31, 2020, respectively. (2)As of September 30, 2021 and December 31, 2020, amounts included $162.8 million and $184.2 million of senior mortgages used as collateral for $93.6 million and $107.6 million of borrowings under a term loan, respectively (Note 9). As of September 30, 2021, amounts also included $42.2 million of senior mortgages used as collateral for $25.3 million of borrowings under a revolving line of credit. Borrowings under the term loan bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00%. Borrowings under the revolving line of credit bear interest at a minimum rate of 4.0%. (3)As of both September 30, 2021 and December 31, 2020, twelve of these loans are subject to a LIBOR floor. Lending Activities The following table presents the activities of the Company’s loan portfolio for the nine months ended September 30, 2021 and 2020:
| Loans Held for Investment |  | Loans Held for Investment through Participation Interests |  | Total
Balance, January 1, 2021 | $ | 417,986,462 |  |  | $ | 4,294,053 |  |  | $ | 422,280,515 |
New loans made | 163,504,926 |  |  | — |  |  | 163,504,926 |
Principal repayments received | (101,659,237) |  |  | (4,250,000) |  |  | (105,909,237) |
PIK interest (1) | 1,955,109 |  |  | — |  |  | 1,955,109 |
Net amortization of premiums on loans | (46,043) |  |  | — |  |  | (46,043) |
Accrual, payment and accretion of investment-related fees and other, net | 938,233 |  |  | (44,053) |  |  | 894,180 |
Realized loss on loan repayments (2)(3) | (651,553) |  |  | — |  |  | (651,553) |
Provision for loan losses | (1,565,245) |  |  | — |  |  | (1,565,245) |
Balance, September 30, 2021 | $ | 480,462,652 |  |  | $ | — |  |  | $ | 480,462,652 |
| Loans Held for Investment |  | Loans Held for Investment through Participation Interests |  | Total
Balance, January 1, 2020 | $ | 375,462,222 |  |  | $ | 3,150,546 |  |  | $ | 378,612,768 |
New loans made | 84,629,411 |  |  | 1,129,112 |  |  | 85,758,523 |
Principal repayments received | (28,690,175) |  |  | — |  |  | (28,690,175) |
PIK interest (1) | 2,893,620 |  |  | — |  |  | 2,893,620 |
Net amortization of premiums on loans | (46,043) |  |  | — |  |  | (46,043) |
Accrual, payment and accretion of investment-related fees, net | 792,606 |  |  | 16,343 |  |  | 808,949 |
Provision for loan losses | (1,356,737) |  |  | — |  |  | (1,356,737) |
Balance, September 30, 2020 | $ | 433,684,904 |  |  | $ | 4,296,001 |  |  | $ | 437,980,905 |
_______________ (1)Certain loans in the Company’s portfolio contain PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $1.0 million and $1.1 million for the nine months ended September 30, 2021 and 2020, respectively. (2)On September 2, 2021, the Company foreclosed on a hotel property encumbered by a first mortgage and the related subordinated mezzanine loan, both of which were held by the Company, with an aggregate principal balance $14.6 million. On September 23, 2021, the hotel property was sold to a third party for $13.8 million. The net proceeds from the sale, together with a payment under a contractual guarantee of $0.8 million from the borrower, were used to pay off both loans in full. In connection with the loan repayment, the related obligation under participation agreement of $6.4 million was simultaneously satisfied. In connection with the loan repayment, the Company recorded a loss of $0.4 million related to the write-off of the interest accrued but uncollected in the third quarter of 2021, excluding the amount attributable to obligations under participation agreements of $0.1 million. (3)Amount also included realized loss of $0.3 million related to the TDR transaction described below. Portfolio Information The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of September 30, 2021 and December 31, 2020:
|  | September 30, 2021 |  | December 31, 2020
Loan Structure |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
First mortgages |  | $ | 383,044,928 |  |  | $ | 385,439,932 |  |  | 80.2 | % |  | $ | 254,042,847 |  |  | $ | 255,093,989 |  |  | 60.5 | %
Preferred equity investments |  | 89,044,637 |  |  | 89,182,058 |  |  | 18.6 | % |  | 141,590,632 |  |  | 142,002,144 |  |  | 33.6 | %
Mezzanine loans |  | 10,000,000 |  |  | 10,160,225 |  |  | 2.1 | % |  | 28,541,279 |  |  | 28,923,140 |  |  | 6.8 | %
Allowance for loan losses |  | — |  |  | (4,319,563) |  |  | (0.9) | % |  | — |  |  | (3,738,758) |  |  | (0.9) | %
Total |  | $ | 482,089,565 |  |  | $ | 480,462,652 |  |  | 100.0 | % |  | $ | 424,174,758 |  |  | $ | 422,280,515 |  |  | 100.0 | %
|  | September 30, 2021 |  | December 31, 2020
Property Type |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
Office |  | $ | 212,435,064 |  |  | $ | 213,199,243 |  |  | 44.4 | % |  | $ | 182,698,225 |  |  | $ | 183,053,751 |  |  | 43.3 | %
Infill land |  | 79,495,651 |  |  | 79,895,793 |  |  | 16.6 | % |  | 10,442,567 |  |  | 10,537,512 |  |  | 2.5 | %
Multifamily |  | 78,724,866 |  |  | 79,265,718 |  |  | 16.5 | % |  | 150,873,173 |  |  | 151,768,347 |  |  | 35.9 | %
Hotel - full/select service |  | 56,847,381 |  |  | 57,365,987 |  |  | 11.9 | % |  | 49,142,809 |  |  | 49,393,251 |  |  | 11.7 | %
Mixed use |  | 16,586,603 |  |  | 16,586,603 |  |  | 3.5 | % |  | 16,767,984 |  |  | 16,767,984 |  |  | 4.0 | %
Student housing |  | 31,000,000 |  |  | 31,468,871 |  |  | 6.5 | % |  | 3,000,000 |  |  | 3,204,375 |  |  | 0.8 | %
Industrial |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.5 | % |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.7 | %
Hotel - extended stay |  | — |  |  | — |  |  | — | % |  | 4,250,000 |  |  | 4,294,053 |  |  | 1.0 | %
Allowance for loan losses |  | — |  |  | (4,319,563) |  |  | (0.9) | % |  | — |  |  | (3,738,758) |  |  | (0.9) | %
Total |  | $ | 482,089,565 |  |  | $ | 480,462,652 |  |  | 100.0 | % |  | $ | 424,174,758 |  |  | $ | 422,280,515 |  |  | 100.0 | %
During the first quarter of 2021, the Company reclassified the property types of collateral on certain loans to multifamily to better reflect the tenant mix of each property. Additionally, the Company categorized hotel properties further to hotel - full/selected service and hotel - extended stay. The prior period amounts have been reclassified to conform to the current period presentation.
|  | September 30, 2021 |  | December 31, 2020
Geographic Location |  | Principal Balance |  | Carrying Value |  | % of Total |  | Principal Balance |  | Carrying Value |  | % of Total
United States |  |  |  |  |  |  |  |  |  |  |  |
California |  | $ | 194,558,815 |  |  | $ | 195,789,977 |  |  | 40.7 | % |  | $ | 200,279,688 |  |  | $ | 200,990,328 |  |  | 47.6 | %
New York |  | 89,044,637 |  |  | 89,182,058 |  |  | 18.5 | % |  | 79,187,004 |  |  | 79,310,276 |  |  | 18.8 | %
Georgia |  | 52,921,315 |  |  | 53,194,876 |  |  | 11.0 | % |  | 74,116,787 |  |  | 74,505,752 |  |  | 17.6 | %
Pennsylvania |  | 52,000,000 |  |  | 52,464,277 |  |  | 10.9 | % |  | — |  |  | — |  |  | — | %
North Carolina |  | 39,570,042 |  |  | 39,774,232 |  |  | 8.3 | % |  | 33,242,567 |  |  | 33,438,806 |  |  | 7.9 | %
Utah |  | 28,000,000 |  |  | 28,308,646 |  |  | 5.9 | % |  | — |  |  | — |  |  | — | %
Texas |  | 13,625,000 |  |  | 13,721,970 |  |  | 2.9 | % |  | 3,848,712 |  |  | 3,887,200 |  |  | 0.9 | %
Massachusetts |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.5 | % |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.7 | %
South Carolina |  | 3,000,000 |  |  | 3,160,225 |  |  | 0.7 | % |  | 3,000,000 |  |  | 3,204,375 |  |  | 0.8 | %
Washington |  | 2,369,756 |  |  | 2,185,954 |  |  | 0.5 | % |  | 23,500,000 |  |  | 23,682,536 |  |  | 5.6 | %
Allowance for loan losses |  | — |  |  | (4,319,563) |  |  | (0.9) | % |  | — |  |  | (3,738,758) |  |  | (0.9) | %
Total |  | $ | 482,089,565 |  |  | $ | 480,462,652 |  |  | 100.0 | % |  | $ | 424,174,758 |  |  | $ | 422,280,515 |  |  | 100.0 | %
Loan Risk Rating As described in Note 2, the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk. The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of September 30, 2021 and December 31, 2020:
|  | September 30, 2021 |  | December 31, 2020
Loan Risk Rating |  | Number of Loans |  | Principal Balance |  | Carrying Value |  | % of Total |  | Number of Loans |  | Principal Balance |  | Carrying Value |  | % of Total
1 |  | — |  |  | $ | — |  |  | $ | — |  |  | — | % |  | — |  |  | $ | — |  |  | $ | — |  |  | — | %
2 |  | 2 |  |  | 25,000,000 |  |  | 25,040,664 |  |  | 5.2 | % |  | 1 |  |  | 7,000,000 |  |  | 7,000,000 |  |  | 1.6 | %
3 |  | 13 |  |  | 354,419,928 |  |  | 356,837,523 |  |  | 73.5 | % |  | 14 |  |  | 323,696,475 |  |  | 325,284,285 |  |  | 76.4 | %
4 |  | 1 |  |  | 58,419,764 |  |  | 58,429,227 |  |  | 12.1 | % |  | 3 |  |  | 72,861,587 |  |  | 73,079,804 |  |  | 17.2 | %
5 |  | — |  |  | — |  |  | — |  |  | — | % |  | 1 |  |  | 3,848,712 |  |  | 3,887,200 |  |  | 0.9 | %
Other (1) |  | 3 |  |  | 44,249,873 |  |  | 44,474,801 |  |  | 9.2 | % |  | 1 |  |  | 16,767,984 |  |  | 16,767,984 |  |  | 3.9 | %
|  | 19 |  |  | $ | 482,089,565 |  |  | 484,782,215 |  |  | 100.0 | % |  | 20 |  |  | $ | 424,174,758 |  |  | 426,019,273 |  |  | 100.0 | %
Allowance for loan losses |  | (4,319,563) |  |  |  |  |  |  |  |  | (3,738,758) |  |  |
Total, net of allowance for loan losses |  | $ | 480,462,652 |  |  |  |  |  |  |  |  | $ | 422,280,515 |  |  |
_______________ (1)Because these loans have an event of default, they are removed from the pool of loans on which a general allowance is calculated and are evaluated for collectibility individually. As of September 30, 2021 and December 31, 2020, the specific allowance for loan losses on these loans were $3.4 million and $2.5 million, respectively, as a result of a decline in the fair value of the collateral. As of September 30, 2021, the Company had one loan with a loan risk rating of “4” and no loan with a loan risk rating of “5”, representing a decrease in loans with loan risk ratings of “4” and “5” from those as December 31, 2020, and the Company reversed the previously recorded general allowance for loan losses of $0.4 million for the nine months ended September 30, 2021. Additionally, as of September 30, 2021, the number of loans deemed impaired increased as compared to those as of December 31, 2020, and the Company recorded specific allowance for loan losses of $0.7 million and $2.0 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2020, the Company had five loans with a loan risk rating of “4”, and recorded a general allowance for loan losses of $0.04 million and $1.4 million for the three and nine months ended September 30, 2020, respectively. The following table presents the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2021 and 2020:
|  | Nine Months Ended September 30,
|  | 2021 |  | 2020
Allowance for loan losses, beginning of period |  | $ | 3,738,758 |  |  | $ | — |
Provision for loan losses |  | 1,565,245 |  |  | 1,356,737 |
Charge-offs (1) |  | (984,440) |  |  | — |
Recoveries |  | — |  |  | — |
Allowance for loan losses, end of period |  | $ | 4,319,563 |  |  | $ | 1,356,737 |
_______________ (1)Amount related to the TDR described below. As of both September 30, 2021 and December 31, 2020, the Company had one loan that was in maturity default. Additionally, for the three and nine months ended September 30, 2021, the Company suspended interest income accrual of $1.1 million and $2.4 million, respectively, on three loans, because recovery of such income was doubtful. There was no suspension of such interest income for the three and nine months ended September 30, 2020. Troubled Debt Restructuring As of September 30, 2021, the Company had a recorded investment in troubled debt restructuring of $13.7 million. There were no such loans as of December 31, 2020. Due to financial difficulty resulting from the COVID-19 pandemic, a borrower defaulted on interest payments in May 2020 on a $3.5 million mezzanine loan and the Company subsequently suspended the interest accrual. The Company purchased the senior loan from a third-party lender on September 3, 2021 in order to facilitate a refinancing. Subsequently on September 23, 2021, the senior and mezzanine loans were refinanced and the Company issued a new senior loan with a committed amount of $14.7 million, of which $13.6 million was funded at closing. The concession granted in the refinancing was the forgiveness of principal and accrued interest of $1.3 million on the mezzanine loan, of which $1.0 million was previously recorded as an allowance for loan losses, in addition to $0.4 million of nonaccrual interest. The Company classified the refinancing as TDR as it met all the conditions to be considered TDR pursuant to ASC 310-40. The following table summarizes the recorded investment of TDR as of the date of restructuring:
Number of loans modified |  | 1 |  |
Pre-modified recorded carrying value |  | $ | 18,503,470 |  |  |
Post-modified recorded carrying value (1) |  | $ | 13,625,000 |  |  |
_______________ (1)As of September 30, 2021, the principal balance of this loan was $13.6 million and the carrying value of this loan, which includes the present value of the exit fee, was $13.7 million. There is no allowance for loan losses recorded for this new senior loan. Once classified as a TDR, the new senior loan is classified as an impaired loan until it is extinguished and the carrying value is evaluated at each reporting date for collectability based on the fair value of the underlying collateral. Since the fair value of the collateral is greater than the carrying value of the new senior loan, no specific allowance was recorded as of September 30, 2021. For the period ended September 30, 2021, interest income from the new senior loan was $0.2 million.

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