v3.25.2
FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 3 — FAIR VALUE MEASUREMENTS
GAAP defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. GAAP emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:
Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs, which are only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.
The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:
Real estate-related securities and other — The Company generally determines the fair value of its CMBS by utilizing broker-dealer quotations, reported trades or valuation estimates from pricing models to determine the reported price. Pricing models for CMBS are generally discounted cash flow models that usually consider the attributes applicable to a particular class of security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are valued using Level 1, Level 2 or Level 3 inputs.
The Company’s CLO subordinated note is valued using Level 3 inputs. The Company determines the fair value of its CLO subordinated note through consideration of the underlying investment portfolio metrics, including prepayment rates, default and recovery rates, and estimated market yields, supplemented by actual trades executed in the market and indicative prices provided by broker-dealers. Operating metrics related to the specific CLO subordinated note are also considered in determining the fair value of the investment.
The Company’s equity securities are valued using Level 1, Level 2 or Level 3 inputs depending upon the availability of the fair value inputs used in determining the respective fair values. The estimated fair value of the Company’s equity securities is based on quoted market prices when readily and regularly available in an active market.
A breakout of the Company’s CMBS, CLO subordinated note, and equity securities’ levels of the fair value hierarchy as of June 30, 2025 and December 31, 2024 can be found in the tables under Items Measured at Fair Value on a Recurring Basis below.
Repurchase facilities, notes payable and credit facilities — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. Current and prior period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs.
Derivative instruments — In the normal course of business, the Company may use certain types of derivative instruments, such as interest rate swaps and interest rate caps, for the purpose of managing or hedging its interest rate risk. All derivative instruments are carried at fair value and are generally valued using Level 2 inputs. The fair value of these instruments is determined using interest rate market pricing models. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company’s potential nonperformance risk and the performance risk of the respective counterparties.
Although the Company has determined that the majority of the inputs used to value its derivatives has generally fallen within Level 2 of the fair value hierarchy, certain credit valuation adjustments associated with such derivatives may utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties.
Loans held-for-investment — The Company’s loans held-for-investment are recorded at cost upon origination, net of loan origination fees and discounts. The Company estimates the fair value of its loans held-for-investment by performing a present value analysis for the anticipated future cash flows using an appropriate market discount rate taking into consideration the credit risk. The Company has determined that its commercial real estate (“CRE”) loans held-for-investment and corporate senior loans are classified in Level 3 of the fair value hierarchy. The Company’s liquid corporate senior loans are classified as Level 2 or Level 3 depending on the number of market quotations or indicative prices from pricing services that are available, and whether the depth of the market is sufficient to transact at those prices in amounts approximating the Company’s investment position at the measurement date.
In accordance with the fair value hierarchy described above, the following table details the net book value and fair value of the financial instruments described above as of June 30, 2025 and December 31, 2024 (in thousands):
June 30, 2025December 31, 2024
Net Book Value
Fair Value
Net Book ValueFair Value
Level
Financial assets:
First mortgage loans
$2,881,929 $2,932,962 $3,085,104 $3,141,665 3
Liquid corporate senior loans
26,650 21,972 35,653 32,062 (1)
Corporate senior loans
311,897 317,795 250,120 256,543 3
Total financial assets
$3,220,476 $3,272,729 $3,370,877 $3,430,270 
Financial liabilities:
Repurchase facilities, notes payable and credit facilities
$3,036,929 $2,975,952 $3,182,614 $3,098,368 2
Total financial liabilities
$3,036,929 $2,975,952 $3,182,614 $3,098,368 
____________________________________
(1)As of June 30, 2025, $18.0 million and $4.0 million of the Company’s liquid corporate senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively. As of December 31, 2024, $26.0 million and $6.1 million of the Company’s liquid corporate senior loans were classified in Level 2 and Level 3 of the fair value hierarchy, respectively.
Other financial instruments — The Company considers the carrying values of its cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses, other liabilities, due to affiliates and distributions payable to approximate their fair values because of the short period of time between their origination and their expected realization as well as their highly-liquid nature. Due to the short-term maturities of these instruments, Level 1 inputs are utilized to estimate the fair value of these financial instruments.
Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, upon disposition of the financial assets and liabilities. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. The Company does not expect that changes in classifications between levels will be frequent.
Items Measured at Fair Value on a Recurring Basis
In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets that are required to be measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024 (in thousands):
Balance as of
June 30, 2025		Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Financial assets:
CMBS$238,705 $— $195,278 $43,427 
CLO subordinated note
23,089 — — 23,089 
Equity securities
33,361 32,628 — 733 
Total financial assets$295,155 $32,628 $195,278 $67,249 
  
Balance as of December 31, 2024Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Financial assets:
CMBS$286,757 $— $241,341 $45,416 
CLO subordinated note26,901 — — 26,901 
Equity securities
32,170 31,547 — 623 
Total financial assets
$345,828 $31,547 $241,341 $72,940 
The following are reconciliations of the changes in financial assets with Level 3 inputs in the fair value hierarchy for the six months ended June 30, 2025 (in thousands):
Level 3
Beginning Balance, January 1, 2025
$72,940 
Total gains and losses:
Unrealized loss included in other comprehensive (loss) income
(931)
Current expected credit losses
(2,204)
Unrealized loss on CLO subordinated note
(1,966)
Purchases and payments received:
Proceeds from the repayment on the CLO subordinated note
(3,884)
Accreted interest income
2,037 
Discounts, net631 
Capitalized interest income626 
Ending Balance, June 30, 2025
$67,249 
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
Certain financial and nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company’s process for identifying and recording impairment related to credit investments, real estate assets and intangible assets is discussed in Note 2 — Summary of Significant Accounting Policies.
Properties acquired through deeds-in-lieu of foreclosure are recognized at fair value and included in total real estate assets, net on the Company’s condensed consolidated balance sheets upon foreclosure in accordance with the asset acquisition provisions of ASC 805. The Company is required to disclose real estate owned, a nonfinancial asset, at fair value on a non-recurring basis, in accordance with ASC 820, Fair Value Measurement and Disclosures (“ASC 820”). Under ASC 820, the Company may utilize the income, market or cost approach (or combination thereof) to determine the fair value of real estate owned. During the six months ended June 30, 2025, the Company took control of the assets securing two of its risk-rated 5 first mortgage loans, which are comprised of two office buildings, through deeds-in-lieu of foreclosure. At the time of acquisition, the Company determined the aggregate fair value of the net real estate assets to be $151.0 million. For the two properties, the Company utilized discount rates of 10.8% and 10.0%, respectively and capitalization rates of 9.0% and 8.5%, respectively. Subsequent to June 30, 2025, one of the properties acquired via deed-in-lieu of foreclosure met the criteria to be classified as held for sale. The Company expects the sale to be completed in August 2025.
As of June 30, 2025, the Company had an aggregate $238.4 million asset-specific credit loss reserve on funded and unfunded commitments related to six of the Company’s first mortgage loans with an aggregate carrying value of $822.1 million. The asset-specific credit loss reserve was recorded based on the Company’s estimation of the fair value of the first mortgage loans’ aggregate underlying collateral, less costs to sell the underlying collateral, as of June 30, 2025. These loans are therefore measured at fair value on a nonrecurring basis using significant unobservable inputs, and are classified as Level 3 assets in the fair value hierarchy. The Company considered a variety of inputs including property performance, market data and comparable sales, as applicable. The significant unobservable inputs used include the terminal capitalization rate, which ranged from 8.0% to 9.0%, and the discount rate, which ranged from 10.0% to 14.0%. For additional information regarding the first mortgage loans, refer to Note 8 — Loans Held-For-Investment.
As discussed in Note 4 — Real Estate Assets, during the six months ended June 30, 2025, three properties were deemed to be impaired due to sales prices or revised cash flow estimates that were less than their respective carrying values, and their carrying values were reduced to an estimated fair value of $105.0 million, resulting in impairment charges of $7.7 million. The revised cash flow estimate was a result of continued deterioration of fundamentals at certain office properties, including weakened leasing activity and increased capitalization rates, and a revision in assumed holding periods at certain properties. Additionally, during the six months ended June 30, 2025, no condominium units were deemed to be impaired. During the six months ended June 30, 2024, seven properties were deemed to be impaired due to sales prices or revised cash flow estimates that were less than their respective carrying values, and their carrying values were reduced to an estimated fair value of $115.3 million, resulting in impairment charges of $51.5 million. Additionally, during the six months ended June 30, 2024, certain condominium units were deemed to be impaired, primarily due to a decrease in expected sales prices for certain units, and their carrying values were reduced to their estimated fair value, resulting in impairment charges of $5.5 million. The Company estimates fair values using Level 3 inputs and a combined income and market approach, specifically using discounted cash flow analysis and recent comparable sales transactions. The evaluation of real estate assets for potential impairment requires the Company’s management to exercise significant judgment and to make certain key assumptions, including, but not limited to, the following: (1) terminal capitalization rates; (2) discount rates; (3) the number of years the property will be held; (4) property operating expenses; and (5) re-leasing assumptions, including the number of months to re-lease, market rental income and required tenant improvements. There are inherent uncertainties in making these estimates such as market conditions and the future performance and sustainability of the Company’s tenants. The Company determined that the selling prices used to determine the fair values were Level 2 inputs.
The following summarizes the ranges of discount rates and terminal capitalization rates used for the Company’s impairment test for the real estate assets during the six months ended June 30, 2025 and 2024:
Six Months Ended June 30,
20252024
Discount Rate
Terminal Capitalization Rate
Discount RateTerminal Capitalization Rate
9.5% - 11.9%
9.0% - 13.3%
8.6% - 11.0%
8.1% - 9.5%
The following table presents the impairment charges by asset class recorded during the six months ended June 30, 2025 and 2024 (in thousands):
Six Months Ended June 30,
20252024
Asset class impaired:
Land$700 $8,182 
Buildings, fixtures and improvements6,347 39,364 
Intangible lease assets627 3,918 
Intangible lease liabilities— 5 
Condominium developments— 5,463 
Total impairment loss$7,674 $56,932