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Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
Note 19 - Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair values. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
•Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
•Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
•Level III - Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 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 has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
Financial Instruments Measured at Fair Value on a Recurring Basis
CMBS bonds, recorded in Real estate securities, available for sale, measured at fair value in the consolidated balance sheets are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, and recent trades of similar real estate securities. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. The Company obtains third party pricing for determining the fair value of each CMBS investment, resulting in a Level II classification.
Commercial mortgage loans, held for sale, measured at fair value in the Company's TRS are initially recorded at transaction price, which are considered to be the best initial estimate of fair value. The Company engages the services of a third party independent valuation firm to determine fair value of certain investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. Commercial mortgage loans, held for sale, measured at fair value that are originated in the last month of the reporting period are held and marked to the transaction price. The Company classified the commercial mortgage loans, held for sale, measured at fair value as Level III.
Derivative instruments, measured at fair value
Treasury note futures trade on the Chicago Board of Trade (“CBOT”) and are made up of contracts of a variety of recently issued 5-year and 10-year U.S. Treasury notes. The future contracts are liquid and are centrally cleared through the CBOT and are valued using market prices. Treasury note futures are categorized as Level I.
Credit default swaps, interest rate swaps and options can be traded over the counter (“OTC”) or on an exchange. Exchange-traded derivatives are generally valued using market prices while OTC derivative transaction valuations are derived using pricing models that are widely accepted by marketplace participants. The pricing models take into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves, recovery rates, and/or current credit spreads obtained from counterparties and other market participants. Most inputs into the models are not subjective as they are observable in the marketplace or set per the contract. The valuation is primarily determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying indices are liquid and the OTC market for the current spread is active, the derivatives are categorized in Level II of the fair value hierarchy. If the underlying indices are illiquid and the OTC market for the current spread is not active, the derivatives are categorized in Level III of the fair value hierarchy. The Company's option contracts are exchange-traded, and therefore categorized as Level I. The Company classified its credit default swaps as Level II.
Loan commitments and forward sale commitments in the Company's TRS are initially recorded at transaction price, which are considered to be the best initial estimate of fair value. The Company engages the services of a third party independent valuation firm to determine fair value of certain investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying commitment collateral. Loan commitments and forward sale commitments that are entered in the last month of the reporting period are held and marked to the transactions price. The Company classified the loan commitments and forward sale commitments as Level III.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets or liabilities. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the beginning of the reporting period. There were no material transfers between levels within the fair value hierarchy during the periods ended March 31, 2026 and December 31, 2025.
The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of March 31, 2026 and December 31, 2025 (dollars in thousands).
March 31, 2026
TotalLevel ILevel IILevel III
Assets, at fair value
Real estate securities, available for sale, measured at fair value$178,712 $— $178,712 $— 
Commercial mortgage loans, held for sale, measured at fair value - non-Agency175,750 — — 175,750 
Treasury Notes963 963 — — 
Options235 235 — — 
Commercial mortgage loans, held for sale, measured at fair value - Agency247,281 — — 247,281 
Loan commitments11,905 — — 11,905 
Forward sale commitments5,290 — — 5,290 
Total assets, at fair value$620,136 $1,198 $178,712 $440,226 
Liabilities, at fair value
Credit default swaps$1,680 $— $1,680 $— 
Forward sale commitments3,797 — — 3,797 
Total liabilities, at fair value$5,477 $— $1,680 $3,797 
December 31, 2025
TotalLevel ILevel IILevel III
Assets, at fair value
Real estate securities, available for sale, measured at fair value$151,662 $— $151,662 $— 
Commercial mortgage loans, held for sale, measured at fair value - non-Agency29,500 — — 29,500 
Commercial mortgage loans, held for sale, measured at fair value - Agency331,218 — — 331,218 
Loan commitments10,518 — — 10,518 
Forward sale commitments797 — — 797 
Total assets, at fair value$523,695 $— $151,662 $372,033 
Liabilities, at fair value
Treasury notes$28 $28 $— $— 
Credit default swaps714 — 714 — 
Forward sale commitments6,209 — — 6,209 
Total liabilities, at fair value$6,951 $28 $714 $6,209 
Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level III category. The following table summarizes the valuation method and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level III of the fair value hierarchy as of March 31, 2026 and December 31, 2025 (dollars in thousands).
March 31, 2026
Asset CategoryFair ValueValuation Methodologies
Unobservable Inputs(1)
Weighted AverageRange
Commercial mortgage loans, held for sale, measured at fair value - Non-Agency$175,750 Discounted Cash Flow Discount rate6.76%
6.35% - 7.05%
Commercial mortgage loans, held for sale, measured at fair value - Agency$247,281Discounted Cash FlowDiscount rate4.95%
3.80% - 6.30%
Loan commitments and forward sale commitments, net$13,398Discounted Cash Flow Discount rate4.95%
3.80% - 6.30%
December 31, 2025
Asset CategoryFair ValueValuation Methodologies
Unobservable Inputs(1)
Weighted AverageRange
Commercial mortgage loans, held for sale, measured at fair value - Non-Agency$29,500Discounted Cash FlowYield6.56%
6.42% - 7.25%
Commercial mortgage loans, held for sale, measured at fair value - Agency331,218Discounted Cash FlowDiscount rate4.81%
4.07% - 6.28%
Loan commitments and forward sale commitments5,106Discounted Cash Flow Discount rate4.81%
4.07% - 6.28%
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(1) In determining certain inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments.
Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets. The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025 for which the Company has used Level III inputs to determine fair value (dollars in thousands):
March 31, 2026
Commercial mortgage loans, held for sale, measured at fair value - Non-AgencyCommercial mortgage loans, held for sale, measured at fair value - AgencyLoan CommitmentsForward Sale Commitments
Beginning balance, January 1, 2026$29,500 $331,218 $10,518 $(5,413)
Transfers into Level III— — — — 
Originations251,250 584,746 10,100 6,906 
Sales/paydowns(109,344)(668,683)(8,713)
Realized and unrealized gain/(loss) included in earnings4,344 — — — 
Transfers out of Level III(1)
— — — — 
Ending Balance, March 31, 2026$175,750 $247,281 $11,905 $1,493 
________________________
(1) There were no transfers in or out of Level III as of March 31, 2026.
December 31, 2025
Commercial mortgage loans, held for sale, measured at fair value - Non-AgencyCommercial mortgage loans, held for sale, measured at fair value - AgencyLoan CommitmentsForward Sale Commitments
Beginning balance, January 1, 2025$87,270 $— $— $— 
Transfers into Level III— 422,011 4,268 — 
Originations411,650 3,225,586 32,961 (5,413)
Sales/paydowns(487,529)(3,316,379)(26,711)— 
Realized and unrealized gain/(loss) included in earnings18,109 — — — 
Transfers out of Level III(1)
— — — — 
Ending Balance, December 31, 2025$29,500 $331,218 $10,518 $(5,413)
________________________
(1) There were no transfers out of Level III as of December 31, 2025.
The fair value of cash and cash equivalents and restricted cash are measured using observable quoted market prices, or Level I inputs and their carrying value approximate their fair value. The fair value of borrowings under repurchase agreements approximate their carrying value on the consolidated balance sheets due to their short-term nature and are measured using Level III inputs.
Financial Instruments Measured at Fair Value on a Nonrecurring Basis
Real Estate Owned, held for sale, on the consolidated balance sheets are valued at fair value on a non-recurring basis in accordance with ASC 820 and are classified as Level III investments. At the time of acquisition, we determined the fair value of the net real estate assets, using either the market approach, the income approach, or a combination thereof.
The Company determined the fair value of its three multifamily properties and one office property, obtained through foreclosure or deed-in-lieu of foreclosure, based on a combination of the market approach and the income approach.
The significant unobservable input used for the income approach is the exit capitalization rate assumptions, which ranged from 5.00% - 9.50%. The significant unobservable input used for the market approach is the estimated fair value less cost to sell based on a negotiated price from an anticipated buyer.
As of March 31, 2026, the Company's Real estate owned, held for sale assets and liabilities, had a fair value of $192.7 million, net, that represented three multifamily properties and one office property. As of December 31, 2025, the Company's real estate owned, held for sale assets and liabilities had a fair value of $198.9 million, net, representing the one remaining retail property in the Walgreens Portfolio, four multifamily properties and one office property.
Mortgage servicing rights, net on the consolidated balance sheets are valued at fair value at inception, and thereafter on a non-recurring basis and are carried at the lower of amortized costs or fair value. That is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value measurement when there is evidence of impairment and for disclosure purposes. The Company's MSRs do not trade in an active, open market with readily observable prices and are classified as Level III. While sales of multifamily MSRs do occur on occasion, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the Company engages the services of a third party independent valuation firm to determine the estimated fair value who use discounted cash flow models that calculate the present value of estimated future net servicing income. The model considers contractually specified servicing fees, prepayment assumptions, estimated placement fee revenue from escrow deposits, and other economic factors. The Company periodically reassesses and adjusts, when necessary, the underlying inputs and assumptions that a market participant would consider in valuing MSR assets.
Financial Instruments Not Measured at Fair Value
The Company's financial assets and liabilities that are not reported at fair value in the consolidated balance sheets are reported below as of March 31, 2026 and December 31, 2025 (dollars in thousands):
March 31, 2026December 31, 2025
LevelCarrying AmountFair ValueLevelCarrying AmountFair Value
Commercial mortgage loans, held for investment(1)
AssetIII$4,596,001 $4,578,458 III$4,421,436 $4,411,871 
Pledged investment securitiesAssetI21,958 22,619 I20,483 21,175 
Collateralized loan obligations(2)
LiabilityII2,637,338 2,654,143 II2,735,582 2,757,931 
Mortgage note payableLiabilityIII23,998 23,998 III23,998 23,998 
Other financingsLiabilityIII12,865 12,865 III12,865 12,865 
Unsecured debtLiabilityIII185,693 171,500 III185,466 178,900 
Mortgage servicing rights, netAssetIII211,854 231,045 III212,216 213,572 
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(1) The carrying value is gross of $49.2 million and $38.3 million of allowance for credit losses as of March 31, 2026 and December 31, 2025, respectively.
(2) Depending upon the significance of the fair value inputs utilized in determining these fair values, our collateralized loan obligations are classified as either Level II or Level III of the fair value hierarchy.
Repurchase agreements - commercial mortgage loans of $1.5 billion and $1.1 billion as of March 31, 2026 and December 31, 2025, respectively, and repurchase agreements - real estate securities of $212.2 million and $187.4 million as of March 31, 2026 and December 31, 2025, respectively, are not carried at fair value and do not include accrued interest expense, which are presented in Note 12 – Debt. For these instruments, carrying value generally approximates fair value and are classified as Level III.
The fair value of the commercial mortgage loans, held for investment is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. Pledged investment securities are comprised of treasury securities for which fair value is generally estimated using discounted cash flow analysis. The Company estimates the fair value of the collateralized loan obligations using external broker quotes. The mortgage note payable was recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The fair value of the other financings is generally estimated using a discounted cash flow analysis. The fair value of the unsecured debt is based on discounted cash flows using Company estimates for market yields on similarly structured debt instruments.