| COMMERCIAL LOANS AND INVESTMENTS |
NOTE 4. COMMERCIAL LOANS AND INVESTMENTS Our investments in commercial loans or similarly structured investments, such as preferred equity, mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The investments are associated with commercial real estate located in the United States, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property. 2026 Activity. During the six months ended June 30, 2026, the Company entered into two preferred equity agreements for aggregate investments of $96.4 million. Origination fees totaling $1.2 million were received on the two preferred equity agreements. In addition, the Company funded $17.4 million under existing construction loan commitments. The Company’s $30.0 million Watters Creek preferred equity investment was repaid in full, including all accrued interest. 2025 Activity. During the six months ended June 30, 2025, no new commercial loans or investments were originated; however, $6.4 million of funding, net of origination fees received, was provided for existing construction loans and principal repayments of $5.6 million were received. Other Activity. Certain commercial loans and investments outstanding as of June 30, 2026 required determinations, at origination, related to variable interest entity matters as described herein: | ● | Series A Preferred Investment. On July 11, 2024, the Company funded $10.0 million into an escrow account, which escrow closed on August 1, 2024 in exchange for 10,000 shares of 14.000% Series A preferred stock, with a $0.01 par value per share, of a subsidiary of a publicly-traded hospitality, entertainment and real estate company (the “Series A Preferred Investment”). In connection with the investment, the Company received an origination fee of 1.0% or $0.1 million. The investment is not redeemable prior to July 11, 2029, except upon the occurrence of certain specified events. The Company determined, pursuant to FASB ASC Topic 810, Consolidation, that we do not have a variable interest in the entity underlying the Series A Preferred Investment; accordingly, FASB ASC Topic 320, Investments-Debt Securities, was applied and the investment was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. |
| ● | Class A Premier Retail Preferred Investment. On April 17, 2026, the Company entered into a preferred equity agreement to provide $75.0 million of funding towards a Class A premier retail property located in the Southwest (the “Class A Premier Retail Preferred Investment”). Pursuant to FASB ASC Topic 810, Consolidation, the Company determined it is not the primary beneficiary of the entity underlying the Class A Premier Retail Preferred Investment; accordingly, the $75.0 million was recorded on the consolidated balance sheets as a commercial loan investment at the time of acquisition. The Class A Premier Retail Preferred Investment is mandatorily redeemable no later than the earlier of April 17, 2028, or upon the occurrence of certain other specified events. The Class A Premier Retail Preferred Investment bears a rate of 12.0% for the first year, and 11.0% thereafter. Additionally, at the election of the managing member of the Class A Premier Retail Preferred Investment, up to 3.0% of the return can be deferred as paid-in-kind (“PIK”) interest for a period of up to one year. If such election is made, any accrued and unpaid deferred return will continue to accrue at the applicable rate, plus 1.0% until repaid. There is an option to extend the stated redemption date for one additional year, in which case the rate would increase to 13.0%. At closing, a 1.25% origination fee, or $0.9 million, was received by the Company. The Class A Premier Retail Preferred Investment represents $75.0 million, or less than 5%, of funding towards the total investment in a Class A retail property located in the Southwest. The remaining funding is comprised of a combination of third-party sponsorship equity and secured debt. |
| ● | Grocery-Anchored Retail Development Preferred Investment. On May 7, 2026, the Company entered into a preferred equity agreement to provide $21.4 million of funding towards a grocery-anchored retail shopping center located in the Northeast (the “Grocery-Anchored Retail Development Preferred Investment”). Pursuant to FASB ASC Topic 810, Consolidation, the Company determined it is not the primary beneficiary of the entity underlying |
| | the Grocery-Anchored Retail Development Preferred Investment; accordingly, the $21.4 million was recorded on the consolidated balance sheets as a commercial loan investment at the time of acquisition. The Grocery-Anchored Retail Development Preferred Investment is mandatorily redeemable on October 31, 2027, with a one-year option to extend to October 31, 2028. The Grocery-Anchored Retail Development Preferred Investment bears a rate of 12.0%, including 3.0% accrued PIK interest. If the one-year extension is exercised, the rate would increase to 13.0%, including 3.0% accrued PIK interest. At closing, a 1.00% origination fee, or $0.2 million, was received by the Company. The Grocery-Anchored Retail Development Preferred Investment represents $21.4 million, or approximately 17%, of funding towards the total investment in the grocery-anchored retail development located in the Northeast (the “Grocery-Anchored Retail Development”). The remaining funding is comprised of a combination of third-party sponsorship equity and secured debt. |
The Company’s commercial loans and investments were comprised of the following at June 30, 2026 (in thousands): | | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Mortgage Note – Founders Square – Dallas, TX | | March 2023 | | March 2027 | | | 15,000 | | | 15,000 | | | 14,957 | | 9.50% | Series A Preferred Investment | | July 2024 | | July 2029 | | | 10,000 | | | 10,000 | | | 9,939 | | 14.00% | Construction Loan - Rivana - Herndon, VA (1) | | September 2024 | | September 2028 | | | 59,450 | | | 44,130 | | | 42,780 | | 11.62% | Construction Loan - Whole Foods - Forsyth, GA | | November 2024 | | May 2027 | | | 40,200 | | | 21,268 | | | 21,132 | | 12.15% | Mortgage Note - Mainstreet - Daytona Beach, FL | | August 2025 | | August 2030 | | | 5,000 | | | 5,000 | | | 4,979 | | 6.50% | Class A Premier Retail Preferred Investment – Southwest | | April 2026 | | April 2028 | | | 75,750 | | | 75,750 | | | 74,235 | | 12.00 % | Grocery-Anchored Retail Development Preferred Investment – Northeast (2) | | May 2026 | | October 2027 | | | 21,363 | | | 21,460 | | | 21,269 | | 12.00 % | | | | | | | $ | 226,763 | | $ | 192,608 | | $ | 189,291 | | | CECL Reserve | | | | | | | | | | | | | (1,903) | | | Total Commercial Loans and Investments | | | | | | | | | | | | $ | 187,388 | | |
| (1) | Amounts funded prior to December 31, 2025 carry a coupon rate of 11.50%, while draws subsequent to that date have a 12.00% coupon rate, including 10.00% cash and 2.00% accrued paid-in-kind interest. The disclosed rate of 11.62% represents the weighted average coupon rate as of June 30, 2026. |
| (2) | The coupon rate is comprised of 9.00% cash interest and 3.00% paid-in-kind. |
The Company’s commercial loans and investments were comprised of the following at December 31, 2025 (in thousands): | | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Preferred Investment – Watters Creek – Allen, TX | | April 2022 | | April 2026 | | $ | 30,000 | | $ | 30,000 | | $ | 29,980 | | 9.50% | Mortgage Note – Founders Square – Dallas, TX (1) | | March 2023 | | March 2027 | | | 15,000 | | | 15,000 | | | 14,992 | | 8.75% | Series A Preferred Investment | | July 2024 | | July 2029 | | | 10,000 | | | 10,000 | | | 9,929 | | 14.00% | Construction Loan - Rivana - Herndon, VA (2) | | September 2024 | | September 2028 | | | 59,450 | | | 34,246 | | | 32,478 | | 11.50% | Construction Loan - Whole Foods - Forsyth, GA | | November 2024 | | May 2027 | | | 40,200 | | | 13,804 | | | 13,588 | | 12.15% | Mortgage Note - Mainstreet - Daytona Beach, FL | | August 2025 | | August 2030 | | | 5,000 | | | 5,000 | | | 4,977 | | 6.50% | | | | | | | $ | 159,650 | | $ | 108,050 | | $ | 105,944 | | | CECL Reserve | | | | | | | | | | | | | (1,140) | | | Total Commercial Loans and Investments | | | | | | | | | | | | $ | 104,804 | | | | | | | | | | | | | | | | | | |
| (1) | Coupon rate increased to 9.5% effective January 1, 2026. |
| (2) | Future draws funded will have a 12.0% coupon rate including 10% cash and 2.0% accrued paid-in-kind interest. |
The carrying value of the commercial loans and investments portfolio at June 30, 2026 and December 31, 2025 consisted of the following (in thousands): | | | | | | | | | As of | | | June 30, 2026 | | December 31, 2025 | Current Face Amount | | $ | 192,608 | | $ | 108,050 | Unaccreted Origination Fees | | | (1,760) | | | (778) | Unaccreted Exit Fees | | | (1,557) | | | (1,328) | CECL Reserve | | | (1,903) | | | (1,140) | Total Commercial Loans and Investments | | $ | 187,388 | | $ | 104,804 |
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