Note 5. Real Estate Owned

Depreciation expense related to our real estate owned held-for-investment assets for the three months ended September 30, 2026 and 2025 was $4.1 million and $2.0 million, respectively. Depreciation expense related to our real estate owned held-for-investment assets for the nine months ended September 30, 2026 and 2025 was $12.8 million and $2.6 million, respectively. At each reporting period, we assess whether there are any indicators of impairment of our real estate owned held-for-investment assets. There were no impairments of our real estate owned held-for-investment assets through September 30, 2026.

Sales of Real Estate Owned

In May 2026, we sold one of our multifamily real estate owned assets located in Dallas, TX to an unaffiliated purchaser for a gross sales price of $48.0 million relative to our carrying value (inclusive of lease intangibles) just prior to the sale of $46.7 million, resulting in a gain on sale of $0.3 million. The asset previously served as partial collateral for a loan receivable and we foreclosed on the collateral property in July 2025.

In September 2026, we sold one of our multifamily real estate owned assets located in Dallas, TX to an unaffiliated purchaser for a gross sales price of $22.5 million, resulting in net proceeds equal to our prior held-for-sale carrying value of $22.1 million. The asset previously served as collateral for a loan receivable and we foreclosed on the collateral property in July 2025.

In October 2026, an unaffiliated purchaser’s deposit became nonrefundable under an agreement to sell two of the seven hotels in

our REO hotel portfolio for a gross sales price of $44.5 million, a slight premium to the September 30, 2026 allocated carrying value. The sale is expected to close by the first quarter of 2027, subject to customary closing conditions. We acquired the hotel portfolio in February 2021 through foreclosure on a subordinate loan receivable, for which the two hotels served as partial collateral.

Real Estate Owned Held-For-Sale

In June 2026, we determined that our mixed-use real estate owned asset met the held-for-sale criteria. As a result, we reclassified this asset to real estate owned held-for-sale on our consolidated balance sheet and recognized a $27.8 million loss through our valuation adjustment for real estate owned held-for-sale based upon an anticipated sales price, less estimated costs to sell, and the carrying value of the asset (including related net lease intangible assets and deferred leasing costs) prior to reclassification. As of September 30, 2026, this asset continues to meet the held-for-sale criteria.

Multifamily Property Foreclosures

In January 2026, we acquired legal title to a multifamily property located in Dallas, TX through a mortgage foreclosure. Prior to such date, the multifamily property represented the collateral for a senior loan with an unpaid principal balance prior to principal charge-off of $76.6 million. As of December 31, 2025 and in anticipation of the mortgage foreclosure, we recognized a principal charge-off of $39.1 million based upon the multifamily property’s $37.4 million estimated fair value as determined by a third-party appraisal. During the nine months ended September 30, 2026, we recognized an additional principal charge-off of $0.8 million upon the assumption of net working capital. In connection with the mortgage foreclosure, we incurred $0.3 million of transaction costs. As of September 30, 2026, the multifamily property appears as part of real estate owned held-for-investment, net and related lease intangibles appear within other assets on our consolidated balance sheets.

In May 2026, we acquired legal title to a multifamily property located in Dallas, TX through a mortgage foreclosure. Prior to such date, the multifamily property represented the collateral for a senior loan with an unpaid principal balance prior to principal charge-off of $25.4 million. Upon foreclosure, we recognized principal and accrued interest receivable charge-offs of $2.7 million and $0.4 million, respectively, based upon the multifamily property’s $22.4 million estimated fair value as determined by a third-party appraisal and the assumption of net working capital. In connection with the mortgage foreclosure, we incurred $0.2 million of transaction costs. As of September 30, 2026, the multifamily property appears as part of real estate owned held-for-investment, net and related lease intangibles appear within other assets on our consolidated balance sheets.

Fair values of collateral assets used to determine the initial estimated fair value of real estate owned are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair values used to determine real estate owned upon acquisition may include, among others, assumptions of property specific cash flows over estimated holding periods, assumptions of property redevelopment costs, assumptions of leasing activities, discount rates, market and terminal capitalization rates, and, with respect to land, value per buildable square foot. These assumptions are based upon the nature of the properties, recent and projected property cash flows, recent sales and lease comparables, and anticipated real estate and capital market conditions, among other factors which we may deem relevant. Estimates of fair values used to determine real estate owned upon acquisition during the nine months ended September 30, 2026 include assumptions of a market capitalization rate ranging from 5.00% to 5.75% and a discount rate of 8.00%.

Leases

We have non-cancelable operating leases for space in our mixed-use and multifamily properties. These leases provide for fixed rent payments, which we recognize on a straight-line basis, and variable rent payments, including reimbursement of certain operating expenses and miscellaneous fees, which we recognize when earned. As of September 30, 2026, the future minimum fixed rents under our non-cancellable leases for each of the next five years and thereafter are as follows ($ in thousands):

Lease Intangibles

The weighted average amortization period for in-place lease values acquired during the nine months ended September 30, 2026 was 1.0 year.