5. Debt and Preferred Equity Investments

During the years ended December 31, 2012 and 2011, our debt and preferred equity investments (net of discounts) increased approximately $672.9 million and $622.5 million, respectively, due to originations, purchases, accretion of discounts and paid-in-kind interest. We recorded approximately $298.7 million and $589.4 million in repayments, participations, sales and foreclosures and loan loss reserves of $3.0 million and $10.9 million during those periods, respectively, which offset the increases in debt and preferred equity investments.

As of December 31, 2012 and 2011, we held the following debt investments with an aggregate weighted average current yield of approximately 9.79% at December 31, 2012 (amounts in thousands):

Loan Type	December 31, 2012 Senior Financing		December 31, 2012 Carrying Value, Net of Discounts			December 31, 2011 Carrying Value, Net of Discounts

Other Loan	$	15,000	$	3,500		$	3,500		September 2021
Mortgage/Mezzanine Loan⁽¹⁾		1,109,000		115,804			108,817		March 2017
Mezzanine Loan		165,000		71,067			40,375		November 2016
Junior Participation		133,000		49,000			49,000		June 2016
Mortgage/Mezzanine Loan		169,212		46,496			46,416		May 2016
Mezzanine Loan		177,000		15,906			17,112		May 2016
Mezzanine Loan		205,000		66,544			64,973		February 2016
Mortgage⁽²⁾		—		218,068			—		—
Junior Participation⁽³⁾⁽⁴⁾		—		—			8,725		—
Junior Participation⁽⁴⁾⁽⁵⁾		—		—			11,000		—

Total fixed rate	$	1,973,212	$	586,385		$	349,918

Mezzanine Loan⁽⁶⁾	$	81,000	$	34,940		$	34,940		October 2016
Mezzanine Loan		55,000		35,000			35,000		July 2016
Mezzanine Loan⁽⁷⁾		92,711		56,289			—		December 2015
Mortgage/Mezzanine Loan⁽⁸⁾		—		47,679			—		February 2015
Mortgage		—		15,000			—		September 2014
Mezzanine Loan		170,000		60,000			60,000		August 2014
Mortgage/Mezzanine Loan⁽⁹⁾		330,000		132,000			30,747		July 2014
Mezzanine Loan⁽¹⁰⁾		62,500		37,500			—		July 2014
Mezzanine Loan⁽¹¹⁾		75,000		7,650			7,650		July 2013
Junior Participation⁽⁴⁾		60,250		10,875			10,875		June 2013
Mezzanine Loan		—		—			10,000		—
Mortgage⁽¹²⁾		—		—			3,000		—
Mezzanine Loan⁽¹³⁾		—		—			8,392		—
Mortgage⁽¹⁴⁾		—		—			86,339		—
Other Loan		—		—			3,196		—

Total floating rate	$	926,461	$	436,933		$	290,139

Total		2,899,673		1,023,318			640,057
Loan loss reserve⁽⁴⁾		—		(7,000	)		(19,125	)	—

	$	2,899,673	$	1,016,318		$	620,932

⁽¹⁾: Interest is added to the principal balance for this accrual only loan. In January 2013, we sold 50% of the mezzanine loan at 97% of the accrued balance. See Note 22, "Subsequent Events."
⁽²⁾: In November 2012, we acquired this non-performing loan with an original balance of $219.0 million, which accrues interest at its default rate. We are recognizing income at the original contractual rate.
⁽³⁾: This loan was in default and on non-accrual status. We sold our interest in the loan in February 2012 and recovered $0.4 million against the reserve on this loan.
⁽⁴⁾: Loan loss reserves are specifically allocated to investments. Our reserves reflect management's judgment of the probability and severity of losses based on Level 3 data. We cannot be certain that our judgment will prove to be correct or that reserves will be adequate over time to protect against potential future losses.
⁽⁵⁾: In March 2012, we sold our interest in this loan and recovered $2.0 million against the reserve on this loan.
⁽⁶⁾: As of December 31, 2012, we were committed to fund an additional $15.1 million in connection with this loan.
⁽⁷⁾: As of December 31, 2012, we were committed to fund an additional $28.7 million in connection with this loan.
⁽⁸⁾: As of December 31, 2012, we were committed to fund an additional $11.0 million in connection with this loan.
⁽⁹⁾: As a result of the acquisition of the remaining 50% interest in November 2011 in the joint venture which held an investment in a debt position on the property located at 450 West 33rd Street, we have reclassified our investment as a debt investment. See Note 6, "Investments in Unconsolidated Joint Ventures." As part of the restructuring and refinancing of the related senior mortgage in July 2012, our outstanding investment in the amount of $49.9 million was repaid in full at maturity and we also entered into a loan participation in the amount of $182.0 million on the $462.0 million outstanding senior mortgage which maturity was extended to July 2014. In September 2012, we sold $50 million of our interest in the senior mortgage to a third party.
⁽¹⁰⁾: In November 2012, we entered into a loan participation agreement in the amount of $5.0 million on a $37.5 million mortgage. As a result of the transfer not meeting the conditions for sale accounting, the portion that was participated out has been recorded in other liabilities in the accompanying consolidated balance sheet.
⁽¹¹⁾: In November 2011, we entered into a loan participation agreement in the amount of $7.4 million on a $15.0 million mortgage. Due to our continued involvement with the loan, the portion that was participated out has been recorded in other assets and other liabilities in the accompanying consolidated balance sheet.
⁽¹²⁾: In June 2011, we funded an additional $5.5 million and extended the maturity date of this loan to February 2013. In September 2011, we entered into a loan participation in the amount of $28.5 million on a $31.5 million mortgage and assigned our right as servicer to a third party. In December 2012, the outstanding loan balance, including the participation interest, was paid off.
⁽¹³⁾: In connection with the extension of this loan, a portion of the mezzanine loan was converted to preferred equity. See note 4 to the next table. This mezzanine loan was on non-accrual status as of January 2012. In June 2012, we acquired an additional 38.6% participation interest in this mezzanine loan. As a result of this acquisition, we had complete control over this position and could, therefore, control any restructuring. On July 26, 2012, the mezzanine holders foreclosed out the equity position and as a result, we consolidated the operations of this investment in August and September 2012. In September 2012, we, together with Blackstone Real Estate Partners VII, or Blackstone, Gramercy Capital Corp. and Square Mile Capital Management LLC, formed a joint venture to recapitalize the underlying portfolio of west coast office properties and restructure the senior and mezzanine loans that expired in August 2012. We contributed our debt and preferred equity investment to the joint venture, and accounted for our investment under the equity method as of September 28, 2012 because we no longer controlled the joint venture. We own a 27.63% ownership interest in the joint venture. Blackstone, which has a 56.3% ownership interest in the joint venture, will oversee the portfolio's management and leasing activities through its Equity Office Properties affiliate. See Note 6, "Investments in Unconsolidated Joint Ventures."
⁽¹⁴⁾: We hold an 88% interest in the consolidated joint venture that acquired this loan. This investment is denominated in British Pounds. This loan was not repaid on its maturity date and was placed in receivership. The entity that held the property which served as collateral for our loan position was determined to be a VIE under a reconsideration event and we were determined to be the primary beneficiary. As a result of this determination, we consolidated the entity and reclassified the investment to assets held for sale on the consolidated balance sheet in June 2012. In November 2012, the entity that held the property sold the property for $100.0 million (£62.5 million), at which time our note was repaid and we recognized additional income of $8.9 million on the sale of the note.

Preferred Equity Investments

As of December 31, 2012 and 2011, we held the following preferred equity investments with an aggregate weighted average current yield of approximately 10.12% at December 31, 2012 (amounts in thousands):

Type	December 31, 2012 Senior Financing		December 31, 2012 Carrying Value, Net of Discounts		December 31, 2011 Carrying Value, Net of Discounts

Preferred equity⁽¹⁾	$	926,260	$	210,918	$	203,080		July 2016
Preferred equity⁽¹⁾⁽²⁾		57,087		19,136		—		April 2016
Preferred equity		70,000		10,000		—		October 2014
Preferred equity⁽¹⁾⁽³⁾		480,000		100,831		141,980		July 2014
Preferred equity^(1)(4)(5)		—		—		51,000		—
Loan loss reserve⁽⁵⁾		—		—		(31,050	)	—

	$	1,533,347	$	340,885	$	365,010

⁽¹⁾: The difference between the pay and accrual rates is included as an addition to the principal balance outstanding.
⁽²⁾: As of December 31, 2012, we are committed to fund an additional $6.5 million on this loan.
⁽³⁾: This investment was classified as held for sale at June 30, 2009, but as held-to-maturity for all periods subsequent to June 30, 2009. The reserve previously taken against this loan is being accreted up to the face amount through the maturity date. In connection with a recapitalization of the investment, our mezzanine loan was converted to preferred equity in 2011. We also made an additional $50.0 million junior preferred equity loan. This junior preferred equity loan was repaid at par in February 2012.
⁽⁴⁾: This investment was on non-accrual status. In connection with the extension of this loan, a portion of the mezzanine loan was converted to preferred equity in 2011. In June 2012, we acquired 100% of the interests in the most senior preferred equity position. In September 2012, we reclassified our debt and preferred equity investments, inclusive of related reserves, as investments in unconsolidated joint ventures as part of the recapitalization and refinancing transaction discussed in note 13 of the prior table.
⁽⁵⁾: Loan loss reserves are specifically allocated to investments. Our reserves reflect management's judgment of the probability and severity of losses based on Level 3 data. We cannot be certain that our judgment will prove to be correct and that reserves will be adequate over time to protect against potential future losses.

The following table is a rollforward of our total loan loss reserves at December 31, 2012, 2011 and 2010 (amounts in thousands):

	2012			2011			2010

Balance at beginning of year	$	50,175		$	61,361		$	93,844
Expensed		3,000			10,875			24,418
Recoveries		(2,436	)		(4,370	)		(3,662	)
Charge-offs and reclassifications		(43,739	)		(17,691	)		(53,239	)

Balance at end of period	$	7,000		$	50,175		$	61,361

At December 31, 2012, 2011 and 2010 all debt and preferred equity investments, other than as noted above, were performing in accordance with the terms of the loan agreements.

We have determined that we have one portfolio segment of financing receivables at December 31, 2012 and 2011 comprising commercial real estate which is primarily recorded in debt and preferred equity investments. Included in other assets is an additional amount of financing receivables totaling approximately $121.3 million at December 31, 2012 and $108.7 million at December 31, 2011. The nonaccrual balance of financing receivables at December 31, 2012 and 2011 was zero and $102.6 million, respectively. No financing receivables were 90 days past due at December 31, 2012. The recorded investment for financing receivables past due 90 days associated with two financing receivables was $17.3 million at December 31, 2011. All financing receivables are individually evaluated for impairment.

The following table presents impaired loans, which may include non-accrual loans, as of December 31, 2012 and 2011, respectively (amounts in thousands):

	December 31, 2012						December 31, 2011

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated		Unpaid Principal Balance		Recorded Investment		Allowance Allocated
With no related allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	106,623	$	83,378	$	—
With an allowance recorded:
Commercial real estate		10,750		10,750		7,000		86,121		81,475		50,175

Total	$	10,750	$	10,750	$	7,000	$	192,744	$	164,853	$	50,175

The following table presents the average recorded investment in impaired loans, which may include non-accrual loans and the related investment and preferred equity income recognized during the years ended December 31, 2012 and 2011, respectively (amounts in thousands):

	Year Ended December 31,

	2012		2011
Average recorded investment in impaired loans	$	50,231	$	191,288
Investment and preferred equity income recognized		3,712		9,554

On an ongoing basis, we monitor the credit quality of our financing receivables based on payment activity. We assess credit quality indicators based on the underlying collateral.