5. COMMERCIAL REAL ESTATE INVESTMENTS

On December 11, 2015, the Company originated a $335.0 million recapitalization financing with respect to eight class A/B office properties in Orange County, California. As of March 31, 2016, such financing is comprised of a $280.0 million senior mortgage loan ($278.6 million, net of origination fees), and mezzanine loan with an initial principal balance of $55.0 million ($52.7 million, net of origination) and a future funding component of $30.0 million. The senior mortgage loan was held for sale as of March 31, 2016 and December 31, 2015. In April 2016, the Company sold $115.0 million of the senior loan to an unrelated third party at carrying value, accordingly, no gain or loss was recorded in connection with the sale. The balance of the senior loan of $165.0 million remains held for sale.

The following tables present commercial real estate investments held for investment at March 31, 2016 and December 31, 2015.

CRE Debt and Preferred Equity Investments

	March 31, 2016							December 31, 2015
	Outstanding Principal		Carrying Value⁽¹⁾		Percentage of Loan Portfolio⁽²⁾			Outstanding Principal		Carrying Value⁽¹⁾		Percentage of Loan Portfolio⁽²⁾
	(dollars in thousands)
Senior mortgages	$	477,302	$	474,559		40.3	%	$	387,314	$	385,838		28.6	%
Senior securitized mortgages⁽³⁾		212,072		211,855		17.9	%		263,072		262,703		19.4	%
Mezzanine loans		486,081		482,101		41.0	%		582,592		578,503		43.0	%
Preferred equity		9,000		8,953		0.8	%		122,444		121,773		9.0	%
Total ⁽⁴⁾	$	1,184,455	$	1,177,468		100.0	%	$	1,355,422	$	1,348,817		100.0	%

(1)	Carrying value includes unamortized origination fees of $7.1 million and $6.9 million as of March 31, 2016 and December 31, 2015, respectively.
(2)	Based on outstanding principal.
(3)	Assets of consolidated VIEs.
(4)	Excludes Loans held for sale.

	March 31, 2016
	Senior Mortgages			Senior Securitized Mortgages⁽¹⁾			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	385,838		$	262,703		$	578,503		$	121,773		$	1,348,817
Originations & advances (principal)		155,065			-			25,897			-			180,962
Principal payments		(65,077	)		(51,000	)		(122,408	)		(113,445	)		(351,930	)
Sales (principal)		-			-			-			-			-
Amortization & accretion of (premium) discounts		(34	)		-			(221	)		-			(255	)
Net (increase) decrease in origination fees		(1,578	)		-			(285	)		-			(1,863	)
Amortization of net origination fees		345			152			615			625			1,737
Transfers		-			-			-			-			-
Allowance for loan losses		-			-			-			-			-
Net carrying value ⁽²⁾	$	474,559		$	211,855		$	482,101		$	8,953		$	1,177,468

(1)	Assets of consolidated VIE.
(2)	Excludes Loans held for sale.

	December 31, 2015
	Senior Mortgages			Senior Securitized Mortgages(1)			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	383,895		$	398,634		$	522,731		$	212,905		$	1,518,165
Originations & advances (principal)		293,925			-			195,312			-			489,237
Principal payments		(243,270	)		(136,469	)		(153,693	)		(92,210	)		(625,642	)
Sales (principal)		(46,945	)		-			-			-			(46,945	)
Amortization & accretion of (premium) discounts		(142	)		-			(232	)		517			143
Net (increase) decrease in origination fees		(3,702	)		(279	)		(4,806	)		-			(8,787	)
Amortization of net origination fees		2,077			817			691			561			4,146
Transfers		-			-			18,500			-			18,500
Allowance for loan losses		-			-			-			-			-
Net carrying value ⁽²⁾	$	385,838		$	262,703		$	578,503		$	121,773		$	1,348,817

(1) Assets of consolidated VIE.
(2) Excludes Loans held for sale.

Internal CRE Debt and Preferred Equity Investment Ratings

	March 31, 2016
			Percentage of CRE Debt and Preferred Equity Portfolio			Internal Ratings
Investment Type	Outstanding Principal ⁽¹⁾		Percentage of CRE Debt and Preferred Equity Portfolio			Performing		Closely-Monitored		Special Mention		Substandard		Doubtful		Loss		Total
	(dollars in thousands)
Senior mortgages	$	477,302		40.3	%	$	91,321	$	243,681	$	142,300	$	-	$	-	$	-	$	477,302
Senior securitized mortgages⁽²⁾		212,072		17.9	%		55,770		15,500		140,802		-		-		-		212,072
Mezzanine loans		486,081		41.0	%		295,950		160,814		29,317		-		-		-		486,081
Preferred equity		9,000		0.8	%		-		-		9,000		-		-		-		9,000
	$	1,184,455		100.0	%	$	443,041	$	419,995	$	321,419	$	-	$	-	$	-	$	1,184,455

(1) Excludes Loans held for sale.
(2) Assets of consolidated VIE.

	December 31, 2015
			Percentage of CRE Debt and Preferred Equity Portfolio			Internal Ratings
Investment Type	Outstanding Principal ⁽¹⁾		Percentage of CRE Debt and Preferred Equity Portfolio			Performing		Closely-Monitored		Special Mention		Substandard		Doubtful		Loss		Total
	(dollars in thousands)
Senior mortgages	$	387,314		28.6	%	$	71,000	$	283,148	$	33,166	$	-	$	-	$	-	$	387,314
Senior securitized mortgages⁽²⁾		263,072		19.4	%		106,770		15,500		140,802		-		-		-		263,072
Mezzanine loans		582,592		43.0	%		342,493		219,969		20,130		-		-		-		582,592
Preferred equity		122,444		9.0	%		-		81,944		40,500		-		-		-		122,444
	$	1,355,422		100.0	%	$	520,263	$	600,561	$	234,598	$	-	$	-	$	-	$	1,355,422

(1) Excludes Loans held for sale.
(2) Assets of consolidated VIE.

Real Estate Investments

There were no acquisitions of new real estate holdings during the quarter ended March 31, 2016.

The following table summarizes real estate held for investment as of March 31, 2016:


Date of Acquisition	Type	Location	Purchase Price			Remaining Lease Term (Years)⁽¹⁾
(dollars in thousands)

July 2015	Multi Tenant Retail	Ohio		$	11,000		4.6
August 2015	Multi Tenant Retail	Florida		$	18,900		5.1
October 2015	Multifamily Property	Washington, DC		$	75,000		0.3
October 2015	Multi Tenant Retail	California		$	37,750		3.0
November 2015	Multi Tenant Retail	Texas		$	131,950		4.3

The weighted average amortization period for intangible assets and liabilities as of March 31, 2016 is 7.2 years. Above market leases and leasehold intangible assets are included in Intangible assets, net and below market leases are included in Accounts payable and other liabilities in the Consolidated Statements of Financial Condition.

Investments in Commercial Real Estate

	March 31, 2016			December 31, 2015
	(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	113,494		$	113,494
Buildings and improvements		374,213			373,603
Subtotal		487,707			487,097
Less: accumulated depreciation		(21,456	)		(16,886	)
Total real estate held for investment, at amortized cost, net		466,251			470,211
Equity in unconsolidated joint ventures		61,535			65,735
Investments in commercial real estate, net	$	527,786		$	535,946

Depreciation expense was $4.6 million and $2.8 million for the quarters ended March 31, 2016 and 2015, respectively and is included in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

Rental Income

The minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The leases generally also require that the tenants reimburse us for certain operating costs. Approximate future minimum rents payments under non-cancelable operating leases in effect at March 31, 2016 for consolidated investments in real estate are as follows:

	March 31, 2016
	(dollars in thousands)
2016 (remaining)	$	26,105
2017		30,305
2018		26,238
2019		22,157
2020		17,848
Later years		53,326
	$	175,979

Mortgage loans payable as of March 31, 2016 and December 31, 2015, were as follows:

March 31, 2016
Property	Mortgage Carrying Value		Mortgage Principal		Interest Rate			Fixed/Floating Rate	Maturity Date	Priority
(dollars in thousands)
Joint Ventures	$	292,821	$	296,325	2.30% to 4.61%			Floating⁽¹⁾	2016 and 2025	First liens
Tennessee		12,236		12,350		4.01	%	Fixed	6/6/2019	First liens
Virginia		11,012		11,025		3.58	%	Fixed	9/6/2019	First liens
Arizona		16,271		16,227		3.50	%	Fixed	1/1/2017	First liens
Nevada		2,425		2,419		3.45	%	Floating⁽²⁾	3/29/2017	First liens
	$	334,765	$	338,346

(1) Includes a mortgage with a fixed rate via an interest rate swap (pay fixed 4.31%, receive floating rate of L+215).
(2) Includes a mortgage with a fixed rate via an interest rate swap (pay fixed 3.45%, receive floating rate of L+200).


December 31, 2015
Property	Mortgage Carrying Value		Mortgage Principal		Interest Rate			Fixed/Floating Rate	Maturity Date	Priority
(dollars in thousands)
Joint Ventures	$	292,658	$	296,325	2.30% to 4.61%			Floating⁽¹⁾	2016 and 2025	First liens
Tennessee		12,228		12,350		4.01	%	Fixed	6/6/2019	First liens
Virginia		11,012		11,025		3.58	%	Fixed	9/6/2019	First liens
Arizona		16,365		16,308		3.50	%	Fixed	1/1/2017	First liens
Nevada		2,444		2,436		3.45	%	Floating⁽²⁾	3/29/2017	First liens
	$	334,707	$	338,444

(1) Includes a mortgage with a fixed rate via an interest rate swap (pay fixed 4.31%, receive floating rate of L+215).
(2) Includes a mortgage with a fixed rate via an interest rate swap (pay fixed 3.45%, receive floating rate of L+200).

The following table details future mortgage loan principal payments as of March 31, 2016:

	Mortgage Loan Principal Payments
	(dollars in thousands)
2016 (remaining)	$	7,502
2017		18,344
2018		-
2019		23,375
2020		-
Later years		289,125
	$	338,346

VIEs

Securitization

In January 2014, the Company closed NLY Commercial Mortgage Trust 2014-FL1 (the "Trust"), a $399.5 million securitization financing transaction which provides permanent, non-recourse financing collateralized by floating-rate first mortgage debt investments originated or co-originated by the Company and is not subject to margin calls. A total of $260.7 million of investment grade bonds were issued by the Trust, representing an advance rate of 65.3% at a weighted average coupon of LIBOR plus 1.74% at closing. The Company used the proceeds to originate commercial real estate investments. The Company retained bonds rated below investment grade and the interest-only bond issued by the Trust, which are referred to as the subordinate bonds.

The Company incurred approximately $4.3 million of costs in connection with the securitization that have been capitalized and are being amortized to interest expense. Deferred financing costs are included in Securitized debt of consolidated VIEs in the accompanying Consolidated Statements of Financial Condition.

As of March 31, 2016 the carrying value of the Trust's assets was $211.9 million, net of $0.2 million of unamortized origination fees, which are included in Commercial real estate debt and preferred equity in the accompanying Consolidated Statements of Financial Condition. As of March 31, 2016, the carrying value of the Trust's liabilities was $125.6 million, net of $0.2 million of deferred financing costs, classified as Securitized debt of consolidated VIEs in the accompanying Consolidated Statements of Financial Condition.

In February 2015, the Company purchased the junior-most tranche, Class C Certificate of the Freddie Mac securitization, FREMF Mortgage Trust 2015-KLSF ("FREMF 2015-KLSF") for $102.1 million. The underlying portfolio is a pool of 11 floating rate multifamily mortgage loans with a cut-off principal balance of $1.4 billion. The Company was required to consolidate the FREMF 2015-KLSF Trust's assets and liabilities of $1.3 billion and $1.2 billion, respectively, at March 31, 2016.

In April 2015, the Company purchased the junior-most tranche, Class C Certificate of the Freddie Mac securitization, FREMF Mortgage Trust 2015-KF07 ("FREMF 2015-KF07") for $89.4 million. The underlying portfolio is a pool of 40 floating rate multifamily mortgage loans with a cut-off principal balance of $1.2 billion. The Company was required to consolidate the FREMF 2015-KF07 Trust's assets and liabilities of $1.1 billion and $1.0 billion, respectively, at March 31, 2016.

In February 2016, the Company purchased the junior-most tranche, Class C Certificate of the Freddie Mac securitization, FREM Mortgage Trust 2016-KLH1 ("FREM 2016-KLH1") for $107.6 million, net of a $4.4 million discount to face value of $112.0 million. The underlying portfolio is a pool of 28 floating rate multifamily mortgage loans with a cut-off principal balance of $1.5 billion. The Company was required to consolidate the FREM 2016-KLH1 Trust's assets and liabilities of $1.5 billion and $1.4 billion, respectively, at March 31, 2016. FREMF 2015-KLSF, FREMF 2015-KF07 and FREM 2016-KLH1 are collectively referred to herein as the FREMF Trusts.

The FREMF Trusts are structured as pass-through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. The FREMF Trusts are VIEs and the Company is considered to be the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership of the Class C Certificates and its current designation as the directing certificate holder. The Company's exposure to the obligations of the VIEs is generally limited to the Company's investment in the FREMF Trusts of $291.0 million. Assets of the FREMF Trusts may only be used to settle obligations of the FREMF Trusts. Creditors of the FREMF Trusts have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the FREMF Trusts. No gain or loss was recognized upon initial consolidation of the FREMF Trusts, but $0.2 million and $0.8 million of related costs were expensed during the quarter ended March 31, 2016 and the year ended December 31, 2015, respectively. The FREMF Trusts' assets are included in Commercial real estate debt investments and the FREMF Trusts' liabilities are included in Securitized debt of consolidated VIEs in the accompanying Consolidated Statements of Financial Condition.

Upon consolidation, the Company elected the fair value option for the financial assets and liabilities of the FREMF Trusts in order to avoid an accounting mismatch, and to more accurately represent the economics of its interest in the entities. The fair value option requires that changes in fair value be reflected in the Company's Consolidated Statements of Comprehensive Income (Loss). The Company has adopted ASU 2014-13 and applied the practical expedient fair value measurement whereby the Company determines whether the fair value of the financial assets or financial liabilities is more observable as a basis for measuring the less observable financial instruments. The Company has determined that the fair value of the financial liabilities of the FREMF Trusts is more observable, since the prices for these liabilities are primarily available from third-party pricing services utilized for multifamily mortgage-backed securities, while the fair value of the individual assets of the trusts are inherently less capable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Given that the Company's methodology for valuing the financial assets of the FREMF Trusts is an aggregate fair value derived from the fair value of the financial liabilities, the Company has determined that the fair value of each of the financial assets in their entirety should be classified in Level 2 of the fair value measurement hierarchy.

The statement of financial condition of the FREMF Trusts that is reflected in the Company's Consolidated Statements of Financial Condition at March 31, 2016 is as follows:

	March 31, 2016
	(dollars in thousands)
Assets
Senior securitized commercial mortgages carried at fair value	$	3,968,118
Accrued interest receivable		8,351
Total assets	$	3,976,469

Liabilities
Securitized debt (non-recourse) at fair value	$	3,677,079
Accrued interest payable		4,311
Total liabilities	$	3,681,390

The FREMF Trusts mortgage loans had an unpaid principal balance of $4.0 billion at March 31, 2016. As of March 31, 2016 there are no loans 90 days or more past due or on nonaccrual status. There is no gain or loss attributable to instrument-specific credit risk of the underlying loans or securitized debt securities as of March 31, 2016 based upon the Company's process of monitoring events of default on the underlying mortgage loans.

The statement of comprehensive income (loss) of the FREMF Trusts that is reflected in the Company's Consolidated Statements of Comprehensive Income (Loss) for the quarter ended March 31, 2016 is as follows:

	For the Quarter Ended March 31, 2016
	(dollars in thousands)
Net interest income:
Interest income	$	21,030
Interest expense		7,876
Net interest income		13,154

Other income (loss):
Unrealized gain (loss) on financial instruments at fair value⁽¹⁾		147
Guarantee fees and servicing costs		(5,297	)
Other income (loss)		(5,150	)
General and administration expenses		2
Net income	$	8,002

(1) Included in Net unrealized gains (losses) on financial instruments measured at fair value through earnings.

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to the FREMF Trusts as of March 31, 2016 are as follows:

Securitized Loans at Fair Value Geographic Concentration of Credit Risk
Property Location	Principal Balance		% of Balance
	(dollars in thousands)
Texas	$	749,569		18.8	%
North Carolina		537,375		13.5	%
Maryland		499,495		12.5	%
Florida		456,663		11.4	%
Other		1,751,963		43.8	%
Total	$	3,995,065		100.0	%