4. Loans Held for Investment

Loans held for investment at December 31, 2011 and December 31, 2010, are summarized in the following table. These investments consist predominantly of mortgage loans on properties subject to leases to investment grade tenants. As of December 31, 2011, the weighted average credit rating of the underlying tenants was BBB+ from Standard & Poor’s. As of December 31, 2011, none of the Company’s loans held for investment were on non-accrual status or past due 90 days or more.

	December 31,
	2011			2010
Principal	$	37,622		$	214,049
Discount		(3,913	)		(2,664	)
Cost basis		33,709			211,385
Allowance for loan losses		(500	)		(944	)
Carrying amount of loans		33,209			210,441
Deferred origination fees, net		(70	)		(401	)
Total	$	33,139		$	210,040

During 2011, the Company has significantly reduced the size and number of its loans held for investment, primarily through the sale of its CDO during September. See Note 6.

As of December 31, 2011, the Company’s loan investments carried interest rates ranging from 5.28% to 9.32%, compared to 5.00% to 9.32% as of December 31, 2010. At December 31, 2011 and December 31, 2010, the weighted average effective interest rate on the Company’s loan investments, as measured against its cost basis, was 7.3% and 6.7%, respectively.

The Company’s loan portfolio is comprised primarily of fully amortizing or nearly fully amortizing first mortgage loans on commercial real estate leased to a single tenant. Payments of debt service on the Company’s loans is, in substantially all cases, funded directly by rent payments typically paid into a lockbox account by the underlying tenant. Therefore, the Company’s monitoring of the credit quality of its loans held for investment is focused primarily on an analysis of the tenant, including review of tenant credit ratings (including changes in ratings) and other measures of tenant credit quality, trends in the tenant’s industry and general economic conditions, and an analysis of measures of collateral coverage, such as an estimate of the loan’s loan-to-value (LTV) ratio (principal amount outstanding divided by estimated value of the property) and its remaining term until maturity.

The following table is a summary of the Company’s loans held for investment by credit category with the credit ratings of the underlying tenants presented as of each applicable balance sheet date:

	Carry Value
Credit rating (1) (2)	12/31/11			12/31/10
Investment grade rating of A- or A3 and above	$	16,664		$	39,780
Investment grade rating of below A- or A3		9,239			113,001
Implied investment grade rating		-			38,285
Non-investment grade rating		7,806			18,887
Unrated		-			988
General loan loss reserve		(500	)		(500	)
	$	33,209		$	210,441

(1)

Reflects the underlying tenant's or lease guarantor's actual or implied senior unsecured credit rating from Standard & Poor's or equivalent rating if rated only by Moody's Investors Service.

(2)

The Company implies an investment grade credit rating for tenants that are not publicly rated by Standard & Poor’s or Moody’s but (i) are 100% owned by an investment grade parent, (ii) for which the Company has obtained a private investment grade rating from either Standard & Poor’s or Moody’s, (iii) for which we have evaluated the creditworthiness of the tenant and estimated a credit rating that is consistent with an investment grade rating from S&P or Moody’s, or (iv) are governmental entity branches or units of another investment grade rated governmental entity.

As of December 31, 2011, the Company has a general loan loss reserve of $500, reflecting management’s estimate of losses that have probably occurred in its mortgage loan portfolio. The loan loss reserve was established at December 31, 2008, and to date the Company has not had any actual losses charged against the allowance.

During June 2011, the Company charged off its remaining $988 net investment in the franchise lending venture. The charge-off is included as a component of “Gain (loss) on investments, net” in the Company’s Consolidated Statement of Operations. The charge-off is in addition to a $444 charge-off recorded during 2009. The Company determined to revise its estimate of loss due to a variety of factors, including the passage of two years since the borrower was current on its debt service payments with only de minimis payments to the Company during that time and uncertainty regarding the value of the Company’s collateral and the timing of resolution of the Company’s claim, particularly in light of the borrower’s Chapter 11 bankruptcy filing during 2011 and the existence of various issues for resolution before the bankruptcy court.