Real Estate Owned

9 Months Ended

Sep. 30, 2024

REAL ESTATE OWNED

During the nine months ended September 30, 2024, we acquired three REO assets for a total acquisition price of $159.9 million. We allocated $75.7 million to building and building improvements, $63.5 million to land and land improvements, $19.2 million to acquired intangible assets, and $1.5 million to other components of the purchase price. As of December 31, 2023, we did not have any REO assets or liabilities.

On March 19, 2024, we acquired legal title to an office property located in Mountain View, CA through a deed-in-lieu of foreclosure transaction. The office property previously collateralized a senior mortgage loan with an amortized cost basis of $90.2 million that was risk rated a “5” with a CECL reserve of $29.1 million at the time of the transaction. The acquisition was accounted for as an asset acquisition under ASC Topic 805 “Business Combinations,” and upon acquisition we recognized the office property as an REO asset held for investment. The REO asset was recorded on our consolidated balance sheet at $60.2 million based on its estimated fair value at acquisition. This resulted in a CECL reserve charge-off of $29.1 million during the three months ended March 31, 2024.

On July 2, 2024, we acquired legal title to a multifamily property located in San Antonio, TX through a foreclosure transaction. The multifamily property previously collateralized a senior mortgage loan with an amortized cost basis of

$33.0 million that was risk rated a “4”, and did not have an asset-specific CECL reserve at the time of the transaction. The acquisition was accounted for as an asset acquisition under ASC Topic 805 “Business Combinations,” and upon acquisition we recognized the multifamily property as an REO asset held for investment. The REO asset was recorded on our consolidated balance sheet at $33.6 million based on the estimated fair value at acquisition. This transaction did not result in any CECL reserve charge-offs during the three months ended September 30, 2024.

On September 16, 2024, we consolidated an office property located in Burlington, MA as a result of a loan modification that provided us an equity interest in the property. Refer to Note 19 for additional information. This was accounted for as an asset acquisition under ASC Topic 805 “Business Combinations,” and upon acquisition we recognized the office property as an REO asset held for investment. The office property previously collateralized a senior mortgage loan with an amortized cost basis of $82.9 million that was risk rated a “5” with a CECL reserve of $17.5 million at the time of the transaction. The REO asset was recorded on our consolidated balance sheet at $64.6 million based on its estimated fair value at acquisition. This resulted in a CECL reserve charge-off of $17.5 million during the three months ended September 30, 2024.

See Note 2 for additional information on REO.

The following table presents the REO assets included in our consolidated balance sheets ($ in thousands):


	September 30, 2024
Assets
Land and land improvements	$	63,494
Building and building improvements	75,847
Total	$	139,341
Less: accumulated depreciation	(616)
Real estate owned, net	$	138,725

Intangible real estate assets	$	19,200
Less: accumulated amortization	(598)
Intangible real estate assets, net(1)	$	18,602

(1)Included within other assets on our consolidated balance sheets. Refer to Note 5 for additional information.

We recognized revenue from real estate owned of $1.2 million during both the three and nine months ended September 30, 2024, which is included in revenues from real estate owned in our consolidated statements of operations.

We recognized expenses from real estate owned of $2.7 million and $3.6 million during the three and nine months ended September 30, 2024, respectively. These expenses consisted of $1.0 million and $1.2 million of depreciation and amortization expense during the three and nine months ended September 30, 2024, respectively, and $1.7 million and $2.4 million of other operating expenses during the three and nine months ended September 30, 2024, respectively. These expenses are included in expenses from real estate owned in our consolidated statements of operations. There was no income or expense recognized related to REO assets during the three and nine months ended September 30, 2023.