Loans and Other Lending Investments, net

The following is a summary of the Company's loans and other lending investments by class ($ in thousands)(1):



	As of
Type of Investment(1)	June 30, 2012			December 31, 2011
Senior mortgages	$	2,237,764		$	2,801,213
Subordinate mortgages	149,735			211,491
Corporate/Partnership loans	461,425			478,892
Total gross carrying value of loans(1)	$	2,848,924		$	3,491,596
Reserves for loan losses	(563,786		)	(646,624		)
Total carrying value of loans	$	2,285,138		$	2,844,972
Other lending investments—securities	15,672			15,790
Total loans and other lending investments, net	$	2,300,810		$	2,860,762

Explanatory Note:

_______________________________________________________________________________


(1)	The Company's recorded investment in loans as of June 30, 2012 and December 31, 2011 was $2.86 billion and $3.50 billion, respectively, which consists of total gross carrying value of loans plus accrued interest of $10.4 million and $13.3 million, for the same two periods, respectively.

During the six months ended June 30, 2012, the Company funded $23.9 million under existing loan commitments and add-on fundings and received principal repayments of $322.0 million. During the same period, the Company sold loans with a total carrying value of $53.9 million, for which it recognized charge-offs of $3.3 million and also recorded income of $6.4 million in "Other income" on the Company's Consolidated Statements of Operations.

During the six months ended June 30, 2012, the Company received title to properties in full or partial satisfaction of non-performing mortgage loans with a gross carrying value of $229.0 million, for which the properties had served as collateral, and recorded charge-offs totaling $43.2 million related to these loans. These properties were recorded as other real estate owned ("OREO") on the Company's Consolidated Balance Sheets (see Note 5).

Reserve for Loan Losses—Changes in the Company's reserve for loan losses were as follows ($ in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
Reserve for loan losses at beginning of period	$	567,179		$	804,070		$	646,624		$	814,625
Provision for loan losses	26,531			10,350			44,031			21,230
Charge-offs	(29,924		)	(113,192		)	(126,869		)	(134,627		)
Reserve for loan losses at end of period	$	563,786		$	701,228		$	563,786		$	701,228

The Company's recorded investment (comprised of a loan's carrying value plus accrued interest) in loans and the associated reserve for loan losses were as follows ($ in thousands):



	Individually Evaluated for Impairment(1)			Collectively Evaluated for Impairment(2)			Loans Acquired with Deteriorated Credit Quality(3)			Total
As of June 30, 2012
Loans	$	1,278,305		$	1,523,578		$	57,461		$	2,859,344
Less: Reserve for loan losses	(487,645		)	(56,800		)	(19,341		)	(563,786		)
Total	$	790,660		$	1,466,778		$	38,120		$	2,295,558
As of December 31, 2011
Loans	$	1,525,337		$	1,919,876		$	59,648		$	3,504,861
Less: Reserve for loan losses	(554,131		)	(73,500		)	(18,993		)	(646,624		)
Total	$	971,206		$	1,846,376		$	40,655		$	2,858,237

Explanatory Notes:

_______________________________________________________________________________

(1)

The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $1.3 million and a net premium of $0.1 million as of June 30, 2012 and December 31, 2011, respectively. The Company's loans individually evaluated for impairment primarily represent loans on non-accrual status and therefore, the unamortized amounts associated with these loans are not currently being amortized into income.


(2)	The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net discount of $2.1 million and $0.2 million as of June 30, 2012 and December 31, 2011, respectively.


(3)	The carrying value of these loans include unamortized discounts, premiums, deferred fees and costs aggregating to a net premium of $0.1 million and a net discount of $15.0 million as of June 30, 2012 and December 31, 2011. These loans had cumulative principal balances of $57.7 million and $74.5 million, as of June 30, 2012 and December 31, 2011, respectively.

Credit Characteristics—As part of the Company's process for monitoring the credit quality of its loans, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its performing loans. The Company's recorded investment in performing loans, presented by class and by credit quality, as indicated by risk rating, was as follows ($ in thousands):



	As of
	June 30, 2012			December 31, 2011
	Performing Loans		Weighted Average Risk Ratings	Performing Loans		Weighted Average Risk Ratings
Senior mortgages	$	1,176,248	3.00	$	1,514,016	3.19
Subordinate mortgages	97,520		2.41	190,342		3.36
Corporate/Partnership loans	455,320		3.73	472,178		3.61
Total	$	1,729,088	3.16	$	2,176,536	3.29

As of June 30, 2012, the Company's recorded investment in loans, aged by payment status and presented by class, were as follows ($ in thousands):



	Current		Less Than and Equal to 90 Days(1)		Greater Than 90 Days(1)		Total Past Due		Total
Senior mortgages	$	1,276,006	$	124,371	$	842,908	$	967,279	$	2,243,285
Subordinate mortgages	97,520		—		53,109		53,109		150,629
Corporate/Partnership loans	455,320		—		10,110		10,110		465,430
Total	$	1,828,846	$	124,371	$	906,127	$	1,030,498	$	2,859,344

Explanatory Note:

_______________________________________________________________________________


(1)	As of June 30, 2012, all loans that are not current are classified as non-performing and are on non-accrual status.

Impaired Loans—The Company's recorded investment in impaired loans, presented by class, were as follows ($ in thousands)(1):



	As of June 30, 2012							As of December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Senior mortgages	$	153,956	$	153,565	$	—		$	219,488	$	218,612	$	—
Corporate/Partnership loans	10,110		10,160		—			10,110		10,160		—
Subtotal	$	164,066	$	163,725	$	—		$	229,598	$	228,772	$	—
With an allowance recorded:
Senior mortgages	$	1,058,007	$	1,053,514	$	(470,617	)	$	1,268,962	$	1,263,195	$	(540,670	)
Subordinate mortgages	53,109		52,881		(27,309		)	22,480		22,558		(22,480		)
Corporate/Partnership loans	60,584		60,804		(9,060		)	62,591		62,845		(9,974		)
Subtotal	$	1,171,700	$	1,167,199	$	(506,986	)	$	1,354,033	$	1,348,598	$	(573,124	)
Total:
Senior mortgages	$	1,211,963	$	1,207,079	$	(470,617	)	$	1,488,450	$	1,481,807	$	(540,670	)
Subordinate mortgages	53,109		52,881		(27,309		)	22,480		22,558		(22,480		)
Corporate/Partnership loans	70,694		70,964		(9,060		)	72,701		73,005		(9,974		)
Total	$	1,335,766	$	1,330,924	$	(506,986	)	$	1,583,631	$	1,577,370	$	(573,124	)

Explanatory Note:

_______________________________________________________________________________

(1)

All of the Company's non-accrual loans are considered impaired and included in the table above. In addition, as of June 30, 2012 and December 31, 2011, certain loans modified through troubled debt restructurings with a recorded investment of $205.5 million and $255.3 million, respectively, are also included as impaired loans in accordance with GAAP although they are performing and on accrual status.

The Company's average recorded investment in impaired loans and interest income recognized, presented by class, were as follows ($ in thousands):



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2012				2011				2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Senior mortgages	$	180,037	$	1,799	$	352,098	$	28,620	$	193,187	$	2,206	$	369,686	$	29,586
Corporate/Partnership loans	10,110		—		10,110		200		10,110		—		10,110		320
Subtotal	$	190,147	$	1,799	$	362,208	$	28,820	$	203,297	$	2,206	$	379,796	$	29,906
With an allowance recorded:
Senior mortgages	$	1,041,613	$	1,194	$	1,668,373	$	2,117	$	1,117,396	$	2,434	$	1,723,584	$	4,121
Subordinate mortgages	65,659		—		25,624		—		51,266		—		17,083		—
Corporate/Partnership loans	61,956		76		69,263		86		62,168		156		67,663		169
Subtotal	$	1,169,228	$	1,270	$	1,763,260	$	2,203	$	1,230,830	$	2,590	$	1,808,330	$	4,290
Total:
Senior mortgages	$	1,221,650	$	2,993	$	2,020,471	$	30,737	$	1,310,583	$	4,640	$	2,093,270	$	33,707
Subordinate mortgages	65,659		—		25,624		—		51,266		—		17,083		—
Corporate/Partnership loans	72,066		76		79,373		286		72,278		156		77,773		489
Total	$	1,359,375	$	3,069	$	2,125,468	$	31,023	$	1,434,127	$	4,796	$	2,188,126	$	34,196

Troubled Debt Restructurings—During the three and six months ended June 30, 2012 and 2011, the Company modified loans that were determined to be troubled debt restructurings. The recorded investment in these loans was impacted by the modifications as follows, presented by class ($ in thousands):



	For the Three Months Ended June 30,
	2012					2011
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Senior mortgages	1	$	4,561	$	4,561	1	$	20,380	$	20,380



	For the Six Months Ended June 30,
	2012					2011
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Senior mortgages	6	$	310,342	$	264,868	4	$	126,051	$	125,786

Troubled debt restructurings that subsequently defaulted during the period were as follows ($ in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment		Number of Loans	Outstanding Recorded Investment
Senior mortgages	1	$	26,120	1	$	28,328	1	$	26,120	1	$	28,328

During the three months ended June 30, 2012, the Company restructured one loan that was considered a troubled debt restructuring. The Company extended the term of this performing loan by one year with the interest rate unchanged.

During the six months ended June 30, 2012, the Company restructured six loans that were considered troubled debt restructurings. In addition to the loan modified during the current quarter that is described above, the Company restructured five additional loans. Two of the modified loans were performing loans with a combined recorded investment of $58.1 million that were extended with a new weighted average maturity of 0.4 years and with conditional extension options in certain cases dependent on borrower-specific performance hurdles. The Company believes the borrowers in each case can perform under the modified terms of the loans and continues to classify these loans as performing.

The remaining three modified loans were classified as non-performing prior to their modification and remained non-performing subsequently. One of these loans with a recorded investment of $48.2 million was extended with a new maturity of 0.7 years and another with a recorded investment of $18.0 million was extended with a new maturity of 0.3 years and its interest rate was reduced to 4.5% from 9.0%. The Company agreed to reduce the outstanding principal balance of the third loan that had a recorded investment of $181.5 million prior to the modification, and recorded charge-offs totaling $45.5 million. In addition, the loan's interest rate was reduced to LIBOR + 3.5% from LIBOR + 7.0%.

During the three months ended June 30, 2011, the Company restructured one loan that was considered a troubled debt restructuring. The Company extended the term of this performing loan by six months with the interest rate unchanged and with conditional extension options dependent on pay down hurdles. During the six months ended June 30, 2011, the Company restructured four loans that were considered troubled debt restructurings. In addition to the loan modified during the quarter that is described above, the Company restructured three additional loans. The Company reduced the rate on these loans with a combined recorded investment of $105.7 million, from a combined weighted average rate of 8.3% to 4.7% and extended the loans with a new weighted average maturity of 1.4 years, with conditional extension options in certain cases dependent on pay down hurdles.

Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions with the loan improve. The Company's determination of credit losses is impacted by troubled debt restructurings whereby loans that have gone through troubled debt restructurings are considered impaired, assessed for specific reserves, and are not included in the Company's assessment of general loan loss reserves. Loans previously restructured under troubled debt restructurings that subsequently default are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary. As of June 30, 2012, the Company had $6.0 million of unfunded commitments associated with modified loans considered troubled debt restructurings.