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Loan Securitization/Sale Activities

12 Months Ended

Dec. 31, 2011

7. Loan Securitization/Sale Activities

During 2010, the Company participated in a commercial mortgage securitization which generated non-recourse match funded financing with an effective cost of funds of approximately 3.5%. The Company separated five mortgage loans with an aggregate face value of $178 million into senior and junior loans. It contributed the five senior loans, or A Notes (the "Contributed Loans"), with a face value of approximately $84 million to the securitization trust and received approximately $92 million in proceeds, while retaining $94 million of junior interests. The Contributed Loans are secured by office, retail and industrial properties and have remaining maturities between four and seven years.

Each of the five Contributed Loans was either originated or acquired by the Company as part of a first mortgage loan. In connection with the securitization, two of the first mortgage loans were each split by the Company into an A Note and a B Note and three of the first mortgage loans had each been previously split into A Notes, B Notes and C Notes.

The secured financing liability relates to two of the Contributed Loans that we securitized but did not qualify for sale treatment under GAAP. As of December 31, 2011, the balance of the loans pledged to the securitization trust was $50.3 million and the related liability of the securitization trust was $53.2 million.

During the first quarter of 2011, we contributed three loans to a securitization trust for approximately $56 million in gross proceeds. Control of the loans was surrendered in the loan transfer and it was therefore treated as a sale under GAAP, resulting in a gain of $1.9 million. We effectively realized a net gain of $1.8 million on this transaction after considering the realized losses on the interest rate hedges of $0.1 million that was terminated in connection with the sale.

During the second quarter of 2011, we sold a loan to an independent third party for gross proceeds of $78.4 million. Control of the loan was surrendered in the transaction and it was therefore treated as sale under GAAP, resulting in a gain of $3.4 million. We effectively realized a net gain of $2.9 million on this transaction after considering the realized loss on the interest rate hedge of $0.5 million that was terminated in connection with the sale.

During the third quarter of 2011, we sold loans with a carrying value of $154.4 million into a securitization resulting in proceeds, net of financing repayments, of $69.7 million. Control of the loans was surrendered in the loan transfer and it was therefore treated as a sale under GAAP, resulting in a realized gain of $5.1 million. However, we effectively broke even on this transaction after considering the realized gains on the credit hedges of $2.2 million and realized losses on the interest rate hedges of $7.4 million that were terminated in connection with the sale.

During the fourth quarter of 2011, we sold a loan with a carrying value of $42.5 million at par. Control of the loan was surrendered in the loan transfer and it was therefore treated as a sale under GAAP, resulting in no realized gain or loss.