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Loans (Tables)
 12 Months Ended
Dec. 31, 2016
Loans  
Summary of investments in mortgages and loans by subordination class

The following tables summarize our investments in mortgages and loans by subordination class as of December 31, 2016 and 2015 (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

    

Weighted

 

 

 

 

 

 

 

 

Weighted

 

Average Life

 

 

Carrying

 

Face

 

Average

 

(“WAL”)

December 31, 2016

 

Value

 

Amount

 

Coupon

 

(years)(3)

First mortgages (1)

 

$
4,865,994

 

$
4,881,656

 
5.7

%  
2.2

Subordinated mortgages (2)

 

 
278,032

 

 
293,925

 
8.9

%  
3.3

Mezzanine loans (1)

 

 
713,757

 

 
714,608

 
9.6

%  
1.8

Total loans held-for-investment

 

 
5,857,783

 

 
5,890,189

 

 

 

 

Loans held-for-sale, fair value option elected

 

 
63,279

 

 
63,065

 
5.3

%  
10.0

Loans transferred as secured borrowings

 

 
35,000

 

 
35,000

 
6.2

%  
0.4

Total gross loans

 

 
5,956,062

 

 
5,988,254

 

 

 

 

Loan loss allowance (loans held-for-investment)

 

 
(9,788)

 

 

 —

 

 

 

 

Total net loans

 

$
5,946,274

 

$
5,988,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

First mortgages (1)

 

$
4,723,852

 

$
4,776,576

 
6.0

%  
2.7

Subordinated mortgages (2)

 

 
392,563

 

 
416,713

 
8.5

%  
3.4

Mezzanine loans (1)

 

 
862,693

 

 
850,024

 
9.9

%  
2.5

Total loans held-for-investment

 

 
5,979,108

 

 
6,043,313

 

 

 

 

Loans held-for-sale, fair value option elected

 

 
203,865

 

 
203,710

 
4.9

%  
9.8

Loans transferred as secured borrowings

 

 
86,573

 

 
88,000

 
6.1

%  
2.4

Total gross loans

 

 
6,269,546

 

 
6,335,023

 

 

 

 

Loan loss allowance (loans held-for-investment)

 

 
(6,029)

 

 

 —

 

 

 

 

Total net loans

 

$
6,263,517

 

$
6,335,023

 

 

 

 

 

(1)

First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan.  The application of this methodology resulted in mezzanine loans with carrying values of $964.1 million and $930.0 million being classified as first mortgages as of December 31, 2016 and 2015, respectively.

 

(2)

Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.

 

(3)

Represents the WAL of each respective group of loans as of the respective balance sheet date. The WAL of each individual loan is calculated using amounts and timing of future principal payments, as projected at origination.
Summary of investments in floating rate loans

The following table summarizes our investments in floating rate loans (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

December 31, 2015

 

 

    

 

    

Carrying

   

 

    

Carrying

 

Index

 

Base Rate

 

Value

 

Base Rate

 

Value

 

One-month LIBOR USD

 
0.7717

%

$
880,357

 
0.4295

%

$
438,641

 

Three-month LIBOR GBP

 

N/A

 

 

 —

 
0.5904

%

 
375,467

 

LIBOR floor

 

0.15 - 3.00

% (1)  

 
4,449,861

 

0.15 - 3.00

% (1)  

 
4,237,947

 

Total

 

 

 

$
5,330,218

 

 

 

$
5,052,055

 

(1)

The weighted‑average LIBOR floor was 0.36% and 0.31% as of December 31, 2016 and 2015, respectively.
Schedule of internal rating categories

The rating categories generally include the characteristics described below, but these are utilized as guidelines and therefore not every loan will have all of the characteristics described in each category:

 

 

 

Rating

 

Characteristics

1

    

Sponsor capability and financial condition—Sponsor is highly rated or investment grade or, if private, the equivalent thereof with significant management experience.

 

 

Loan collateral and performance relative to underwriting—The collateral has surpassed underwritten expectations.

 

 

Quality and stability of collateral cash flows—Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.

 

 

Loan structure—LTV does not exceed 65%. The loan has structural features that enhance the credit profile.

 

 

 

 

2

 

Sponsor capability and financial condition—Strong sponsorship with experienced management team and a responsibly leveraged portfolio.

 

 

Loan collateral and performance relative to underwriting—Collateral performance equals or exceeds underwritten expectations and covenants and performance criteria are being met or exceeded.

 

 

Quality and stability of collateral cash flows—Occupancy is stabilized with a diverse tenant mix.

 

 

Loan structure—LTV does not exceed 70% and unique property risks are mitigated by structural features.

 

 

 

 

3

 

Sponsor capability and financial condition—Sponsor has historically met its credit obligations, routinely pays off loans at maturity, and has a capable management team.

 

 

Loan collateral and performance relative to underwriting—Property performance is consistent with underwritten expectations.

 

 

Quality and stability of collateral cash flows—Occupancy is stabilized, near stabilized, or is on track with underwriting.

 

 

Loan structure—LTV does not exceed 80%.

 

 

 

 

4

 

Sponsor capability and financial condition—Sponsor credit history includes missed payments, past due payment, and maturity extensions. Management team is capable but thin.

 

 

Loan collateral and performance relative to underwriting—Property performance lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers. A sale of the property may be necessary in order for the borrower to pay off the loan at maturity.

 

 

Quality and stability of collateral cash flows—Occupancy is not stabilized and the property has a large amount of rollover.

 

 

Loan structure—LTV is 80% to 90%.

 

 

 

 

5

 

Sponsor capability and financial condition—Credit history includes defaults, deeds‑in‑lieu, foreclosures, and/or bankruptcies.

 

 

Loan collateral and performance relative to underwriting—Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and may be in default. Sale proceeds would not be sufficient to pay off the loan at maturity.

 

 

Quality and stability of collateral cash flows—The property has material vacancy and significant rollover of remaining tenants.

 

 

Loan structure—LTV exceeds 90%.

 

Schedule of risk ratings by class of loan

As of December 31, 2016, the risk ratings for loans subject to our rating system, which excludes loans for which the fair value option has been elected, by class of loan were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Classification

 

 

 

 

 

 

 

 

Loans Held-For-Investment

 

 

 

 

Loans

 

 

 

 

 

 

 

    

 

    

 

    

 

    

 

    

Transferred

    

 

    

% of

 

Risk Rating

 

First

 

Subordinated

 

Mezzanine

 

Loans Held-

 

As Secured

 

 

 

Total

 

Category

 

Mortgages

 

Mortgages

 

Loans

 

For-Sale

 

Borrowings

 

Total

 

Loans

 

1

 

$
921

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$
921

 

 —

%

2

 

 
1,092,731

 

 
27,069

 

 
194,803

 

 

 —

 

 
35,000

 

 
1,349,603

 
22.6

%

3

 

 
3,348,874

 

 
250,963

 

 
425,972

 

 

 —

 

 

 —

 

 
4,025,809

 
67.6

%

4

 

 
365,151

 

 

 —

 

 
92,982

 

 

 —

 

 

 —

 

 
458,133

 
7.7

%

5

 

 
58,317

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 
58,317

 
1.0

%

N/A

 

 

 —

 

 

 —

 

 

 —

 

 
63,279

 

 

 —

 

 
63,279

 
1.1

%

 

 

$
4,865,994

 

$
278,032

 

$
713,757

 

$
63,279

 

$
35,000

 

$
5,956,062

 
100.0

%

As of December 31, 2015, the risk ratings for loans subject to our rating system by class of loan were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Classification

 

 

 

 

 

 

 

 

Loans Held-For-Investment

 

 

 

 

Loans

 

 

 

 

 

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

Transferred

   

 

 

   

% of

 

Risk Rating

 

First

 

Subordinated

 

Mezzanine

 

Loans Held-

 

As Secured

 

 

 

 

Total

 

Category

 

Mortgages

 

Mortgages

 

Loans

 

For-Sale

 

Borrowings

 

Total

 

Loans

 

1

 

$
664

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$
664

 

 —

%

2

 

 
496,372

 

 
88,857

 

 
90,449

 

 

 —

 

 

 —

 

 
675,678

 
10.8

%

3

 

 
3,979,247

 

 
270,435

 

 
651,204

 

 

 —

 

 
86,573

 

 
4,987,459

 
79.6

%

4

 

 
247,569

 

 
33,271

 

 
121,040

 

 

 —

 

 

 —

 

 
401,880

 
6.4

%

5

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

%

N/A

 

 

 —

 

 

 —

 

 

 —

 

 
203,865

 

 

 —

 

 
203,865

 
3.2

%

 

 

$
4,723,852

 

$
392,563

 

$
862,693

 

$
203,865

 

$
86,573

 

$
6,269,546

 
100.0

%

 

Schedule of activity in allowance for loan losses

The following table presents the activity in our allowance for loan losses (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

    

2016

   

2015

 

2014

 

Allowance for loan losses at January 1

 

$
6,029

 

$
6,031

 

$
3,984

 

Provision for loan losses

 

 
3,759

 

 
(2)

 

 
2,047

 

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

Recoveries

 

 

 —

 

 

 —

 

 

 —

 

Allowance for loan losses at December 31

 

$
9,788

 

$
6,029

 

$
6,031

 

Recorded investment in loans related to the allowance for loan loss

 

$
516,450

 

$
401,880

 

$
294,767

 

 

Schedule of activity in loan portfolio

The activity in our loan portfolio was as follows (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

    

2016

    

2015

    

2014

 

Balance at January 1

 

$
6,263,517

 

$
6,300,285

 

$
4,750,804

 

Acquisitions/originations/additional funding

 

 
4,502,842

 

 
4,223,178

 

 
4,820,464

 

Capitalized interest (1)

 

 
80,992

 

 
70,675

 

 
49,611

 

Basis of loans sold (2)

 

 
(2,266,901)

 

 
(2,732,501)

 

 
(2,171,300)

 

Loan maturities/principal repayments

 

 
(2,742,462)

 

 
(1,647,852)

 

 
(1,244,445)

 

Discount accretion/premium amortization

 

 
48,384

 

 
36,862

 

 
21,287

 

Changes in fair value

 

 
74,251

 

 
64,320

 

 
70,420

 

Unrealized foreign currency remeasurement loss

 

 
(47,906)

 

 
(51,278)

 

 
(47,392)

 

Change in loan loss allowance, net

 

 
(3,759)

 

 
2

 

 
(2,047)

 

Transfer to/from other asset classifications

 

 
37,316

(3)

 
(174)

 

 
52,883

 

Balance at December 31

 

$
5,946,274

 

$
6,263,517

 

$
6,300,285

 

(1)

Represents accrued interest income on loans whose terms do not require current payment of interest.

 

(2)

See Note 12 for additional disclosure on these transactions.

 

Primarily represents commercial mortgage loans acquired from CMBS trusts which are consolidated as VIEs on our balance sheet. Refer to Notes 3 and 16 for further discussion.