Goodwill and Intangibles

9 Months Ended

Sep. 30, 2017

8. Goodwill and Intangibles

Goodwill

Goodwill at September 30, 2017 and December 31, 2016 represented the excess of consideration transferred over the fair value of net assets of LNR Property LLC (“LNR”) acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes an international network of commercial real estate asset managers, work-out specialists, underwriters and administrative support professionals as well as proprietary historical performance data on commercial real estate assets.

Intangible Assets

Servicing Rights Intangibles

In connection with the LNR acquisition, we identified domestic and European servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. During the year ended December 31, 2016, we contributed our European servicing and advisory business to an unrelated entity in exchange for a non-controlling equity interest in that entity and therefore no longer have any European servicing rights.

At September 30, 2017 and December 31, 2016, the balance of the domestic servicing intangible was net of $26.6 million and $34.2 million, respectively, which was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of September 30, 2017 and December 31, 2016, the domestic servicing intangible had a balance of $60.4 million and $89.3 million, respectively, which represents our economic interest in this asset.

Lease Intangibles

In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain non-cancelable operating leases of the acquired properties.

The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of September 30, 2017 and December 31, 2016 (amounts in thousands):


	As of September 30, 2017						As of December 31, 2016
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Value		Amortization		Value		Value		Amortization		Value
Domestic servicing rights, at fair value	$	33,781	$	—	$	33,781	$	55,082	$	—	$	55,082
In-place lease intangible assets		181,636		(59,308)		122,328		175,409		(38,532)		136,877
Favorable lease intangible assets		32,070		(6,314)		25,756		30,459		(3,170)		27,289
Total net intangible assets	$	247,487	$	(65,622)	$	181,865	$	260,950	$	(41,702)	$	219,248

The following table summarizes the activity within intangible assets for the nine months ended September 30, 2017 (amounts in thousands):


	Domestic		In-place Lease		Favorable Lease
	Servicing		Intangible		Intangible
	Rights		Assets		Assets		Total
Balance as of January 1, 2017	$	55,082	$	136,877	$	27,289	$	219,248
Acquisition of additional REIS Equity Portfolio properties		—		3,810		462		4,272
Amortization		—		(20,098)		(2,940)		(23,038)
Sales		—		(367)		(109)		(476)
Foreign exchange gain		—		3,908		1,044		4,952
Impairment (1)		—		(981)		(9)		(990)
Changes in fair value due to changes in inputs and assumptions		(21,301)		—		—		(21,301)
Measurement period adjustments		—		(821)		19		(802)
Balance as of September 30, 2017	$	33,781	$	122,328	$	25,756	$	181,865

(1)

Impairment of intangible lease assets is recognized within other expense in our condensed consolidated statements of operations.

The following table sets forth the estimated aggregate amortization of our in-place lease intangible assets and favorable lease intangible assets for the next five years and thereafter (amounts in thousands):


2017 (remainder of)	$	7,556
2018		27,711
2019		21,288
2020		15,908
2021		13,623
Thereafter		61,998
Total	$	148,084

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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