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Investment Securities
 9 Months Ended
Sep. 30, 2021
Investments, Debt and Equity Securities [Abstract]  
Investment Securities Investment Securities
Investment securities were comprised of the following as of September 30, 2021 and December 31, 2020 (amounts in thousands):
Carrying Value as of
September 30, 2021December 31, 2020
RMBS, available-for-sale$148,583 $167,349 
RMBS, fair value option (1)215,152 235,997 
CMBS, fair value option (1), (2)1,227,119 1,209,030 
HTM debt securities, amortized cost net of credit loss allowance of $6,389 and $5,675
486,734 538,605 
Equity security, fair value12,067 11,247 
Subtotal—Investment securities
2,089,655 2,162,228 
VIE eliminations (1)(1,418,768)(1,425,570)
Total investment securities$670,887 $736,658 
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(1)Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.
(2)Includes $179.8 million and $179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of September 30, 2021 and December 31, 2020, respectively.
Purchases, sales, principal collections and redemptions for all investment securities were as follows (amounts in thousands):
RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Securitization
VIEs (1)		Total
Three Months Ended September 30, 2021
Purchases$— $33,009 $8,383 $— $(41,392)$— 
Sales— — 27,111 — (27,111)— 
Principal collections7,881 14,204 706 752 (14,555)8,988 
Redemptions— 26,753 — — (26,753)— 
Three Months Ended September 30, 2020
Purchases/fundings$— $43,083 $— $6,288 $(43,083)$6,288 
Principal collections6,063 12,132 8,265 11,203 (20,185)17,478 
RMBS,
available-for-sale		RMBS, fair
value option		CMBS, fair
value option		HTM
Securities		Securitization
VIEs (1)		Total
Nine Months Ended September 30, 2021
Purchases$— $112,693 $62,465 $— $(175,158)$— 
Sales— 30,684 38,715 — (69,399)— 
Principal collections22,995 42,235 4,429 53,321 (45,125)77,855 
Redemptions— 38,729 — — (38,729)— 
Nine Months Ended September 30, 2020
Purchases/fundings$— $257,808 $7,661 $22,408 $(265,469)$22,408 
Sales— — 32,316 — (24,376)7,940 
Principal collections18,626 32,236 25,715 48,554 (57,174)67,957 
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(1)Represents RMBS and CMBS, fair value option amounts eliminated due to our consolidation of securitization VIEs. These amounts are reflected as issuance or repayment of debt of, or distributions from, consolidated VIEs in our condensed consolidated statements of cash flows.
RMBS, Available-for-Sale
The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of September 30, 2021 and December 31, 2020. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).
The tables below summarize various attributes of our investments in available-for-sale RMBS as of September 30, 2021 and December 31, 2020 (amounts in thousands):
Unrealized Gains or (Losses)
Recognized in AOCI
Amortized
Cost		Credit
Loss
Allowance		Net
Basis		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Net
Fair Value
Adjustment		Fair Value
September 30, 2021
RMBS$108,097 $— $108,097 $40,486 $— $40,486 $148,583 
December 31, 2020
RMBS$123,292 $— $123,292 $44,123 $(66)$44,057 $167,349 
Weighted Average Coupon (1)WAL 
(Years) (2)
September 30, 2021
RMBS1.2 %5.4
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(1)Calculated using the September 30, 2021 one-month LIBOR rate of 0.080% for floating rate securities.
(2)Represents the remaining WAL of each respective group of securities as of the balance sheet date. The WAL of each individual security is calculated using projected amounts and projected timing of future principal payments.
As of September 30, 2021, approximately $129.4 million, or 87%, of RMBS were variable rate. We purchased all of the RMBS at a discount, a portion of which is accreted into income over the expected remaining life of the security. The majority of the income from this strategy is earned from the accretion of this accretable discount.
We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was $0.3 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $0.9 million and $1.0 million for the nine months ended September 30, 2021 and 2020, respectively, recorded as management fees in the accompanying condensed consolidated statements of operations.
The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of September 30, 2021 and December 31, 2020, and for which an allowance for credit losses has not been recorded (amounts in thousands):
Estimated Fair ValueUnrealized Losses
Securities with a
loss less than
12 months		Securities with a
loss greater than
12 months		Securities with a
loss less than
12 months		Securities with a
loss greater than
12 months
As of September 30, 2021
RMBS$— $— $— $— 
As of December 31, 2020
RMBS$438 $1,195 $(25)$(41)
As of December 31, 2020, there were two securities with unrealized losses reflected in the table above (none as of September 30, 2021). After evaluating the securities and recording adjustments for credit losses, we concluded that the remaining unrealized losses reflected above were noncredit-related and would be recovered from the securities’ estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering our amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover our cost. Credit losses are calculated by comparing (i) the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) our net amortized cost basis. Significant judgment is used in projecting cash flows for our non-agency RMBS. As a result, actual income and/or credit losses could be materially different from what is currently projected and/or reported.
CMBS and RMBS, Fair Value Option
As discussed in the “Fair Value Option” section of Note 2 herein, we elect the fair value option for certain CMBS and RMBS in an effort to eliminate accounting mismatches resulting from the current or potential consolidation of securitization VIEs. As of September 30, 2021, the fair value and unpaid principal balance of CMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $1.2 billion and $2.8 billion, respectively. As of September 30, 2021, the fair value and unpaid principal balance of RMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $215.2 million and $119.5 million, respectively. The $1.4 billion total fair value balance of CMBS and RMBS represents our economic interests in these assets. However, as a result of our consolidation of securitization VIEs, the vast majority of this fair value (all except $23.5 million at September 30, 2021) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.
As of September 30, 2021, $98.2 million of our CMBS were variable rate and none of our RMBS were variable rate.
HTM Debt Securities, Amortized Cost
The table below summarizes our investments in HTM debt securities as of September 30, 2021 and December 31, 2020 (amounts in thousands):
Amortized
Cost Basis		Credit Loss
Allowance		Net Carrying
Amount		Gross Unrealized
Holding Gains		Gross Unrealized
Holding Losses		Fair Value
September 30, 2021
CMBS$339,190 $(1,593)$337,597 $— $(23,490)$314,107 
Preferred interests117,692 (1,877)115,815 3,415 — 119,230 
Infrastructure bonds36,241 (2,919)33,322 498 — 33,820 
Total$493,123 $(6,389)$486,734 $3,913 $(23,490)$467,157 
December 31, 2020
CMBS$339,059 $— $339,059 $— $(23,286)$315,773 
Preferred interests166,614 (2,749)163,865 432 (913)163,384 
Infrastructure bonds38,607 (2,926)35,681 415 — 36,096 
Total$544,280 $(5,675)$538,605 $847 $(24,199)$515,253 
The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):
CMBSPreferred
Interests		Infrastructure
Bonds		Total HTM
Credit Loss
Allowance
Nine Months Ended September 30, 2021
Credit loss allowance at December 31, 2020$— $2,749 $2,926 $5,675 
Credit loss provision (reversal), net1,593 (872)(7)714 
Credit loss allowance at September 30, 2021$1,593 $1,877 $2,919 $6,389 
The table below summarizes the maturities of our HTM debt securities by type as of September 30, 2021 (amounts in thousands):
CMBSPreferred
Interests		Infrastructure
Bonds		Total
Less than one year$313,928 $— $— $313,928 
One to three years23,669 115,815 — 139,484 
Three to five years— — 814 814 
Thereafter— — 32,508 32,508 
Total$337,597 $115,815 $33,322 $486,734 
Equity Security, Fair Value
During 2012, we acquired 9,140,000 ordinary shares from a related-party in Starwood European Real Estate Finance Limited (“SEREF”), a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange. The fair value of the investment remeasured in USD was $12.1 million and $11.2 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, our shares represent an approximate 2% interest in SEREF.