INVESTMENT IN REAL ESTATE LOANS

12 Months Ended

Dec. 31, 2021

Investment in real estate loans, net at December 31, 2021 and 2020 is as follows (in thousands):


	2021		2020
Real estate loans	$	2,350	$	28,671

Allowance for credit losses	(2,350)		(4,982)
	$	—	$	23,689

The amortized cost bases of our Investment in real estate loans, net approximate their fair value.

Real Estate Development Loans

We provided mezzanine loans on three real estate development projects to fund up to an aggregate of $29.6 million for the development of three hotel properties. The three real estate development loans closed in the fourth quarter of 2017 and each had a stated interest rate of 8% and an initial term of approximately three years. During the year ended December 31, 2020, one of the real estate development loans with a principal balance of $3.8 million was repaid in full. We had separate options related to each remaining loan (each the "Initial Option") to purchase a 90% interest in each joint venture that owns the respective hotel upon completion of construction. We recorded the aggregate estimated fair value of the Initial Options totaling $4.4 million in Other assets.

The Pandemic adversely affected the operations of the hotels that collateralize the remaining mezzanine loans. As a result, we had an allowance for credit losses of $2.6 million that was recorded in March 2020, to reduce the carrying amounts of the loans to their estimated net realizable values.

We reached an agreement with the borrowers of the mezzanine loans on the two remaining real estate development projects for the full repayment of the loans in the fourth quarter of 2021, which resulted in us foregoing the exercise of the Initial Options. Accordingly, the Company reversed the $2.6 million allowance for credit losses and recorded a Loss on impairment to write-off the carrying amounts of the Initial Options totaling $4.4 million.

During the year ended December 31, 2019, we provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. The loan closed in the third quarter of 2019 and has a stated interest rate of 9%. In November 2020, we extended the maturity date of the loan from February 15, 2022 to May 15, 2022. In December 2021, we modified the loan agreement to increase the Company's funding commitment by $1.0 million. The loan is secured by a second mortgage on the development project and a pledge of the equity in the project owner. As of December 31, 2021, we have funded $27.7 million of the loan commitment. Upon completion of construction, we have an option to purchase a 90% interest in the hotel (the “Initial Purchase Option”). We also have the right to purchase the remaining interest in the hotel five years after the completion of construction. We have issued a $10.0 million letter of credit under our senior revolving credit facility to secure the exercise of the Initial Purchase Option. As such, we have classified the loan as Investment in hotel properties, net on our Consolidated Balance Sheets at December 31, 2021. Interest income on the mezzanine loan is recorded in our Consolidated Statement of Operations as it is earned. We have recorded the aggregate estimated fair value of the Initial Purchase Option totaling $2.8 million in Other assets and as a contra-asset to Investment in hotel properties, net. The contra-asset will be amortized as a component of non-cash interest income over the term of the real estate development loan using the straight-line method, which approximates the interest method. During each of the years ended December 31, 2021 and 2020, we amortized $1.1 million as non-cash interest income. Including the amortization of the contra-asset, the current effective interest rate on this loan is approximately 10.6%.

Seller-Financing Loans

On June 29, 2018, we sold the Holiday Inn in Duluth, GA and the Hilton Garden Inn in Duluth, GA for an aggregate selling price of $24.9 million. We provided seller financing totaling $3.6 million on the sale of these properties under two, 3.5 year second mortgage notes with a blended interest rate of 7.38% that are further collateralized by a personal guarantee from the principal of the borrower. As of December 31, 2021, there was $2.4 million outstanding on the seller-financing loans. During the year ended December 31, 2020, we recorded an allowance for credit losses in an amount equal to the outstanding balance of the loans.

On June 1, 2021, we amended the terms of the seller-financing loans and extended the maturity date of each loan to December 31, 2022. Interest will accrue at a rate of 9.00% monthly, including 5.00% payable in cash and 4.00% paid-in-kind. Semi-annual principal payments of $0.3 million are scheduled to begin on April 1, 2022. In connection with the modifications, the borrower paid all interest due through May 31, 2021. As a result, the Company recognized interest income related to these loans of $0.4 million during the year ended December 31, 2021.