INVESTMENT IN REAL ESTATE LOANS

3 Months Ended

Mar. 31, 2022

Investment in real estate loans, net is as follows (in thousands):


	March 31, 2022		December 31, 2021
Real estate loans	$	2,350	$	2,350

Allowance for credit losses	(2,350)		(2,350)
Investment in real estate loans, net	$	—	$	—

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

Real Estate Development Loans

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 the AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL, 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 March 31, 2022, we funded $29.6 million of our total $29.9 million commitment.

We have an option to purchase a 90% interest in the AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL (the “Initial Purchase Option”). We also have the right to purchase the remaining interest in the hotel property five years after the completion of construction. In December 2021, construction of the hotel property was completed. 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 March 31, 2022 and 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 three months ended March 31, 2022 and 2021, we amortized $0.1 million and $0.3 million, respectively, as non-cash interest income. Including the amortization of the contra-asset, the current effective interest rate on this loan is approximately 11.4%.

In April 2022, we exercised the Initial Purchase Option to acquire a 90% equity interest in the AC Hotel by Marriott and Element Miami Brickell Hotel in Miami, FL containing an aggregate 264 guestrooms. The option price was based on a gross hotel valuation of $89.0 million determined prior to commencement of the development project. We expect to fund our estimated equity requirement with the proceeds from the payment in full of our outstanding mezzanine loan to the developer of the project, which is expected to be $29.9 million at closing, the assumption of senior debt on the development project of approximately $47.0 million, and $7.9 million in cash. We expect to close the transaction in June 2022.

For additional information regarding our real estate development loans, please see our Annual Report on Form 10-K filed on February 23, 2022.

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 March 31, 2022, 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 due to a borrower default caused by the negative effects of the pandemic.

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 is accruing at a rate of 9.00% monthly, including 5.00% payable in cash and 4.00% paid-in-kind. Semiannual

principal payments of $0.3 million began on April 15, 2022.