INVESTMENT IN REAL ESTATE LOANS

12 Months Ended

Dec. 31, 2023

Real Estate Development Loans

Onera Mezzanine Financing Loan

In January 2023, we entered into an agreement with affiliates of Onera Opportunity Fund I, LP ("Onera") to provide a mezzanine financing loan to fund up to $4.6 million (the "Onera Mezzanine Loan") for the development of a lodging property in Wimberley, TX. The Onera Mezzanine Loan is secured by a second mortgage on the property and is subordinate to the senior lender for the development project. The loan matures 24 months from the closing date of the transaction and may be extended for an additional 12 months at the borrower's option. Additionally, we issued a $3.0 million letter of credit to the senior lender of the project as additional support for Onera's construction loan. We also have an option to purchase 90% of the equity of the entity that owns the development property upon completion of construction or upon the one-year anniversary of such completion at a pre-determined price (the "Onera Purchase Option"). The development is expected to be completed in the second half of 2024. As of December 31, 2023, we have funded our entire $4.6 million commitment under the mezzanine financing loan. The balance of the Onera Mezzanine Loan is recorded net of the unamortized discount related to the carrying amount of the Onera Purchase Option of $0.4 million at December 31, 2023, and is classified as Investments in lodging property, net in our Consolidated Balance Sheets at December 31, 2023.

We recorded the Onera Purchase Option related to the Onera Mezzanine Loan at its estimated fair value of $0.9 million on the transaction date using the Black-Scholes model in Other assets and as a contra-asset to Investments in lodging property, net. The recorded amount of the Onera Purchase Option is being amortized over the term of the Onera Mezzanine Loan using the straight-line method, which approximates the interest method, as non-cash interest income. For the year ended December 31, 2023, we amortized $0.5 million of the carrying amount of the Onera Purchase Option as non-cash interest income.

Our estimate of the fair value of the Onera Purchase Option under the Black-Scholes model requires judgment and estimates primarily related to the volatility of our stock price and expected levels of future dividends on our common stock. Although our estimate contemplates current and expected future conditions, as applicable, it is reasonably possible that actual conditions could materially differ from our expectations.

Brickell Mezzanine Financing Loan

During the year ended December 31, 2019, we executed a mezzanine financing loan to a developer, as amended (the "Brickell Mezzanine Loan"), to fund up to $29.9 million for a mixed-use development project that included the AC/Element Hotel, retail space, and parking.

During the second quarter of 2022, we exercised our option (the “Initial Purchase Option”) to purchase a 90% interest in the AC/Element Hotel, retail space, and parking that was granted in connection with the Brickell Mezzanine Loan, which resulted in payment in full of the Brickell Mezzanine Loan. We also have the right to purchase the remaining interest in the property five years after the completion of construction. The Brickell Mezzanine Loan was classified as Investments in lodging property, net in our Condensed Consolidated Balance Sheets.

Seller-Financing Loans

In June 2018, we sold two hotel properties for an aggregate selling price of $24.9 million. We provided seller financing in two notes totaling $3.6 million on the sale of these properties. During the year ended December 31, 2020, we recorded an allowance for credit losses in an amount equal to the outstanding principal balance of the loans due to a borrower default caused by the negative effects of the Pandemic. During the year ended December 31, 2022, we received $0.6 million from the borrower to repay one of the two loans in full and $0.5 million of principal payments on the remaining loan. As such, we recorded Recoveries of credit losses of $1.1 million during the year ended December 31, 2022. During the year ended December 31, 2023, we received $1.5 million from the borrower to repay approximately $0.3 million of accrued and unpaid interest and the remaining outstanding principal balance of the remaining loan. As a result, we recorded Recoveries of credit losses of $1.2 million during the year ended December 31, 2023 related to the repayment in full of the seller-financing loan.

The seller-financing loan, net was included in Prepaid expenses and other in our Consolidated Balance Sheets at December 31, 2022.

Investment in real estate loans, net at December 31, 2022 was as follows (in thousands):


	December 31,
	2022
Real estate loan	$	1,250
Allowance for credit losses	(1,250)

	$	—