INVESTMENT IN REAL ESTATE LOANS

9 Months Ended

Sep. 30, 2024

Real Estate [Abstract]

INVESTMENT IN REAL ESTATE LOANS

INVESTMENT IN REAL ESTATE LOANS

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 of $4.6 million (the "Onera Mezzanine Loan") for the development of a glamping 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. As of September 30, 2024, we have funded our entire $4.6 million commitment under the mezzanine financing loan. 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. The borrower has exercised its option to extend the Onera Mezzanine Loan for an additional 12 months.

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 have not recorded a liability for this guarantee as we believe the likelihood of having to make any payment under this guarantee is remote. In the event that we fund any amount under this guarantee, we would have the right to recover any amount paid under the guarantee from Onera.

We also have an option to purchase 90% of the equity of the entity that owns the development property that became exercisable upon completion of construction in September 2024 (the "Onera Purchase Option"). The Onera Purchase Option is exercisable until the later of the first anniversary of the opening of the property or the date the Onera Mezzanine Loan is paid in full.

We recorded the estimated fair value of the Onera Purchase Option in Other assets and as a contra-asset to Investments in lodging property, net at its estimated fair value of $0.9 million on the transaction date using the Black-Scholes model. 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.

The recorded amount of the Onera Purchase Option was amortized as non-cash interest income beginning in January 2023 using the straight-line method, which approximates the interest method, and through September 2024 when the Onera Purchase Option became exercisable. For each of the three month periods ended September 30, 2024 and 2023, we amortized $0.1 million of the carrying amount of the Onera Purchase Option as non-cash interest income, and for each of the nine month periods ended September 30, 2024 and 2023, we amortized $0.4 million of the carrying amount of the Onera Purchase Option as non-cash interest income.