COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT

9 Months Ended

Sep. 30, 2022

COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT

The following tables summarize certain characteristics of the Company's investments in commercial mortgage loans as of September 30, 2022 and December 31, 2021:


						Weighted Average
Loan Type	Unpaid Principal Balance		Carrying Value		Loan Count	Floating Rate Loan %		Coupon(1)		Term (Years)(2)
September 30, 2022
Loans held-for-investment
Senior secured loans(3)	$	1,045,929,099	$	1,045,953,691	70	100.0	%	6.0	%	3.6
Allowance for loan losses	N/A		(1,872,937)
Loans held-for-investment, net of allowance for loan losses	1,045,929,099		1,044,080,754		70	100.0	%	6.0	%	3.6


						Weighted Average
Loan Type	Unpaid Principal Balance		Carrying Value		Loan Count	Floating Rate Loan %		Coupon(1)		Term (Years)(2)
December 31, 2021
Loans held-for-investment
Senior secured loans(3)	$	1,001,869,994	$	1,001,825,294	66	100.0	%	3.9	%	3.7
	1,001,869,994		1,001,825,294		66	100.0	%	3.9	%	3.7

(1) Weighted average coupon assumes applicable one-month LIBOR of 2.66% and 0.10% and 30-day Term Secured Overnight Financing Rate ("SOFR") of 2.60% and 0.00% as of September 30, 2022 and December 31, 2021, respectively, inclusive of weighted average interest rate floors of 0.26% and 0.49%, respectively. As of September 30, 2022, 83.5% of the investments by total investment exposure earned a floating rate indexed to

one-month USD LIBOR and 16.5% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2021, 100% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR

(2) Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.

(3) As of September 30, 2022, $971,905,743 of the outstanding senior secured loans were held in VIEs and $73,696,034 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2021, $974,025,294 of the outstanding senior secured loans were held in VIEs and $27,800,000 of the outstanding senior secured loans were held outside VIEs.

Activity: For the nine months ended September 30, 2022, the loan portfolio activity was as follows:


	Commercial Mortgage Loans Held-for-Investment



Balance at December 31, 2021	$	1,001,825,294
Purchases and fundings	269,596,827
Principal payments	(225,537,724)
Accretion of purchase discount	125,098
Amortization of purchase premium	(55,804)
Provision for loan losses	(1,872,937)
Balance at September 30, 2022	$	1,044,080,754

Loan Risk Ratings: As further described in Note 2, the Company evaluates the commercial mortgage loan portfolio on a quarterly basis and assigns a risk rating based on a variety of factors. The following table presents the principal balance and net book value of the loan portfolio based on the Company's internal risk ratings as of September 30, 2022 and December 31, 2021:


	September 30, 2022
				Amortized Cost by Year of Origination
Risk Rating	Number of Loans	Outstanding Principal		2022	2021	2019	2018	2017
1	—	$	—	—	—	—	—	—
2	23	302,083,221		24,084,750	273,552,471	—	4,446,000	—
3	45	720,837,210		108,478,640	533,959,935	42,077,193	16,672,623	19,673,411
4	1	12,750,000		—	12,750,000	—	—	—
5	1	10,258,668		—	—	—	8,385,731	—
	70	$	1,045,929,099	132,563,390	820,262,406	42,077,193	29,504,354	19,673,411


	December 31, 2021
				Amortized Cost by Year of Origination
Risk Rating	Number of Loans	Outstanding Principal		2021	2020	2019	2018	2017
1	—	$	—	—	—	—	—	—
2	40	634,438,386		596,052,235	4,920,000	33,466,151	—	—
3	23	342,350,405		201,402,134	6,870,561	70,566,216	43,777,862	19,688,932
4	3	25,081,203		—	8,037,399	5,295,605	11,748,199	—
5	—	—		—	—	—	—	—
	66	$	1,001,869,994	797,454,369	19,827,960	109,327,972	55,526,061	19,688,932

As of September 30, 2022, the average risk rating of the commercial mortgage loan portfolio was 2.7 (Moderate Risk), weighted by investment carrying value, with 97.8% of the net carrying value of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

As of December 31, 2021, the average risk rating of the commercial mortgage loan portfolio was 2.3 (Low Risk), weighted by investment carrying value, with 97.5% of the net carrying value of commercial loans held-for-invested rated 3 (Moderate Risk) or better by the Company's Manager.

The average risk rating of the portfolio has increased during the nine months ended September 30, 2022. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $110.0 million, a risk rating of "3" of $99.0 million and a risk rating of "4" of $9.5 million, offset by the purchase of commercial mortgage loans with a risk rating of "2" of $69.0 million and a risk rating of "3" of $193.6 million during the nine months ended September 30, 2022. Additionally, $377.6 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $86.2 million of loans with a risk rating of "3" transitioned to a risk rating of "2", $12.8 million of loans transitioned from a risk rating of "3" to a risk rating of "4", $5.3 million of loans transitioned from a risk rating of "4" to a risk rating of "3", and a loan with an unpaid principal balance of $10.3 million transitioned from a risk rating of "4" to a risk rating of "5".

Concentration of Credit Risk: The following tables present the geographic and property types of collateral underlying the Company's commercial mortgage loans as a percentage of the loans' carrying value as of September 30, 2022 and December 31, 2021:

Loans Held-for-Investment


	September 30, 2022		December 31, 2021
Geography
South	48.2	%	46.2	%
Southwest	23.4		27.5
Mid-Atlantic	12.1		7.9
West	9.1		13.9
Midwest	7.2		4.5
Total	100.0	%	100.0	%


	September 30, 2022		December 31, 2021
Collateral Property Type
Multifamily	95.1	%	92.0	%
Self-Storage	1.9		5.2
Retail	1.6		1.7
Office	0.8		1.1
Seniors Housing and Healthcare	0.6		—
Total	100.0	%	100.0	%

Allowance for Loan Losses: The following table presents the changes for the three and nine months ended September 30, 2022 and September 30, 2021 in the provision for credit losses on loans held-for-investment:


	Three months ended		Nine months ended
	September 30, 2022	September 30, 2021	September 30, 2022	September 30, 2021
Allowance for loan losses at beginning of period	351,914	—	—	—
Provision for loan losses	1,521,023	—	1,872,937	—
Allowance for loan losses at end of period	1,872,937	—	1,872,937	—

We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loan discussed below as of September 30, 2022 or December 31, 2021.

During the period ended September 30, 2022, management identified one loan, collateralized by an office building, with an unpaid principal value of $10.3 million as impaired, reflecting a decline in collateral value attributable to (i) recent and near term vacancies at the property; (ii) new information available during three months ended September 30, 2022 regarding the addition of office space supply that will increase the submarket vacancy rate in the local market and (iii) declining market conditions. As of August 8, 2022, this loan has been placed in maturity default. We entered into a forbearance agreement with the borrower extending the maturity date to December 2022 to allow the borrower more time to market and sell the property, however the borrower will likely not be able to repay or refinance the loan in full at maturity. Based on this review, a reserve of $1.5 million was recorded for this impaired loan in the three months ended September 30, 2022 and $1.9 million for the nine months ended September 30, 2022. Additionally, this loan was placed on non-accrual as result of the impaired loan classification, however, the borrower continues to remain current on debt service payments.