COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT

12 Months Ended

Dec. 31, 2022

COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT

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


								Weighted Average
Loan Type	Unpaid Principal Balance		Carrying Value		Loan Count	Floating Rate Loan %		Coupon(1)		Term (Years)(2)
December 31, 2022
Loans held-for-investment
Senior secured loans(3)	$	1,076,865,099	$	1,076,148,186	71	100.0	%	7.6	%	3.5
Allowance for loan losses	N/A		$	(4,258,668)
	$	1,076,865,099	$	1,071,889,518	71	100.0	%	7.6	%	3.5


									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	71	100.0	%	3.9	%	3.7

(1) Weighted average coupon assumes applicable one-month LIBOR of 4.18% and 0.10% as of December 31, 2022 and December 31, 2021, respectively and 30-day Term SOFR of 4.19% as of December 31, 2022 inclusive of weighted average interest rate floors of 0.27% and 0.49%, respectively. As of December 31, 2022, 77.4% of the investments by total exposure earned a floating rate indexed to one-month LIBOR and 22.6% 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 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 December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 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 of VIEs.

Activity: For the years ended December 31, 2022 and December 31, 2021, the loan portfolio activity was as follows:


	Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2020	$	547,345,334
Purchases and advances	983,694,326
Principal payments	(528,802,705)
Accretion of purchase discount	46,088
Amortization of purchase premium	$	(457,749)
Balance at December 31, 2021	$	1,001,825,294
Purchases and advances	345,158,577
Principal repayments	(270,926,723)
Accretion of purchase discount	125,098
Amortization of purchase premium	(61,144)
Accretion of deferred loan fees	27,084
Provision for loan losses	$	(4,258,668)
Balance at December 31, 2022	$	1,071,889,518

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 December 31, 2022 and December 31, 2021:


December 31, 2022
				Amortized Cost by Year of Origination
Risk Rating	Number of Loans	Outstanding Principal		2022	2021	2019	2018	2017
1	—	$	—	—	—	—	—	—
2	11	153,933,750		85,198,084	67,999,500	—	—	—
3	55	852,474,681		101,654,140	672,421,907	42,077,193	16,672,623	19,668,071
4	3	47,448,000		15,000,000	32,448,000	—	—	—
5	2	23,008,668		—	12,750,000	—	6,000,000	—
	71	$	1,076,865,099	201,852,224	785,619,407	42,077,193	22,672,623	19,668,071


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 December 31, 2022, the average risk rating of the commercial mortgage loan portfolio was 3.0 (Moderate Risk), weighted by investment carrying value, with 93.8% 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 commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

The average risk rating of the portfolio has increased during the year ended December 31, 2022. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $144.6 million, a risk rating of "3" of $103.5 million and a risk rating of "4" of $9.5 million, offset by purchases of commercial mortgage loans with a risk rating of "2" of $85.9 million, a risk rating of "3" of $231.7 million and a risk rating of "4" of $15 million during the year ended December 31, 2022. Additionally, $437.0 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $32.4 million of loans with a risk rating of "2" transitioned to a risk rating of "4", $47.7 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 "5", $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 December 31, 2022 and December 31, 2021:

Loans Held-for-Investment


	December 31, 2022		December 31, 2021
Geography
South	46.6	%	46.2	%
Southwest	26.7		27.5
Mid-Atlantic	12.4		7.9
Midwest	8.0		4.5
West	6.3		13.9
Total	100.0	%	100.0	%


	December 31, 2022		December 31, 2021
Collateral Property Type
Multifamily	89.6	%	92.0	%
Healthcare	6.4		—
Self-Storage	1.8		5.2
Retail	1.6		1.7
Office	0.6		1.1
Total	100.0	%	100.0	%

Allowance for Loan Losses: The following table presents the changes for the years ended December 31, 2022 and December 31, 2021 in the provision for credit losses on loans held-for-investment.


	Year ended
	December 31, 2022		December 31, 2021
Allowance for loan losses at beginning of period	$	—	$	—
Provision for loan losses	4,258,668		—
Allowance for loan losses at end of period	4,258,668		$	—

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

During the period ended December 31, 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 the year ended December 31, 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 was unable to execute a sale in this timeframe. Subsequent to the December 2022 maturity, the Company accepted a discounted payoff of approximately $6.0 million (See Note 16). Based on this review, a reserve of $4.3 million was recorded for this impaired loan in the year ended December 31, 2022. Additionally, this loan was placed on non-accrual as result of the impaired loan classification, however, the borrower remained current on debt service payments through December 31, 2022.

During the period ended December 31, 2022, management identified one loan, collateralized by a multifamily property, with an unpaid principal value of $12.8 million as impaired due to monetary default, however, no reserve is required after analysis of underlying collateral value. This loan was placed on non-accrual as a result of the monetary default and impaired loan classification.