Commercial Mortgage Loans

The following table is a summary of the Company's commercial mortgage loans, held for investment, carrying values by class (dollars in thousands):



	March 31, 2020		December 31, 2019
Senior loans	$	2,653,564	$	2,721,325
Mezzanine loans	9,117		41,638
Total gross carrying value of loans	2,662,681		2,762,963
Less: Allowance for credit losses ⁽¹⁾	21,702		921
Total commercial mortgage loans, held for investment, net	$	2,640,979	$	2,762,042

___________________

⁽¹⁾As of March 31, 2020 and December 31, 2019, there have been no specific reserves for loans in non-performing status.

As of March 31, 2020 and December 31, 2019, the Company's total commercial mortgage loan portfolio, excluding commercial mortgage loans accounted for under the fair value option, was comprised of 118 and 122 loans, respectively.

Allowance for Credit Losses

The following table presents the activity in the Company's allowance for credit losses, excluding the unfunded loan commitments, for the three months ended March 31, 2020 (dollars in thousands):



	March 31, 2020
	Multifamily		Retail		Office		Industrial		Mixed Use		Hospitality			Self Storage			Mobile Housing			Total
Beginning Balance	$	322	$	202	$	249	$	23	$	4	$	103		$	—		$	18		$	921
Cumulative-effect adjustment upon adoption of ASU 2016-13	3,220		386		1,966		434		9		739			399			58			7,211
Current Period:
Increase/(decrease) for credit losses	8,647		565		2,358		1,875		28		655			(123		)	(8		)	13,997
Write-offs	—		—		—		—		—		(427		)	—			—			(427		)
Ending Balance	$	12,189	$	1,153	$	4,573	$	2,332	$	41	$	1,070		$	276		$	68		$	21,702

The increase in the provision for credit losses during the three months ended March 31, 2020 of $13,997 is primarily driven by the significant adverse change in the overall economic outlook due to the COVID-19 pandemic. These are allowance for credit losses on commercial mortgage loans, held-for-investment, as of March 31, 2020 and December 31, 2019.

The following table presents the activity in the Company's allowance for credit losses, for the unfunded loan commitments, for the three months ended March 31, 2020 (dollars in thousands):



	March 31, 2020
	Multifamily		Retail			Office		Industrial		Mixed Use			Hospitality		Self Storage			Mobile Housing			Total
Beginning Balance	$	—	$	—		$	—	$	—	$	—		$	—	$	—		$	—		$	—
Cumulative-effect adjustment upon adoption of ASU 2016-13	239		40			150		30		1			57		28			5			550
Current Period:
Increase/(decrease) for credit losses	56		(40		)	242		257		(1		)	117		(28		)	(3		)	600
Write-offs	—		—			—		—		—			—		—			—			—
Ending Balance	$	295	$	—		$	392	$	287	$	—		$	174	$	—		$	2		$	1,150

The following table represents the composition by loan type of the Company's commercial mortgage loans portfolio, excluding commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands):



	March 31, 2020				December 31, 2019
Loan Type	Par Value		Percentage		Par Value		Percentage
Multifamily	$	1,395,956	52.3	%	$	1,491,971	53.9	%
Office	430,870		16.1	%	414,772		15.0	%
Hospitality	398,186		14.9	%	446,562		16.1	%
Industrial	144,093		5.4	%	118,743		4.3	%
Retail	111,620		4.2	%	111,620		4.0	%
Mixed Use	65,040		2.4	%	58,808		2.1	%
Self Storage	63,057		2.4	%	67,767		2.4	%
Land	16,400		0.6	%	16,400		0.6	%
Manufactured Housing	44,911		1.7	%	44,656		1.6	%
Total	$	2,670,133	100.0	%	$	2,771,299	100.0	%

As of March 31, 2020 and December 31, 2019, the Company's total commercial mortgage loans, held-for-sale, measured at fair value comprised of 8 and 7 loans, respectively. As of March 31, 2020 and December 31, 2019, the contractual principal outstanding of commercial mortgage loans, held-for-sale, measured at fair value was $93.7 million and $112.5 million, respectively. As of March 31, 2020 and December 31, 2019, none of the Company's commercial mortgage loans, held-for-sale, measured at fair value were in default or greater than ninety days past due.

The following table represents the composition by loan type of the Company's commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands):



	March 31, 2020				December 31, 2019
Loan Type	Par Value		Percentage		Par Value		Percentage
Multifamily	$	41,000	43.8	%	$	78,250	69.6	%
Industrial	23,625		25.2	%	23,625		21.0	%
Retail	21,193		22.6	%	2,613		2.3	%
Office	6,000		6.4	%	—		—	%
Manufactured Housing	1,850		2.0	%	—		—	%
Hospitality	—		—	%	8,000		7.1	%
Total	$	93,668	100.0	%	$	112,488	100.0	%

Loan Credit Quality and Vintage

The following tables present the amortized cost of our commercial mortgage loans, held for investment at March 31, 2020, by loan type, the Company’s internal risk rating and year of origination. The risk ratings are updated as of March 31, 2020.



As of March 31, 2020
	2020		2019		2018		2017		2016		2015		Prior		Total

Multifamily:
Risk Rating:
1-2 internal grade	$	177,191	$	456,036	$	617,533	$	34,875	$	—	$	—	$	3,489	$	1,289,124
3-4 internal grade	—		—		65,805		37,812		—		—		—		103,617
Total Multifamily Loans	$	177,191	$	456,036	$	683,338	$	72,687	$	—	$	—	$	3,489	$	1,392,741

Retail:
Risk Rating:
1-2 internal grade	$	—	$	54,618	$	16,319	$	—	$	—	$	—	$	9,450	$	80,387
3-4 internal grade	—		3,501		43,907		—		—		—		—		47,408
Total Retail Loans	$	—	$	58,119	$	60,226	$	—	$	—	$	—	$	9,450	$	127,795

Office:
Risk Rating:
1-2 internal grade	$	49,163	$	173,988	$	97,936	$	41,645	$	—	$	10,700	$	—	$	373,432
3-4 internal grade	—		—		45,259		10,506		—		—		—		55,765
Total Office Loans	$	49,163	$	173,988	$	143,195	$	52,151	$	—	$	10,700	$	—	$	429,197

Industrial:
Risk Rating:
1-2 internal grade	$	25,241	$	84,576	$	—	$	—	$	—	$	33,655	$	—	$	143,472
3-4 internal grade	—		—		—		—		—		—		—		—
Total Industrial Loans	$	25,241	$	84,576	$	—	$	—	$	—	$	33,655	$	—	$	143,472

Mixed Use:
Risk Rating:
1-2 internal grade	$	—	$	—	$	52,097	$	12,953	$	—	$	—	$	—	$	65,050
3-4 internal grade	—		—		—		—		—		—		—		—
Total Mixed Use Loans	$	—	$	—	$	52,097	$	12,953	$	—	$	—	$	—	$	65,050

Hospitality:
Risk Rating:
1-2 internal grade	$	—	$	8,735	$	20,962	$	—	$	—	$	—	$	—	$	29,697
3-4 internal grade	—		161,948		114,190		90,940		—		—		—		367,078
Total Hospitality Loans	$	—	$	170,683	$	135,152	$	90,940	$	—	$	—	$	—	$	396,775

Self Storage:
Risk Rating:
1-2 internal grade	$	—	$	—	$	62,937	$	—	$	—	$	—	$	—	$	62,937
3-4 internal grade	—		—		—		—		—		—		—		—
Total Self Storage Loans	$	—	$	—	$	62,937	$	—	$	—	$	—	$	—	$	62,937



Manufactured Housing:
Risk Rating:
1-2 internal grade	$	—	$	44,714	$	—	$	—	$	—	$	—	$	—	$	44,714
3-4 internal grade	—		—		—		—		—		—		—		—
Total Manufactured Housing Loans	$	—	$	44,714	$	—	$	—	$	—	$	—	$	—	$	44,714

Total	$	251,595	$	988,116	$	1,136,945	$	228,731	$	—	$	44,355	$	12,939	$	2,662,681

Past Due Status

The following table presents an aging summary of the loans amortized cost basis at March 31, 2020 (dollars in thousands):



	Multifamily		Retail		Office		Industrial		Mixed Use		Hospitality		Self Storage		Mobile Housing		Total
Status:
Current	$	1,392,741	$	127,795	$	383,938	$	143,472	$	65,050	$	339,700	$	62,937	$	44,714	$	2,560,347
1-29 days past due⁽¹⁾	—		—		45,259		—		—		—		—		—		45,259
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
90-119 days past due	—		—		—		—		—		—		—		—		—
120+ days past due⁽²⁾	—		—		—		—		—		57,075		—		—		57,075
Total	$	1,392,741	$	127,795	$	429,197	$	143,472	$	65,050	$	396,775	$	62,937	$	44,714	$	2,662,681

__________________

⁽¹⁾ For the three months ended March 31, 2020, interest income recognized on this loan was $0.6 million.

⁽²⁾ For the three months ended March 31, 2020, interest income recognized on this loan was $0.0 million.

As of March 31, 2020, the Company had two loans on non-accrual status with a cost basis of $57.1 million and $45.3 million. As of December 31, 2019, the Company had one loan on non-accrual status with a cost basis of $57.1 million.

Credit Characteristics

As part of the Company's process for monitoring the credit quality of its commercial mortgage loans, excluding those held-for-sale, measured at fair value, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are scored on a scale of 1 to 5 as follows:



Investment Rating		Summary Description
1		Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2		Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3		Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4		Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5		Underperforming investment with expected loss of interest and some principal.

All commercial mortgage loans, excluding loans classified as commercial mortgage loans, held-for-sale, measured at fair value within the consolidated balance sheets, are assigned an initial risk rating of 2.0. As of March 31, 2020 and December 31, 2019, the weighted average risk rating of the loans was 2.3 and 2.1, respectively.

The following table represents the allocation by risk rating for the Company's commercial mortgage loans, held for investment (dollars in thousands):



March 31, 2020				December 31, 2019
Risk Rating	Number of Loans	Par Value		Risk Rating	Number of Loans	Par Value
1	—	$	—	1	—	$	—
2	90	2,094,654		2	113	2,452,330
3	27	518,404		3	8	298,994
4	1	57,075		4	1	19,975
5	—	—		5	—	—
	118	$	2,670,133		122	$	2,771,299

For the three months ended March 31, 2020 and year ended December 31, 2019, the activity in the Company's commercial mortgage loans, held for investment portfolio was as follows (dollars in thousands):



	Three Months Ended March 31,			For the Year Ended December 31,
	2020			2019
Balance at Beginning of Year	$	2,762,042		$	2,206,830
Cumulative-effect adjustment upon adoption of ASU 2016-13	(7,211		)	—
Acquisitions and originations	288,825			1,326,983
Principal repayments	(366,058		)	(771,774		)
Discount accretion/premium amortization	1,751			6,264
Loans reclassified to held-for-sale	(9,619		)	—
Loans transferred from/(to) commercial real estate loans, held-for-sale	—			10,100
Net fees capitalized into carrying value of loans	(1,181		)	(5,339		)
Increase/(decrease) for credit losses	(13,997		)	(3,007		)
Charge-off from allowance	427			6,922
Transfer on foreclosure to real estate owned	(14,000		)	—
Transfer on deed in lieu of foreclosure to real estate owned	—			(14,937		)
Balance at End of Period	$	2,640,979		$	2,762,042

As of March 31, 2020, the Company wrote off a commercial mortgage loan, held for investment, with a carrying value $14.4 million in exchange for the possession of a REO investment at a fair value of $14.0 million at the time of the transfer. The $14.0 million REO investment is comprised of $11.6 million of real property (land, building and improvements) and $2.4 million of personal property (furniture, fixture, and equipment). The transfer occurred when the Company took possession of the property by completing a foreclosure transaction which resulted in $0.4 million impairment loss at the time of transfer. The Company accounted for the REO acquired during the three months ended March 31, 2020 as an asset acquisition. The results of operations of the REO have been included in the Company’s consolidated statements of operations and comprehensive income since the acquisition date.