Notes Receivable

6 Months Ended

Jun. 30, 2019

The Company had the following notes receivable outstanding as of June 30, 2019 and December 31, 2018 ($ in thousands):



	Outstanding loan amount						Maximum loan commitment		Interest rate		Interest compounding
Development Project	June 30, 2019			December 31, 2018			Maximum loan commitment		Interest rate		Interest compounding
1405 Point	$	—		$	30,238		$	31,032	8.0	%	Monthly
The Residences at Annapolis Junction	37,602			36,361			48,105		10.0	%	Monthly
North Decatur Square ^(a)	19,852			18,521			29,673		15.0	%	Annually
Delray Plaza	12,098			7,032			15,000		15.0	%	Annually
Nexton Square	14,168			14,855			17,000		15.0	%	Monthly
Interlock Commercial	38,062			18,269			95,000		15.0	%	None
Solis Apartments at Interlock	17,226			13,821			41,100		13.0	%	Annually
Total mezzanine	139,008			139,097			$	276,910
Other notes receivable	1,314			1,275
Notes receivable guarantee premium	6,554			2,800
Notes receivable discount, net ^(b)	(2,133		)	(4,489		)
Total notes receivable	$	144,743		$	138,683

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(a) This loan was paid in full on July 22, 2019.

(b) Represents the remaining unamortized portion of the $5.0 million loan modification fee for The Residences at Annapolis Junction paid by the borrower in November 2018.

Interest on the mezzanine loans is accrued and funded utilizing the interest reserves for each loan, which are components of the respective maximum loan commitments, and such accrued interest is added to the loan receivable balances. The Company recognized interest income for the three and six months ended June 30, 2019 and 2018 as follows (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
Development Project	2019			2018		2019			2018
1405 Point	$	173		$	483	$	783		$	936
The Residences at Annapolis Junction	2,173		(a)	1,124		4,196		(a)	2,209
North Decatur Square	693			531		1,331			992
Delray Plaza	414			225		724			448
Nexton Square	524			—		1,033			—
Interlock Commercial	1,086			—		1,830			—
Solis Apartments at Interlock	508			—		972			—
Total mezzanine	5,571			2,363		10,869			4,585
Other interest income	22			12		43			22
Total interest income	$	5,593		$	2,375	$	10,912		$	4,607

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(a) Includes amortization of the $5.0 million loan modification fee paid by the borrower in November 2018.

As of June 30, 2019 and December 31, 2018, there was no allowance for loan losses. During the three and six months ended June 30, 2019 and 2018, there was no provision for loan losses recorded for any of the Company's notes receivable. The Company's management performs a quarterly analysis of the loan portfolio to determine if an impairment has occurred based on the progress of development activities including leasing activities, projected development costs, and current and projected mezzanine and senior construction loan balances.

Delray Plaza

On January 8, 2019, the Delray Plaza loan was modified to increase the maximum amount of the loan to $15.0 million and

increase the payment guarantee amount to $5.2 million.

Nexton Square

On February 8, 2019, the developer of Nexton Square closed on a senior construction loan with a maximum borrowing capacity of $25.2 million. The developer used proceeds from its original draw in part to repay $2.1 million of the mezzanine loan. Upon the closing of this senior construction loan, the Company entered into a payment guarantee for $12.6 million of the senior loan.

1405 Point

On April 24, 2019, the Company exercised its option to purchase 79% of the interests in the partnership that owns 1405 Point in exchange for extinguishing its note receivable on the project and a cash payment of $0.3 million. The project is subject to a loan payable of $64.9 million. The Company has also guaranteed payment on a portion of the loan payable. See Note 15 for additional information.

Interlock Commercial

On April 19, 2019, the borrower executed its senior construction loan, and the Company's payment guarantee of up to $30.7 million became effective. See Note 15 for additional information.

Annapolis Junction

The Annapolis Junction loan was originated inclusive of options for the Company to purchase up to 88% of the related development project from the developer, Annapolis Junction Apartments Owner, LLC (“AJAO”). On November 16, 2018, AJAO refinanced the senior construction loan with a one year senior loan of $83.0 million. This senior loan may be extended for one additional year if certain minimum debt yields and minimum debt service coverage ratios are met by AJAO. Concurrent with the refinancing of the senior construction loan, the Company agreed to modify the mezzanine loan receivable with AJAO as follows:

•The Company agreed to guarantee $8.3 million of the new senior loan;

•The Company agreed to extend the maturity of the mezzanine loan, which will mature concurrently with the new senior loan;

•The Company terminated its rights under the purchase options;

•AJAO paid a fee of $5.0 million; and

•AJAO paid down $11.1 million of the outstanding mezzanine loan balance, which was comprised of a $9.9 million payment of accrued interest and a $1.2 million payment of principal.

The fee of $5.0 million paid by AJAO is being accounted for as a loan discount that is being recognized as interest income over the remaining term of the loan using the effective interest method.

Subsequent to June 30, 2019

On July 22, 2019, the borrower paid off the North Decatur Square note receivable in full. The Company received the outstanding principal and interest in the amount of $20.0 million.