
	Outstanding loan amount (a)										Interest compounding
Development Project	March 31, 2023		December 31, 2022		Maximum principal commitment			Interest rate
City Park 2	$	22,096	$	19,062	$	20,594		13.0	%		Annually
Solis Gainesville II	11,566		6,638		19,595			14.0	%	(b)	Annually
Interlock Commercial	88,858		86,584		107,000		(c)	15.0	%		None
Total mezzanine & preferred equity	122,520		112,284		$	147,189
Constellation Energy Building note receivable	—		12,834
Other notes receivable	11,671		11,512
Notes receivable guarantee premium	386		701
Allowance for credit losses(d)	(1,495)		(1,292)

Total notes receivable	$	133,082	$	136,039

(b) The interest rate varies over the life of the loan, and the Company also earns an unused commitment fee of 10%. Refer below under “Solis Gainesville II” for further details.

(d) The amounts as of March 31, 2023 and December 31, 2022 exclude $0.2 million and $0.3 million of Current Expected Credit Losses ("CECL") allowance that relates to the unfunded commitments, which were recorded as a liability under Other liabilities in the consolidated balance sheets.

Interest on the notes receivable 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 generally added to the loan receivable balances. The Company recognized interest income for the three months ended March 31, 2023 and 2022 as follows (in thousands):


	Three Months Ended March 31,
Development Project	2023			2022




City Park 2	$	670	(a)	$	19	(a)
Solis Gainesville II	593		(a)(b)	—
Interlock Commercial	2,273		(a)	2,826		(a)
Nexton Multifamily	—			614
Total mezzanine	3,536			3,459
Other interest income	183			109
Total interest income	$	3,719		$	3,568

On March 29, 2023, the Solis Gainesville II preferred equity investment agreement was modified to adjust the interest rate. The interest rate of 14% remains effective through the first 24 months of the investment. Beginning on October 3, 2024, the investment will bear interest at a rate of 10% for twelve months. On October 3, 2025, the investment will again bear interest at a rate of 14% per annum through maturity. Additionally, the amendment introduced an unused commitment fee of 10% on the unfunded portion of the investment's maximum loan commitment, which is effective January 1, 2023. Both the interest and unused commitment fee compound annually.

The Company is exposed to credit losses primarily through its mezzanine lending activities and preferred equity investments. As of March 31, 2023, the Company had three mezzanine loans (including the City Park 2 and Solis Gainesville II preferred equity investments that are accounted for as notes receivable), each of which are financing development projects in various stages of completion or lease-up. Each of these projects is subject to a loan that is senior to the Company’s mezzanine loan. Interest on these loans is paid in kind and is generally not expected to be paid until a sale of the project after completion of the development.

•Pass: loans in this category are adequately collateralized by a development project with conditions materially consistent with the Company's underwriting assumptions.

•Special Mention: loans in this category show signs that the economic performance of the project may suffer as a result of slower-than-expected leasing activity or an extended development or marketing timeline. Loans in this category warrant increased monitoring by management.

•Substandard: loans in this category may not be fully collected by the Company unless remediation actions are taken. Remediation actions may include obtaining additional collateral or assisting the borrower with asset management activities to prepare the project for sale. The Company will also consider placing the loan on non-accrual status if it does not believe that additional interest accruals will ultimately be collected.

The Company updated the risk ratings for each of its notes receivable as of March 31, 2023 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of March 31, 2023 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $1.7 million as of March 31, 2023. An allowance related to unfunded commitments of approximately $0.2 million as of March 31, 2023 was recorded as Other liabilities on the consolidated balance sheet.

At March 31, 2023, the Company reported $133.1 million of notes receivable, net of allowances of $1.5 million. At December 31, 2022, the Company reported $136.0 million of notes receivable, net of allowances of $1.3 million. Changes in the allowance for the three months ended March 31, 2023 and 2022 were as follows (in thousands):


	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Funded		Unfunded		Total		Funded		Unfunded		Total
Beginning balance	$	1,292	$	338	$	1,630	$	994	$	10	$	1,004

Unrealized credit loss provision (release)	203		(140)		63		184		421		605


Ending balance	$	1,495	$	198	$	1,693	$	1,178	$	431	$	1,609

The Company places loans on non-accrual status when the loan balance, together with the balance of any senior loan, approximately equals the estimated realizable value of the underlying development project. As of December 31, 2022, the Company had the Constellation Energy Building note, which bore interest at 3% per annum, on non-accrual status. The principal balance of the note receivable was adequately secured by the seller's partnership interest. On January 14, 2023, the Company acquired an additional 11% membership interest in the Constellation Energy Building, increasing its ownership interest to 90%, in exchange for full satisfaction of the note. As of March 31, 2023, there were no loans on non-accrual status.