The Company originates and acquires first mortgage and mezzanine loans secured by commercial properties. The Company considers these loans to comprise a single portfolio of mortgage loans, and the Company has developed its systematic methodology to determine the allowance for credit losses based on a single portfolio. For purposes of certain disclosures herein, the Company disaggregates this portfolio segment into the following classes of finance receivables: senior loans; and subordinated and mezzanine loans. These loans can potentially subject the Company to concentrations of credit risk, including, without limitation: property type collateralizing the loan; loan category; loan size; loans to a single sponsor; and loans in a single geographic area. The Company’s loans held for investment are accounted for at amortized cost. Interest accrued but not yet collected is separately reported within accrued interest and fees receivable on the Company’s consolidated balance sheets. Amounts within that caption relating to loans held for investment were $15.6 million and $14.3 million as of March 31, 2022 and December 31, 2021, respectively.

During the three months ended March 31, 2022, the Company originated five mortgage loans with a total commitment of $233.0 million, an initial unpaid principal balance of $224.6 million, and unfunded commitments at closing of $8.4 million. During the three months ended March 31, 2021, the Company originated one mortgage loan with a total commitment of $45.4 million, an initial unpaid principal balance of $37.5 million, and unfunded commitments at closing of $7.9 million.

During the three months ended March 31, 2022, the Company received one full loan repayment of $40.3 million, and partial principal payments including accrued PIK interest payments of $7.7 million across eight loans, for total loan repayments of $48.0 million. During the three months ended March 31, 2021, the Company received partial loan repayments of $5.3 million on four loans, and no repayments in full.

The following table details overall statistics for the Company’s loans held for investment portfolio as of March 31, 2022 and December 31, 2021 (dollars in thousands):


	March 31, 2022						December 31, 2021
	Balance sheet portfolio			Total loan portfolio			Balance sheet portfolio			Total loan portfolio
Number of loans		73			74			69			70
Floating rate loans		100.0	%		100.0	%		100.0	%		100.0	%
Total loan commitment(1)	$	5,593,350		$	5,725,350		$	5,411,944		$	5,543,944
Unpaid principal balance(2)	$	5,125,167		$	5,125,167		$	4,919,343		$	4,919,343
Unfunded loan commitments(3)	$	463,042		$	463,042		$	487,773		$	487,773
Amortized cost	$	5,115,788		$	5,115,788		$	4,909,202		$	4,909,202
Weighted average credit spread(4)		3.4	%		3.4	%		3.4	%		3.4	%
Weighted average all-in yield(4)		4.9	%		4.9	%		4.8	%		4.8	%
Weighted average term to extended maturity (in years)(5)		2.7			2.7			2.8			2.8

(1)

In certain instances, the Company creates structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third-party. In either case, the senior mortgage loan (i.e., the non-consolidated senior interest) is not included on the Company’s balance sheet. When the Company creates structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third-party, the Company retains on its balance sheet a mezzanine loan. Total loan commitment encompasses the entire loan portfolio the Company originated, acquired and financed. As of March 31, 2022 and December 31, 2021, the Company had outstanding one non-consolidated senior interest of $132.0 million.

(2)

Unpaid principal balance includes PIK interest of $2.7 million and $3.0 million as of March 31, 2022 and December 31, 2021, respectively.

(3)

Unfunded loan commitments may be funded over the term of each loan, subject in certain cases to an expiration date or a force-funding date, primarily to finance property improvements or lease-related expenditures by the Company’s borrowers, to finance operating deficits during renovation and lease-up, and in limited instances to finance construction.

(4)

As of March 31, 2022, all of the Company’s loans were floating rate. Loans originated by the Company before December 31, 2021 are indexed to LIBOR, while loans originated after January 1, 2022 are indexed to Term SOFR. As of March 31, 2022, based on the total loan commitments of the Company’s loan portfolio, 4.2% (or $0.2 billion) of the Company’s loans were subject to Term SOFR and 95.8% (or $5.4 billion) were subject to LIBOR as the benchmark interest rate. In addition to credit spread, all-in yield includes the amortization of deferred origination fees, purchase price premium and discount if any, loan origination costs and accrual of both extension and exit fees. Credit spread and all-in yield for the total portfolio assumes the applicable floating benchmark interest rate as of March 31, 2022 for weighted average calculations.

(5)

Extended maturity assumes all extension options are exercised by the borrower; provided, however, that the Company’s loans may be repaid prior to such date. As of March 31, 2022, based on the unpaid principal balance of the Company’s total loan exposure, 42.0% of the Company’s loans were subject to yield maintenance or other prepayment restrictions and 58.0% were open to repayment by the borrower without penalty.

As of March 31, 2022 and December 31, 2021, there was $9.4 million and $10.1 million, respectively, of unamortized loan fees included in loans held for investment, net in the consolidated balance sheets. As of March 31, 2022 and December 31, 2021, there were no unamortized discounts included in loans held for investment at amortized cost on the consolidated balance sheets.

The Company evaluates all of its loans to assign risk ratings on a quarterly basis on a 5-point scale. As described in Note 2, the Company’s loans are rated “1” through “5,” from least risk to greatest risk, respectively. The Company generally assigns a risk rating of “3” to all loan investments upon origination, except when specific circumstances warrant an exception. The following tables present the Company's loans held for investment portfolio on an amortized cost basis by origination year, grouped by risk rating, as of March 31, 2022 and December 31, 2021 (dollars in thousands):


	March 31, 2022
	Amortized cost by origination year
	2022		2021		2020		2019		2018		Prior		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		—		33,650		—		146,799		189,702		173,250		543,401
3		224,160		1,614,009		96,914		960,458		335,023		95,285		3,325,849
4		—		—		78,231		497,332		307,208		305,776		1,188,547
5		—		—		—		—		23,000		—		23,000
Total senior loans	$	224,160	$	1,647,659	$	175,145	$	1,604,589	$	854,933	$	574,311	$	5,080,797
Subordinated and mezzanine loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		—		—		—		—		—		—		—
3		—		—		—		34,991		—		—		34,991
4		—		—		—		—		—		—		—
5		—		—		—		—		—		—		—
Total subordinated and mezzanine loans		—		—		—		34,991		—		—		34,991
Total	$	224,160	$	1,647,659	$	175,145	$	1,639,580	$	854,933	$	574,311	$	5,115,788


	December 31, 2021
	Amortized cost by origination year
	2021		2020		2019		2018		2017		Prior		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		33,621		—		82,461		242,614		168,355		—		527,051
3		1,600,659		95,858		1,400,670		407,509		169,934		17,163		3,691,793
4		—		78,013		154,093		183,750		216,542		—		632,398
5		—		—		—		23,000		—		—		23,000
Total senior loans	$	1,634,280	$	173,871	$	1,637,224	$	856,873	$	554,831	$	17,163	$	4,874,242
Subordinated and mezzanine loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		—		—		—		—		—		—		—
3		—		—		34,960		—		—		—		34,960
4		—		—		—		—		—		—		—
5		—		—		—		—		—		—		—
Total subordinated and mezzanine loans		—		—		34,960		—		—		—		34,960
Total	$	1,634,280	$	173,871	$	1,672,184	$	856,873	$	554,831	$	17,163	$	4,909,202

Loans acquired rather than originated are presented in the table above in the column corresponding to the year of origination, not acquisition.

The weighted average risk rating of the Company’s loans held for investment portfolio increased to 3.1 as of March 31, 2022 compared to 3.0 as of December 31, 2021.

During the three months ended March 31, 2022, the Company downgraded nine loans and upgraded one loan as part of its quarterly loan risk rating process. Of the Company's nine downgraded loans, eight loans related to office properties and one loan related to a mixed-use property. The Company downgraded seven office loans from risk category "3" to "4" and one office loan from risk category "2" to "3" because of ongoing concerns about shifting office market fundamentals, the impact on property-level operating performance of slower-than-expected return-to-office trends, and increased market volatility. Additionally, the Company downgraded one mixed-use loan from risk category "3" to "4" because of plateauing property-level operating performance, local market economic conditions, and concerns regarding the borrower’s ability to repay the loan upon or prior to its maturity later this year.

During the three months ended March 31, 2022, the Company upgraded one hotel loan from risk category "3" to "2" due to continued improvement in property-level operating performance and strong debt service coverage that exceeds original underwriting. During the three months ended March 31, 2022, the Company received repayment in full of one office loan with a total unpaid principal balance of $40.3 million and a risk rating of 3.0 as of December 31, 2021.

The Company’s allowance for credit losses developed pursuant to ASC 326 reflects its current estimate of potential credit losses related to its loans held for investment portfolio as of March 31, 2022. As part of its allowance for credit losses, the Company maintains a separate allowance for credit losses related to unfunded loan commitments which is included in accrued expenses and other liabilities on the consolidated balance sheets. See Note 2 for additional details regarding the Company's accounting policies and estimation of its allowance for credit losses.

The following tables present activity in the allowance for credit losses for loans by finance receivable class for the three months ended March 31, 2022 and 2021 (dollars in thousands):


	For the three months ended March 31, 2022
	Senior loans		Subordinated and mezzanine loans			Total
Allowance for credit losses for loans held for investment:
Beginning balance at January 1, 2022	$	41,193	$	806		$	41,999
Allowance for (reversal of) credit losses, net		4,747		(439	)		4,308
Subtotal		45,940		367			46,307

Allowance for credit losses on unfunded loan commitments:
Beginning balance at January 1, 2022		4,210		—			4,210
Allowance for (reversal of) credit losses, net		576		—			576
Subtotal		4,786		—			4,786
Total allowance for credit losses	$	50,726	$	367		$	51,093


	For the three months ended March 31, 2021
	Senior loans			Subordinated and mezzanine loans			Total
Allowance for credit losses for loans held for investment:
Beginning balance at January 1, 2021	$	58,210		$	1,730		$	59,940
Allowance for (reversal of) credit losses, net		(3,055	)		(244	)		(3,299	)
Subtotal		55,155			1,486			56,641

Allowance for credit losses on unfunded loan commitments:
Beginning balance at January 1, 2021		2,756			132			2,888
Allowance for (reversal of) credit losses, net		(672	)		(67	)		(739	)
Subtotal		2,084			65			2,149
Total allowance for credit losses	$	57,239		$	1,551		$	58,790

The Company’s allowance for credit losses is influenced by the size and maturity dates of its loans, loan quality, credit indicators including risk ratings, delinquency status, historical loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

For the three months ended March 31, 2022, the Company increased its allowance for credit losses to $51.1 million, from $46.2 million as of December 31, 2021. The $4.9 million increase to the Company's allowance for credit losses was due to new loan originations offset by one loan repayment in-full, weakening credit indicators as described under "—Loan Risk Ratings" above, and an uncertain macroeconomic outlook. The uncertain macroeconomic outlook is caused by surging inflationary pressures, rising short term interest rates, continuing supply chain disruptions, a slower-than-expected return-to-office by office workers, widening credit spreads in the fixed income markets, and Russia’s invasion of Ukraine. These factors, and slowing business plan execution for certain of our office loans, contributed to the increase in the Company’s allowance for credit losses during the three months ended March 31, 2022. While the ultimate impact of the macroeconomic outlook and property-level performance trends of our office loans remain uncertain, the Company's macroeconomic outlook is intended to address these uncertainties, and the Company has made specific forward-looking valuation adjustments to the inputs of its allowance for credit loss calculation to reflect the variability associated with the timing, strength, and breadth of a sustained economic recovery or the potential impact of an uncertain economic outlook that may result in a post-COVID environment.

During the three months ended March 31, 2021, the Company recorded a decrease of $4.0 million in the allowance for credit losses from December 31, 2020, reducing the total CECL reserve to $58.8 million. This decline was primarily due to use of a more optimistic macroeconomic forecast and improvements in operating results for many collateral properties adversely affected by COVID-19, in particular hotels.

One loan secured by a retail property was on non-accrual status as of March 31, 2022 and December 31, 2021 due to a default caused by non-payment of interest in December 2020. The amortized cost basis of the loan was $23.0 million as of March 31, 2022 and December 31, 2021. In accordance with the Company’s revenue recognition and allowance for credit losses accounting policies, the Company suspended its accrual of interest income when the loan was placed on non-accrual status and continues to believe that the amortized cost basis of the loan is collectible as of March 31, 2022.

The Company may amend or modify a loan depending on the loan’s specific facts and circumstances. These loan modifications typically include additional time for the borrower to refinance or sell the collateral property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan maturity, and/or deferral of scheduled principal payments. In exchange for a modification, the Company often receives a partial repayment of principal, a short-term accrual of PIK interest for a portion of interest due, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection, and/or an increase in the loan coupon. None of the Company’s loan modifications triggered the accounting requirements of a troubled debt restructuring.

As of March 31, 2022, the total amount of accrued PIK interest in the loans held for investment portfolio was $2.7 million with respect to four first mortgage loans. The following table presents the accrued PIK interest activity for the three months ended March 31, 2022 for the Company’s loans held for investment portfolio (dollars in thousands):

No accrued PIK interest was recorded and deferred during the three months ended March 31, 2022.

As of March 31, 2022 and December 31, 2021, none of the Company's loans accrued interest income is 90 days or more past due. The following table presents an aging analysis for the Company’s loans held for investment portfolio, by class of loans, as of March 31, 2022 and December 31, 2021 on amortized cost basis (dollars in thousands):


			Days Outstanding as of March 31, 2022
	Current		Days: 30-59		Days: 60-89		Days: 90 or more		Total loans past due		Total loans
Loans receivable:
Senior loans	$	5,057,797	$	—	$	—	$	23,000	$	23,000	$	5,080,797
Subordinated and mezzanine loans		34,991		—		—		—		—		34,991
Total	$	5,092,788	$	—	$	—	$	23,000	$	23,000	$	5,115,788



			Days Outstanding as of December 31, 2021
	Current		Days: 30-59		Days: 60-89		Days: 90 or more		Total loans past due		Total loans
Loans receivable:
Senior loans	$	4,851,242	$	—	$	—	$	23,000	$	23,000	$	4,874,242
Subordinated and mezzanine loans		34,960		—		—		—		—		34,960
Total	$	4,886,202	$	—	$	—	$	23,000	$	23,000	$	4,909,202