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 $22.5 million and $26.4 million as of June 30, 2023 and December 31, 2022, respectively.

During the six months ended June 30, 2023, the Company originated two mortgage loans with a total commitment of $123.8 million, an initial unpaid principal balance of $111.2 million, and unfunded commitments at closing of $12.6 million. Additionally, the Company received seven full loan repayments of $380.3 million, and partial principal payments including accrued PIK interest payments and cost-recovery proceeds of $126.6 million across ten loans, for total loan repayments of $507.0 million during the six months ended June 30, 2023. The Company also received proceeds of $47.8 million from the sale of one of its loans and converted to REO a loan with an unpaid principal balance of $55.0 million.


	June 30, 2023						December 31, 2022
	Balance sheet portfolio			Total loan exposure(1)			Balance sheet portfolio			Total loan exposure(1)
Number of loans	63			63			70			70
Floating rate loans	100.0		%	100.0		%	100.0		%	100.0		%
Total loan commitment	$	4,869,045		$	4,869,045		$	5,429,146		$	5,429,146
Unpaid principal balance(2)	$	4,567,250		$	4,567,250		$	5,004,798		$	5,004,798
Unfunded loan commitments(3)	$	300,502		$	300,502		$	426,061		$	426,061
Amortized cost	$	4,547,594		$	4,547,594		$	4,978,674		$	4,978,674
Weighted average credit spread	3.6		%	3.6		%	3.4		%	3.4		%
Weighted average all-in yield(4)	8.9		%	8.9		%	8.1		%	8.1		%
Weighted average term to extended maturity (in years)(5)	2.5			2.5			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 exposure encompasses the entire loan portfolio the Company originated, acquired and financed. The Company had no non-consolidated senior interests as of June 30, 2023 and December 31, 2022.

(4)As of June 30, 2023, 59 of the Company's 63 loans, or $4.4 billion of $4.9 billion based on the total loan commitments of the Company’s loan portfolio were indexed to Term SOFR. In addition to credit spread, all-in yield includes the amortization of deferred origination fees, purchase price premium and discount if any, and accrual of both extension and exit fees. All-in yield for the total portfolio assumes the applicable floating benchmark interest rate as of June 30, 2023 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 June 30, 2023, based on the unpaid principal balance of the Company’s total loan exposure, 19.8% of the Company’s loans were subject to yield maintenance or other prepayment restrictions and 80.2% were open to repayment by the borrower without penalty.

The following tables present an overview of the Company’s loans held for investment portfolio by loan seniority (dollars in thousands):


	June 30, 2023
Loans held for investment, net	Outstanding principal		Unamortized premium (discount) and loan origination fees, net		Amortized cost
Senior loans(1)	$	4,567,250	$	(19,656)	$	4,547,594

Total	$	4,567,250	$	(19,656)	$	4,547,594
Allowance for credit losses					(250,244)
Loans held for investment, net					$	4,297,350


	December 31, 2022
Loans held for investment, net	Outstanding principal		Unamortized premium (discount) and loan origination fees, net		Amortized cost
Senior loans(1)	$	5,004,798	$	(26,124)	$	4,978,674

Total	$	5,004,798	$	(26,124)	$	4,978,674
Allowance for credit losses					(197,272)
Loans held for investment, net					$	4,781,402

________________________________




	Carrying value
Balance as of January 1, 2023	$	4,781,402
Additions during the period:
Loans originated and acquired	109,922
Additional fundings	84,544
Amortization of origination fees and discounts	7,705
Deductions during the period:
Collection of principal	(503,244)
Collection of accrued PIK interest	(542)
Collection of interest applied to reduce principal under the cost-recovery method	(3,167)

Loan sale	(71,269)
Loan extinguishment upon conversion to REO	(55,029)
Increase of allowance for credit losses	(52,972)
Balance as of June 30, 2023	$	4,297,350

As of June 30, 2023 and December 31, 2022, there was $6.8 million and $7.9 million, respectively, of unamortized loan fees included in loans held for investment, net in the consolidated balance sheets. As of June 30, 2023 and December 31, 2022, there was $12.9 million and $18.2 million, respectively, of 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 or acquisition, except when specific circumstances warrant an exception.


	June 30, 2023
	Amortized cost by origination year
	2023		2022		2021		2020		2019		Prior		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2	—		—		227,987		—		211,726		—		439,713
3	110,329		926,847		1,415,235		100,022		461,953		86,027		3,100,413
4	—		77,059		79,377		119,172		101,872		137,730		515,210
5	—		—		—		—		332,655		159,603		492,258
Total senior loans	$	110,329	$	1,003,906	$	1,722,599	$	219,194	$	1,108,206	$	383,360	$	4,547,594
Senior loans:
Current-period write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total current-period write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—







Total	$	110,329	$	1,003,906	$	1,722,599	$	219,194	$	1,108,206	$	383,360	$	4,547,594


	December 31, 2022
	Amortized cost by origination year
	2022		2021		2020		2019		2018		Prior		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2	22,732		216,960		—		272,185		—		—		511,877
3	907,161		1,609,556		98,874		505,377		110,356		—		3,231,324
4	76,938		79,023		119,172		320,793		342,869		51,542		990,337
5	—		—		71,269		118,135		55,732		—		245,136
Total senior loans	$	1,006,831	$	1,905,539	$	289,315	$	1,216,490	$	508,957	$	51,542	$	4,978,674
Senior loans:
Current-period write-offs	$	—	$	—	$	—	$	—	$	(4,400)	$	—	$	(4,400)

Total current-period write-offs	$	—	$	—	$	—	$	—	$	(4,400)	$	—	$	(4,400)







Total	$	1,006,831	$	1,905,539	$	289,315	$	1,216,490	$	508,957	$	51,542	$	4,978,674

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 June 30, 2023. 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.


	For the Three Months Ended June 30, 2023
	Senior loans		Subordinated and mezzanine loans		Total
Allowance for credit losses for loans held for investment:
Beginning balance at April 1, 2023	$	201,508	$	—	$	201,508
Allowance for credit losses, net	48,736		—		48,736

Subtotal	250,244		—		250,244

Allowance for credit losses on unfunded loan commitments:
Beginning balance at April 1, 2023	20,862		—		20,862
Allowance for credit losses, net	7,179		—		7,179
Subtotal	28,041		—		28,041
Total allowance for credit losses	$	278,285	$	—	$	278,285

	For the Three Months Ended June 30, 2022
	Senior loans		Subordinated and mezzanine loans		Total
Allowance for credit losses for loans held for investment:
Beginning balance at April 1, 2022	$	45,940	$	367	$	46,307
Allowance for credit losses, net	37,545		304		37,849

Subtotal	83,485		671		84,156

Allowance for credit losses on unfunded loan commitments:
Beginning balance at April 1, 2022	4,786		—		4,786
Allowance for credit losses, net	4,441		—		4,441
Subtotal	9,227		—		9,227
Total allowance for credit losses	$	92,712	$	671	$	93,383


	For the Six Months Ended June 30, 2023

	Senior loans		Subordinated and mezzanine loans		Total
Allowance for credit losses for loans held for investment:
Beginning balance at January 1, 2023	$	197,272	$	—	$	197,272
Allowance for credit losses, net	52,972		—		52,972

Subtotal	250,244		—		250,244

Allowance for credit losses on unfunded loan commitments:
Beginning balance at January 1, 2023	17,314		—		17,314
Allowance for credit losses, net	10,727		—		10,727
Subtotal	28,041		—		28,041
Total allowance for credit losses	$	278,285	$	—	$	278,285

	For the Six Months Ended June 30, 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	42,292		(135)		42,157

Subtotal	83,485		671		84,156

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	5,017		—		5,017
Subtotal	9,227		—		9,227
Total allowance for credit losses	$	92,712	$	671	$	93,383


	June 30, 2023
	General reserve		Specific reserve		Total reserve
Allowance for credit losses:
Loans held for investment	$	93,830	$	156,414	$	250,244
Unfunded loan commitments	8,287		19,754		28,041
Total allowance for credit losses	$	102,117	$	176,168	$	278,285
Total unpaid principal balance	$	4,074,992	$	492,258	$	4,567,250

	December 31, 2022
	General reserve		Specific reserve		Total reserve
Allowance for credit losses:
Loans held for investment	$	119,190	$	78,082	$	197,272
Unfunded loan commitments	10,927		6,387		17,314
Total allowance for credit losses	$	130,117	$	84,469	$	214,586
Total unpaid principal balance	$	4,759,663	$	245,135	$	5,004,798

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 property valuation and reasonable and supportable forecasts of economic conditions.

During the three months ended June 30, 2023, the Company recorded an increase of $55.9 million to its allowance for credit losses. The increase to the Company's allowance for credit losses was due primarily due to an increase of (1) $23.4 million from macroeconomic assumptions employed in determining the general CECL reserve and continued deterioration of the office sector, (2) $10.8 million related to an individually assessed loan as a result of local market fundamentals, and (3) $57.4 million related to three loans, two office properties and one mixed-use property, individually assessed during the quarter, offset by (1) $24.1 million resulting from the sale of one of the Company's office loans, (2) $9.0 million attributable to an office property converted to REO, and (3) $2.6 million resulting from full loan repayments.

During the six months ended June 30, 2023, the Company recorded an increase of $63.7 million to its allowance for credit losses, increasing its CECL reserve to $278.3 million as of June 30, 2023. For the six months ended June 30, 2023, the increase to the Company's allowance for credit losses was primarily due to an increase of (1) $57.4 million related to three loans, two office properties and one mixed-use property, individually assessed during the six months ended June 30, 2023, (2) $52.6 million from macroeconomic assumptions employed in determining the general CECL reserve and the deterioration of local market fundamentals in the office sector and (3) $0.8 million resulting from the Company's loan origination activity during 2023, offset by (1) $24.1 million resulting from the sale of one of the Company's office loans, (2) $9.0 million attributable to an office property converted to REO, (3) a decrease of $9.7 million related to individually assessed loans resulting from improved collateral specific fundamentals and (4) $4.1 million resulting from full loan repayments.

As of June 30, 2023, five first mortgage loans satisfied the CECL framework's criteria for individual assessment. The total amortized cost of the individually assessed loans as of June 30, 2023 and December 31, 2022, was $492.3 million and $506.7 million, respectively. Accordingly, the Company utilized the estimated fair value of the loan collateral to estimate a total allowance for credit losses of $176.2 million as of June 30, 2023. The Company’s fair market value estimates were determined primarily using discounted cash flow models and Level 3 inputs, which include estimates of property-specific cash flows over a specific holding period, a discount rate range of 7.4% – 14.0%, and a terminal capitalization rate range of 5.8% – 12.0%. These inputs are based on the location, type and nature of the property, current sales and lease comparables, anticipated real estate and capital market conditions, and management’s knowledge, experience and judgment. Additionally, the Company may use broker-prepared estimates of fair values based on discounted cash flows and sales comparables to corroborate the estimated value of a loan's collateral. As of June 30, 2023, four of the five loans with an amortized cost of $438.3 million were on non-accrual status, of which one loan with an amortized cost of $61.7 million is on cost-recovery due to a significant risk of principal loss. The fifth loan, which had an amortized cost of $54.0 million, was not on non-accrual status because the borrower was not in default of the loan agreement and all amounts of interest due were collected by the Company.

During the three months ended June 30, 2022, the Company recorded an increase of $42.3 million to its allowance for credit losses. The increase to the Company's allowance for credit losses was due to weakening credit indicators, inflationary expectations, reduced liquidity in the capital markets, an uncertain macroeconomic outlook, and new loan originations offset by seven loan repayments in-full. The uncertain macroeconomic outlook is caused by surging inflationary pressures, rising short term interest rates, continuing supply chain disruptions, widening credit spreads in the fixed income markets, a material decline in U.S. stock market indices, and Russia’s invasion of Ukraine. These factors, and slowing business plan execution for certain of our loans, contributed to the increase in the Company’s allowance for credit losses during the three months ended June 30, 2022.

During the six months ended June 30, 2022, the Company recorded an increase of $47.2 million, increasing its allowance for credit losses to $93.4 million as of June 30, 2022. For the six months ended June 30, 2022, the Company's estimate of expected credit losses was impacted by loan originations and repayments of $535.1 million and $804.4 million, respectively, and recessionary macroeconomic assumptions employed in determining the model-based general CECL reserve.

As of June 30, 2023, the Company had five first mortgage loans with an amortized cost of $546.7 million on non-accrual status. As of December 31, 2022, the Company had two first mortgage loans with an amortized cost of $190.4 million on non-accrual status. In accordance with the Company’s revenue recognition and allowance for credit losses accounting policies, the Company suspended its accrual of interest income when each loan was placed on non-accrual status. As of June 30, 2023 and December 31, 2022, none of the Company's performing loans (full accrual status) had accrued interest income receivable 90 days or more past due.

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, modification of terms of interest rate cap agreements, 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. For the six months ended June 30, 2023, none of the Company’s loan modifications resulted in significant modifications.