Note 4. Loans Held for Investment

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio as of March 31, 2020 and December 31, 2019:



	March 31, 2020									December 31, 2019
	Fixed Rate			Floating Rate^(1)(2)(3)			Total			Fixed Rate			Floating Rate^(1)(2)(3)			Total
Number of loans	8			14			22			8			15			23
Principal balance	$	81,751,847		$	320,935,591		$	402,687,438		$	70,692,767		$	306,695,550		$	377,388,317
Carrying value	$	82,483,887		$	320,485,626		$	402,969,513		$	71,469,137		$	307,143,631		$	378,612,768
Fair value	$	82,249,333		$	317,360,045		$	399,609,378		$	71,516,432		$	307,643,983		$	379,160,415
Weighted-average coupon rate	12.76		%	8.50		%	9.36		%	11.93		%	9.13		%	9.65		%
Weighted-average remaining term (years)	1.76			2.05			1.99			2.28			2.09			2.13

_______________


(1)	These loans pay a coupon rate of LIBOR plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.99% and 1.76% as of March 31, 2020 and December 31, 2019, respectively.

(2)

As of March 31, 2020 and December 31, 2019, amounts included $136.1 million and $114.8 million, respectively, of senior mortgages used as collateral for $92.5 million and $81.1 million, respectively, of borrowings under a repurchase agreement (Note 8). These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.00% to 2.50% as of March 31, 2020 and LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019.


(3)	As of both March 31, 2020 and December 31, 2019, twelve of these loans are subject to a LIBOR floor.

Lending Activities

The following table presents the activities of the Company’s loan portfolio for the three months ended March 31, 2020 and 2019:



	Loans Held for Investment			Loans Held for Investment through Participation Interests		Total
Balance, January 1, 2020	$	375,462,222		$	3,150,546	$	378,612,768
New loans made	37,504,601			871,847		38,376,448
Principal repayments received	(13,371,565		)	—		(13,371,565		)
PIK interest ⁽¹⁾	294,237			—		294,237
Net amortization of premiums on loans	(15,348		)	—		(15,348		)
Accrual, payment and accretion of investment-related fees and other, net	202,793			15,174		217,967
Provision for loan losses	(1,144,994		)	—		(1,144,994		)
Balance, March 31, 2020	$	398,931,946		$	4,037,567	$	402,969,513



	Loans Held for Investment			Loans Held for Investment through Participation Interests		Total
Balance, January 1, 2019	$	388,243,974		$	—	$	388,243,974
New loans made	70,813,882			—		70,813,882
Principal repayments received	(60,319,802		)	—		(60,319,802		)
Foreclosure of collateral ⁽²⁾	(14,325,000		)	—		(14,325,000		)
PIK interest ⁽¹⁾	852,968			—		852,968
Net amortization of premiums on loans	(18,350		)	—		(18,350		)
Accrual, payment and accretion of investment-related fees, net	(651,089		)	—		(651,089		)
Balance, March 31, 2019	$	384,596,583		$	—	$	384,596,583

_______________


(1)	Certain loans in the Company’s portfolio contain PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $0.2 million for both the three months ended March 31, 2020 and 2019.


(2)	On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a $14.3 million first mortgage via deed in lieu of foreclosure in exchange for the relief of the first mortgage and related fees and expenses (Note 5).

Portfolio Information

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of March 31, 2020 and December 31, 2019:



	March 31, 2020							December 31, 2019
Loan Structure	Principal Balance		Carrying Value			% of Total		Principal Balance		Carrying Value		% of Total
First mortgages	$	208,956,222	$	209,289,995		51.9	%	$	178,130,623	$	178,203,675	47.1	%
Preferred equity investments	157,686,635		158,285,097			39.3	%	157,144,040		157,737,763		41.6	%
Mezzanine loans	36,044,581		36,539,415			9.1	%	42,113,654		42,671,330		11.3	%
Allowance for loan losses	—		(1,144,994		)	(0.3	)%	—		—		—	%
Total	$	402,687,438	$	402,969,513		100.0	%	$	377,388,317	$	378,612,768	100.0	%



	March 31, 2020							December 31, 2019
Property Type	Principal Balance		Carrying Value			% of Total		Principal Balance		Carrying Value		% of Total
Office	$	143,941,260	$	143,879,383		35.7	%	$	142,055,845	$	141,870,355	37.5	%
Multifamily	83,318,419		83,907,425			20.8	%	76,640,369		77,136,016		20.4	%
Student housing	75,155,569		75,608,070			18.8	%	58,049,717		58,553,496		15.5	%
Hotel	47,859,380		48,029,027			11.9	%	46,598,011		46,731,939		12.3	%
Infill land	34,812,810		34,992,810			8.7	%	36,444,375		36,624,375		9.7	%
Condominium	10,600,000		10,697,792			2.7	%	10,600,000		10,696,587		2.8	%
Industrial	7,000,000		7,000,000			1.7	%	7,000,000		7,000,000		1.8	%
Allowance for loan losses	—		(1,144,994		)	(0.3	)%	—		—		—	%
Total	$	402,687,438	$	402,969,513		100.0	%	$	377,388,317	$	378,612,768	100.0	%



	March 31, 2020							December 31, 2019
Geographic Location	Principal Balance		Carrying Value			% of Total		Principal Balance		Carrying Value		% of Total
United States
California	$	178,222,394	$	178,498,419		44.3	%	$	150,988,463	$	151,108,109	39.9	%
New York	74,681,066		74,830,437			18.6	%	79,734,323		79,896,663		21.1	%
Georgia	64,832,131		65,075,669			16.1	%	61,772,764		61,957,443		16.4	%
North Carolina	32,651,847		32,829,933			8.1	%	32,592,767		32,766,311		8.7	%
Washington	23,500,000		23,666,693			5.9	%	23,500,000		23,661,724		6.2	%
Illinois	4,004,877		4,039,438			1.0	%	8,004,877		8,071,562		2.1	%
Massachusetts	7,000,000		7,000,000			1.7	%	7,000,000		7,000,000		1.8	%
Kansas	6,200,000		6,253,504			1.6	%	6,200,000		6,251,649		1.7	%
Texas	3,500,000		3,532,794			0.9	%	3,500,000		3,531,776		0.9	%
Other ⁽¹⁾	8,095,123		8,387,620			2.1	%	4,095,123		4,367,531		1.2	%
Allowance for loan losses	—		(1,144,994		)	(0.3	)%	—		—		—	%
Total	$	402,687,438	$	402,969,513		100.0	%	$	377,388,317	$	378,612,768	100.0	%

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(1)	Other includes $5.1 million and $1.1 million of unused portion of a credit facility at March 31, 2020 and December 31, 2019, respectively. Other also includes a $3.0 million loan with collateral located in South Carolina at both March 31, 2020 and December 31, 2019.

Loan Risk Rating

As described in Note 2, the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk.

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of March 31, 2020 and December 31, 2019:



	March 31, 2020								December 31, 2019
Loan Risk Rating	Number of Loans	Principal Balance		Carrying Value			% of Total		Number of Loans	Principal Balance		Carrying Value		% of Total
1	0	$	—	$	—		—	%	0	$	—	$	—	—	%
2	2	25,000,000		25,180,000			6.2	%	5	50,000,000		50,284,751		13.3	%
3	15	294,854,525		295,669,585			73.2	%	17	322,648,317		323,588,017		85.4	%
4 ⁽¹⁾	3	76,332,913		76,483,600			18.9	%	0	—		—		—	%
5	0	—		—			—	%	0	—		—		—	%
Other ⁽²⁾	2	6,500,000		6,781,322			1.7	%	1	4,740,000		4,740,000		1.3	%
	22	$	402,687,438	404,114,507			100.0	%	23	$	377,388,317	378,612,768		100.0	%
Allowance for loan losses				(1,144,994		)						—
Total, net of allowance for loan losses				$	402,969,513							$	378,612,768

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(1)	The increase in number of loans with a loan risk rating of “4” was due to the higher risk in loans collateralized by hospitality and select other asset classes that are particularly negatively impacted by the COVID-19 pandemic.

(2)

These loans were deemed impaired and removed from the pool of loans on which a general allowance is calculated. As of March 31, 2020 and December 31, 2019, no specific reserve for loan losses was recorded on these loans because the fair value of the collateral was greater than carrying value for each loan. The Company entered into forbearance agreement with the borrower for the two loans categorized as “other” above as of March 31, 2020. The Company expects to recover in full the principal balance of these two loans. In March 2020, the loan categorized as “other” above as of December 31, 2019 was repaid in full.

As of March 31, 2020, the Company had three loans with a loan risk rating of “4” and recorded a general allowance for loan losses of $1.1 million

The following table presents the activity in the Company’s allowance for loan losses for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020		2019
Allowance for loan losses, beginning of period	$	—	$	—
Provision for loan losses	1,144,994		—
Charge-offs	—		—
Recoveries	—		—
Allowance for loan losses, end of period	$	1,144,994	$	—

The allowance for loan losses reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally and is not specific to any loan losses or impairments in our portfolio. See Note 2 and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of COVID-19.