The Company accounts for PE Investments at fair value which is determined based on either a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate, or pending sales prices, if applicable. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy, unless the PE Investments are valued based on pending sales prices, which are classified as Level 2 of the fair value hierarchy. The Company considers cash flow and NAV information provided by general partners of the underlying funds (“GP NAV”) and the implied yields of those funds in valuing its PE Investments. The Company also considers the values derived from the valuation model as a percentage of GP NAV, and compares the resulting percentage of GP NAV to precedent transactions, independent research, industry reports as well as pricing from executed purchase and sale agreements related to the disposition of its PE Investments. The Company may, as a

CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote, dealer bid or an internal price. Situations where management applies adjustments based on or using unobservable inputs and would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.

As discussed in Note 5, “Real Estate Securities, Available for Sale,” the Company has elected the fair value option for the financial assets and liabilities of the consolidated Investing VIEs. The Investing VIEs are “static,” that is no reinvestment is permitted and there is very limited active management of the underlying assets. The Company is required to determine whether the fair value of the financial assets or the fair value of the financial liabilities of the Investing VIEs are more observable, but in either case, the methodology results in the fair value of the assets of the securitization trusts being equal to the fair value of their liabilities. The Company has determined that the fair value of the liabilities of the securitization trusts are more observable, since market prices for the liabilities are available from a third-party pricing service or are based on quoted prices provided by dealers who make markets in similar financial instruments. The financial assets of the securitization trusts are not readily marketable and their fair value measurement requires information that may be limited in availability.

In determining the fair value of the trusts’ financial liabilities, the dealers will consider contractual cash payments and yields expected by market participants. Dealers also incorporate common market pricing methods, including a spread measurement to the treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. The Company’s collateralized mortgage obligations are classified as Level 2 of the fair value hierarchy, where a third-party pricing service or broker quotations are available and are based on observable valuation inputs, and as Level 3 of the fair value hierarchy, where internal price is utilized based on or using unobservable inputs. In accordance with ASC 810, Consolidation, the assets of the securitization trusts are an aggregate value derived from the fair value of the trust’s liabilities, and the Company has determined that the valuation of the trust’s assets in their entirety including its retained interests from the securitizations (eliminated in consolidation in accordance with U.S. GAAP) should be classified as Level 3 of the fair value hierarchy.

Derivative instruments consist of interest rate contracts and foreign exchange contracts that are generally traded over-the-counter, and are valued using a third-party service provider. Quotations on over-the counter derivatives are not adjusted and are generally valued using observable inputs such as contractual cash flows, yield curve, foreign currency rates and credit spreads, and are classified as Level 2 of the fair value hierarchy. Although credit valuation adjustments, such as the risk of default, rely on Level 3 inputs, these inputs are not significant to the overall valuation of its derivatives. As a result, derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.

Financial assets recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents financial assets that were accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 by level within the fair value hierarchy (dollars in thousands):


	June 30, 2020														December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Investments in unconsolidated ventures - PE Investments	$	—	$	124	$	6,969	$	7,093	$	—	$	1,425	$	8,858	$	10,283
Real estate securities, available for sale	—		60,010		—		60,010		—		252,824		—		252,824
Mortgage loans held in securitization trusts, at fair value	—		—		1,839,953		1,839,953		—		—		1,872,970		1,872,970
Other assets - derivative assets	—		7				7		—		4,122		—		4,122
Liabilities:
Mortgage obligations issued by securitization trusts, at fair value	$	—	$	1,758,325	$	—	$	1,758,325	$	—	$	1,762,914	$	—	$	1,762,914
Other liabilities - derivative liabilities	—		44		—		44		—		19,133		—		19,133

The following table presents the changes in fair value of financial assets which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the six months ended June 30, 2020 and year ended December 31, 2019 (dollars in thousands):


	Six Months Ended June 30,						Year Ended December 31, 2019
	Investments in unconsolidated ventures - PE Investments		Mortgage loans held in securitization trusts⁽¹⁾		Investments in unconsolidated ventures - PE Investments		Mortgage loans held in securitization trusts⁽¹⁾
Beginning balance	$	8,858	$	1,872,970	$	160,851	$	3,116,978
Contributions⁽²⁾/purchases	—		—		151		—
Distributions/paydowns	(2,558)		(13,138)		(18,407)		(55,288)
Deconsolidation of securitization trust⁽³⁾	—		—		—		(1,239,627)
Equity in earnings	669		—		—		—
Sale of investments	—		—		(48,930)		(39,848)
Transfers out of Level 3			—		(84,807)		—
Unrealized gain (loss) in earnings	—		(19,879)		—		87,983
Realized gain in earnings			—		—		2,772
Ending balance	$	6,969	$	1,839,953	$	8,858	$	1,872,970

(1)For the six months ended June 30, 2020, the Company recorded an unrealized loss of $19.9 million related to mortgage loans held in securitization trusts, at fair value and an unrealized loss of $8.5 million related to mortgage obligations issued by securitization trusts, at fair value.

(3)In July 2019, the Company sold its retained investments in the subordinate tranches of one securitization trust. As a result of the sale, the Company deconsolidated one of the securitization trusts. See Note 5, “Real Estate Securities, Available for Sale” for further information.

Transfers of assets into or out of Level 3 are presented at their fair values as measured at the end of the reporting period. Assets transferred out of Level 3 represent PE Investments that were valued based on their contracted sales price in March 2019.

As of June 30, 2020 and December 31, 2019, the Company utilized a discounted cash flow model, comparable precedent transactions and other market information to quantify Level 3 fair value measurements on a recurring basis. As of June 30, 2020 and December 31, 2019, the key unobservable inputs used in the analysis of PE Investments included discount rates with a range of 11.0% to 12.0% and timing and amount of expected future cash flows. As of June 30, 2020 and December 31, 2019, the key unobservable inputs used in the valuation of mortgage obligations issued by securitization trusts included yields ranging from 14.2% to 36.0% and 15.0% to 16.1%, respectively, and a weighted average life of 5.5 years and 5.4 years, respectively.

For the three and six months ended June 30, 2020, the Company recorded a net unrealized loss of $9.0 million and $28.4 million, respectively, related to mortgage loans held in and mortgage obligations issued by securitization trusts, at fair value. For the three and six months ended June 30, 2019, the Company recorded a net unrealized gain of $5.5 million and $6.6 million, respectively, related to mortgage loans held in and mortgage obligations issued by securitization trusts, at fair value. These amounts, when incurred, are recorded as unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net in the consolidated statements of operations.

For the three and six months ended June 30, 2020, the company did not record a realized gain on mortgage loans held in securitization trusts, at fair value. For the three and six months ended June 30, 2019, the Company recorded a de minimis realized gain on mortgage loans held in securitization trusts, at fair value, which represents a recovery of a loss previously recorded in 2018. This amount is recorded as realized gain on mortgage loans and obligations held in securitization trusts, net in the consolidated statements of operations.

The Company may elect to apply the fair value option of accounting for certain of its financial assets or liabilities due to the nature of the instrument at the time of the initial recognition of the investment. The Company elected the fair value option for PE Investments and eligible financial assets and liabilities of its consolidated Investing VIEs because management believes it is a more useful presentation for such investments. The Company determined recording the PE Investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment. As of June 30, 2020 and December 31, 2019, the Company has elected not to apply the fair value option for any other eligible financial assets or liabilities.

In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.


	June 30, 2020												December 31, 2019
	Principal Amount		Carrying Value			Fair Value		Principal Amount			Carrying Value		Fair Value
Financial assets:⁽¹⁾
Loans and preferred equity held for investment, net	$	2,301,950	$	2,242,574	(2)	$	2,250,148	$	2,858,423	(2)	$	2,576,332	$	2,470,561
Financial liabilities:⁽¹⁾
Securitization bonds payable, net	$	840,423	$	834,088		$	840,423	$	840,423		$	833,153	$	840,423
Mortgage and other notes payable, net	1,179,074		1,174,146			1,178,315		1,260,267			1,256,112		1,260,675
Master repurchase facilities	900,173		900,173			900,173		1,099,233			1,099,233		1,099,233

Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2020. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

For loans and preferred equity held for investment, net, fair values were determined: (i) by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or (ii) based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. These fair value measurements of CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy. Carrying values of loans and preferred equity held for investment are presented net of allowance for loan losses, where applicable.

The Company’s securitization bonds payable, net bear floating rates of interest. As of June 30, 2020, the Company believes the carrying value approximates fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

For mortgage and other notes payable, net, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

The Company has amounts outstanding under Master Repurchase Facilities. The Master Repurchase Facilities bear floating rates of interest. As of June 30, 2020, the Company believes the carrying value approximates fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of asset values due to impairment.


	June 30, 2020														December 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Loans and preferred equity held for investment, net	$	—	$	—	$	2,242,574	$	2,242,574	$	—	$	—	$	104,797	$	104,797
Loans held for sale	—		—		104,900		104,900		—		—		5,016		5,016
Real estate, net	—		—		—		—		—		—		448,690		448,690
Real estate assets held for sale	—		—		154,226		154,226		—		—		134,966		134,966
Investments in unconsolidated ventures	—		—		—		—		—		—		211,024		211,024

Deferred leasing costs and intangible assets, net	—		—		—		—		—		—		42,122		42,122


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Loans:
Loans and preferred equity held for investment, net	$	5,117	$	—	$	38,493	$	—
Loans held for sale	32,840		—		69,415		—
Total	$	37,957	$	—	$	107,908	$	—

Real Estate:
Real estate, net	$	—	$	10,124	$	—	$	10,124
Real estate held for sale	25,935		—		30,061		—
Total	$	25,935	$	10,124	$	30,061	$	10,124

Loans and preferred equity held for investment, net— consisted of the Company’s CECL provision for loan losses in the Core Portfolio, as well as two loans that the company individually evaluated for impairment in the Company’s Core Portfolio, which reflected the reduction of the estimated fair value based on the discounted payoff of one loan and the sale of collateral and repayment of another loan, both of which occurred subsequent to June 30, 2020.

Loans held for sale— consisted of one loan in the Company’s Core Portfolio secured by a hospitality asset in San Diego, California, West Hospitality as held for sale and for which the Company recognized a net loss of $32.8 million to reflect the expected proceeds to be collected in a sale of the loan. The Company had recorded a $5.2 million allowance for loan losses as of March 31, 2020, which included a $2.6 million allowance for loan losses resulting from CECL adoption and an additional $2.6 million provision for loan losses recognized for West Hospitality during the three months ended March 31, 2020. In connection with transferring the loan to held for sales during the current quarter, the Company reversed out the $5.2 million from provision for loan losses line item and recorded a $38.0 million in other loss, net. Subsequent to June 30, 2020 the West Hospitality loan was sold. The Company received $105.2 million in gross proceeds and will recognize an additional loss of $0.3 million.

Real estate held for sale— consisted of certain properties in the Company’s portfolio of real estate in its Legacy, Non-Strategic Portfolio segment. The amount of the impairment recognized was determined based on feedback received during the sales process. The fair value of the impaired properties was determined based on broker price opinions and third party bids received which utilized terminal capitalization rates ranging from 6% to 16%. The Company recognized $25.9 million of impairment on its Legacy, Non-Strategic Portfolio properties during the three and six months ended June 30, 2020.