Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair value measurements

Fair Value Measurements

Note 4 – Fair Value Measurements

The following tables present estimated fair values of our financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

	June 30, 2021				Fair Value Measurements Using
	Carrying		Estimated
(dollars in thousands)	Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	164,023	$	164,023	$	164,023	$	—	$	—
Mortgage notes receivable, net		814,454		814,454		—		—		814,454
Financial Liabilities
Accounts payable and accrued liabilities (1)		8,542		8,542		—		4,808		3,734

(1)As of June 30, 2021, includes the level 3 valuation of the private placement warrant liability derivative measured at fair value on a recurring basis.

	December 31, 2020				Fair Value Measurements Using
	Carrying		Estimated
(dollars in thousands)	Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	223,375	$	223,375	$	223,375	$	—	$	—
Mortgage notes receivable, net		798,486		798,486		—		—		798,486

We follow the accounting guidance in ASC 820, Fair Value Measurements and Disclosures, which requires the categorization of fair value measurement into three broad levels of the fair value hierarchy as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table sets forth assets and liabilities measured and reported at fair value on a recurring and nonrecurring basis, as well as for which fair value is only disclosed, as of June 30, 2021 and December 31, 2020. All of these fair values are categorized as Level 3. The table also contains information about valuation methodologies and inputs used for assets that are measured at fair value and categorized within Level 3 as of June 30, 2021 and December 31, 2020:

	Level 3				Valuation	Unobservable	Range of
(dollars in thousands)	June 30, 2021		December 31, 2020		technique	inputs	inputs
Private Placement Warrants(1)	$	3,734	$	-	Valuation model	Equity volatility of underlying stock price	0 - 25%
Real property(2)		41,725		8,473	Collateral valuations	Discount to appraised value based on comparable market prices	0 - 10%
Collateral dependent loans, net of allowance for credit losses(3)		37,242		30,920	Collateral valuations	Discount to appraised value based on comparable market prices	0 - 10%
Total	$	82,701	$	39,393

(1)Private placement warrant liability derivative measured at fair value on a recurring basis.

(2)Real property is stated at lower of cost or fair value, a non-recurring measurement of fair value.

(3)Loans meeting the definition of collateral dependent are measured at the fair value less the costs to sell the underlying property. The carrying value of the collateral dependent loans, net of the allowance for credit losses, approximates fair value.

Fair Value on a Recurring Basis

The Private Placement Warrant Liability is valued using a lattice model that primarily incorporates observable inputs such as our common stock price, exercise price, term of the warrant, dividend yield and the risk-free rate, however, it also incorporates an assumption for equity volatility based on the volatility of the common stock of comparable public companies. As we utilize unobservable inputs in the valuation, we classify the Private Placement Warrant Liability as Level 3 within the fair value hierarchy. Refer to Note 5 for description of inputs utilized at June 30, 2021.

Fair Value on a Nonrecurring Basis

Investments in real properties are initially recorded at the acquisition cost less estimated costs to sell, which approximates fair value. Upon transfer from mortgage notes receivable to investment in real estate property, the fair value less costs to sell becomes the new cost for the property. Costs related to acquisition, development, construction and improvements are capitalized. At each reporting date, the fair value of real properties is based upon the most recent independent third-party appraisals of value discounted based upon our experience with actual liquidation values. These discounts to the appraisals generally range from 0% to 10%. As the result of using unobservable inputs in the valuation, we classify investments in real properties as Level 3 within the fair value hierarchy.

For collateral dependent loans, the fair values are based on the value of the underlying collateral less the costs to sell. At each reporting date, these loans are evaluated based upon the most recent independent third-party appraisals of value discounted based upon our experience with actual liquidation values. These discounts to the appraisals generally range from 0% to 10%. As the result of using unobservable inputs in the valuation, we classify collateral dependent as Level 3 within the fair value hierarchy.

Fair Value Disclosure Only

For certain of our financial instruments, including cash equivalents, which are classified under Level 1 within the fair value hierarchy, the carrying amounts approximate fair value due to their short-term maturities.

Our loans in mortgage notes receivable are evaluated for expected credit losses and mortgage notes receivable are presented net of an allowance for credit losses. Due to the short-term maturity of the mortgage notes receivable, a premium or discount is not material and the carrying value approximates fair value. We believe that our mortgage notes receivable net of the CECL allowance approximates fair value of the portfolio. As we utilize unobservable inputs, including third-party appraisals for estimating as-complete appraised values, we classify mortgage notes receivable as Level 3 within the fair value hierarchy.