Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

The accounting guidance on fair value measurements and disclosures 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 tables present estimated fair values of our financial instruments, as of the date indicated, whether or not recognized or recorded in the condensed consolidated balance sheets at the periods indicated:

	June 30, 2022				Fair Value Measurements Using
(dollars in thousands)	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	35,958	$	35,958	$	35,958	$	—	$	—
Mortgage notes receivable, net		957,226		957,226		—		—		957,226
Financial Liabilities
Senior unsecured notes, net		97,503		87,910		—		87,910		—
Private placement warrant liability		1,660		1,660		—		1,660		—

	December 31, 2021				Fair Value Measurements Using
(dollars in thousands)	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	132,889	$	132,889	$	132,889	$	—	$	—
Mortgage notes receivable, net		901,350		901,350		—		—		901,350
Financial Liabilities
Senior unsecured notes, net		97,223		100,000		—		100,000		—
Private placement warrant liability		1,838		1,838		—		1,838		—

The following table sets forth assets measured and reported at fair value on a nonrecurring basis as of June 30, 2022 and December 31, 2021. All of these values are categorized as Level 3. The table also contains information about valuation methodologies and inputs.

	Carrying Value				Fair Value
(dollars in thousands)	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		Valuation technique	Unobservable inputs	Range of inputs
Real property, held for use(1)	$	4,490	$	—	$	4,726	$	—	Collateral valuations	Appraised value, broker opinion of value, discounted cash flows or capitalization rate applied to estimate net operating income	0 - 10%
Collateral dependent loans, net of allowance for credit losses(1)		335		436		723		835	Collateral valuations	Discount to appraised value based on comparable market prices	0 - 10%
Total	$	4,825	$	436	$	5,449	$	835

(1)Previously reported amounts included all real properties and collateral dependent loans regardless of whether a mark to fair value occurred in the reporting period. The current disclosure represents only those measured at fair value on a nonrecurring basis during the reporting periods.

Fair Value on a Recurring Basis

The private placement warrants are carried at fair value. Initially, the fair value of the private placement warrants was classified as Level 3 within the fair value hierarchy as it was valued using a lattice model, which 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. For the unobservable volatility input, we solved for the volatility of the public warrants using the lattice model that captures the redemption right and analyzed the calculated equity volatility based on the volatility of the common stock of comparable public companies. This valuation methodology resulted in the same value per share for both the public warrants and private placement warrants, indicating the redemption right, a feature excluded from private placement warrants, did not change the valuation; and therefore, the quoted price per share of the public warrants was used to value the private placement warrants on a recurring basis beginning September 30, 2021. As we utilized observable inputs in the valuation, specifically a quoted price for a similar item in an active market, we re-classified the private placement warrant liability from a Level 3 to a Level 2 within the fair value hierarchy as of September 30, 2021. The fair value of the 5.2 million private placement warrants, estimated using the quoted share price of the public warrants (BRMK.WS), was approximately $0.08 per warrant or $0.32 per share to arrive at $1.7 million as of June 30, 2022. Refer to Note 7 for additional details on the private placement warrants.

Fair Value on a Nonrecurring Basis

Investments in real properties are initially recorded at the fair value less estimated costs to sell, which becomes the new cost basis for the real property. Costs related to acquisition, development, construction and improvements are capitalized to the extent the fair value less costs to sell is greater than the investment in real property. At each reporting date, the cost basis is compared to the fair value of real properties 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% and are considered unobservable inputs in Level 3 within the fair value hierarchy. Any decline in the fair value will be recorded in a valuation account to offset the cost basis and carry at fair value on a non-recurring basis.

For collateral dependent loans, the fair values are based on the value of the underlying collateral less the estimated 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 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 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.

Our senior unsecured notes were purchased at par by investors in a private placement, but trade in the secondary market. Fair value is estimated using current market quotes received from active markets and we classify as Level 1 within the fair value hierarchy.