Mortgage notes receivable (referred to herein as “mortgage notes receivable”, “construction loans”, “loans”, or “notes”) are classified as held for investment, as we have the intent and ability to hold until maturity or payoff and are carried in the consolidated balance sheets at amortized cost, net of construction holdbacks, interest reserves, allowance for credit losses and deferred origination and amendment fees. Loans are classified as held for sale in the period when we commit to a plan and have the authority to sell the asset in its current condition, have initiated an active marketing plan to sell the asset at a price that is reflective of its current fair value and the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months. Loans classified as held for sale are carried at the lower of amortized cost or fair value less costs to sell, thus are not subject to the CECL allowance. As of September 30, 2022 all mortgage notes receivable were classified as held for investment.

The stated principal amount of mortgage notes receivable in our portfolio represents our interest in loans generally secured by first deeds of trust, security agreements or legal title to real estate located in the United States. Our lending standards typically require that all mortgage notes receivable be secured by a first deed of trust lien on real estate and that the maximum loan to value ratio (“LTV”) be no greater than 65%. The LTV is calculated on an “as-complete” appraised value of the underlying collateral as determined by an independent appraiser at the time of the loan origination. The lending standards also typically limit the initial outstanding principal balance of the loan to a maximum LTV of up to 65% of the “as-is” appraised value of the underlying collateral, as determined by an independent appraiser at the time of the loan origination. Unless otherwise indicated, LTV is measured by the total commitment amount of the loan at origination divided by the “as-complete” appraisal. LTVs do not reflect interim loan activity such as construction draws or interest payments capitalized to loans, or partial repayments of the loan. The maximum amount of a single loan may not exceed 10% of our total assets and the maximum amount to a single borrower may not exceed 15% of our total assets. We consider the maximum LTV as an indicator for the credit quality of a mortgage note receivable.

Mortgage notes receivable are considered to be short-term financings. As of September 30, 2022, the weighted average term of our active loans was 20 months at origination, which we often elect to extend for several months, based on our evaluation of the expected timeline for completion of construction. All loans require monthly interest only payments, with our weighted average interest rate on our portfolio being 10.2% as of September 30, 2022. Most loans are structured with an interest reserve holdback that covers the interest payments for the initial term of the loan. Once the interest reserve is depleted, borrowers are expected to pay their monthly interest payment within 10 days of month-end.

Mortgage notes receivable are presented net of construction holdbacks, interest reserves, allowance for credit losses and deferred origination and amendment fee income in the condensed consolidated balance sheets. The construction holdback represents amounts withheld from the funding of construction loans until we deem construction to be sufficiently completed. The interest reserve represents amounts withheld from the funding of certain mortgage notes receivable for the purpose of satisfying monthly interest payments over all or part of the term of the related note. Accrued interest is paid out of the interest reserve and recognized as interest income at the end of each month. The deferred origination and amendment fee income represents amounts that will be recognized over the contractual life of the underlying mortgage notes receivable.

In certain instances, where the interest reserve on a current loan has been fully depleted and the interest payment is not expected to be collected from the borrower, we may place a current loan on non-accrual status and recognize interest income on a cash-basis where principal collection is not in doubt. As of September 30, 2022 and December 31, 2021, the principal outstanding on loans in contractual default status placed on non-accrual status was $115.4 and $101.9 million, respectively. In accordance with our CECL methodology, all loans including those on non-accrual status have an allowance for credit losses.

As of September 30, 2022 and December 31, 2021, the total commitment on loans in contractual default was $286.1 and $191.4 million, respectively.

In assessing the CECL allowance, we consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. We derived an annual historical loss rate based on the Company’s historical loss experience in its portfolio and the historical loss experience in the commercial real estate industry provided by a third party adjusted to incorporate the risks of construction lending and to reflect our expectations of the macroeconomic environment based on forecast data per the Federal Reserve.

In determining our CECL allowance, we segment loans with similar characteristics. All of our loans are secured by residential or commercial real estate and, in assessing estimated credit losses, we evaluate various metrics, including, but not limited to, construction type, collateral type, LTV, market conditions of property location and borrower experience and financial strength.

The following tables allocate the carrying value of our loan portfolio based on our internal credit quality indicators in assessing estimated credit losses and vintage of origination at the dates indicated:


	September 30, 2022						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2022		2021		2020		2019		2018		Prior
Construction Type
Vertical Construction	$	535,737			57.5	%	$	309,763	$	135,257	$	52,678	$	1,903	$	—	$	36,136
Horizontal Development		213,666			22.9			109,260		95,615		8,791		—		—		—
Acquisition		49,449			5.3			15,137		34,312		—		—		—		—
Investment		48,560			5.2			44,230		4,330		—		—		—		—
Rehabilitation		36,397			3.9			11,471		13,793		11,133		—		—		—
Land Entitlement		25,891			2.8			1,806		24,085		—		—		—		—
Bridge		21,961			2.4			8,958		10,874		—		2,129		—		—
Total	$	931,661			100.0	%	$	500,625	$	318,266	$	72,602	$	4,032	$	—	$	36,136
CECL allowance(2)		(19,997	)
Carrying value, net	$	911,664

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)

Includes $12.1 million in loan specific allowances for loans deemed collateral dependent based on the excess amortized cost over the fair value of the underlying collateral. In addition, $1.4 million of the CECL allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable and accrued liabilities in our condensed consolidated balance sheet.


	September 30, 2022						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2022		2021		2020		2019		2018		Prior
Collateral Type
Apartments	$	169,067			18.1	%	$	111,941	$	39,609	$	15,614	$	1,903	$	—	$	—
Residential lots		123,055			13.2	%		49,947		64,317		8,791		—		—		—
Single Family Housing		121,810			13.1	%		112,919		8,659		232		—		—		—
Townhomes		107,515			11.5	%		80,277		26,445		793		—		—		—
Commercial		87,779			9.4	%		12,750		75,029		—		—		—		—
Entitled Land		75,103			8.1	%		46,741		28,362		—		—		—		—
Condos		63,690			6.8	%		10,900		6,579		10,075		—		—		36,136
Mixed Use		53,409			5.7	%		10,288		29,859		11,133		2,129		—		—
Hotel		30,036			3.2	%		14,007		—		16,029		—		—		—
Unentitled Land		19,981			2.1	%		16,621		3,360		—		—		—		—
Offices		19,372			2.1	%		11,294		—		8,078		—		—		—
Senior Housing		15,538			1.7	%		—		15,538		—		—		—		—
Commercial other		12,845			1.4	%		—		12,845		—		—		—		—
Duplex		11,089			1.2	%		11,089		—		—		—		—		—
Retail		8,818			0.9	%		6,961		—		1,857		—		—		—
Quadplex		7,664			0.8	%		—		7,664		—		—		—		—
Commercial Lots		3,196			0.3	%		3,196		—		—		—		—		—
Triplex		1,694			0.2	%		1,694		—		—		—		—		—
Storage		—			0.0	%		—		—		—		—		—		—
Total	$	931,661			100.0	%	$	500,625	$	318,266	$	72,602	$	4,032	$	—	$	36,136
CECL allowance(2)		(19,997	)
Carrying value, net	$	911,664

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)


	September 30, 2022						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2022		2021		2020		2019		Prior
LTV (2)
0 - 40%	$	25,348			2.7	%	$	18,231	$	7,117	$	—	$	—	$	—
41 - 45%		29,546			3.2			7,567		21,979		—		—		—
46 - 50%		39,085			4.2			20,899		10,108		8,078		—		—
51 - 55%		141,842			15.1			75,656		57,395		8,791		—		—
56 - 60%		97,218			10.4			84,016		13,202		—		—		—
61 - 65%		481,317			51.7			224,147		187,256		31,875		1,903		36,136
66 - 70%		89,229			9.6			64,248		20,202		2,650		2,129		—
71 - 75%		3,518			0.4			3,518		—		—		—		—
76- 80%		2,343			0.3			2,343		—		—		—		—
Above 80%		22,215			2.4			—		1,007		21,208		—		—
Total	$	931,661			100.0	%	$	500,625	$	318,266	$	72,602	$	4,032	$	36,136
CECL allowance(3)		(19,997	)
Carrying value, net	$	911,664

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)

Represents LTV as of origination or latest amendment. LTVs above 65% generally represent loans in contractual default status where we have agreed to extend funds to the borrower above 65% in order to facilitate successful completion of the construction and return of capital.

(3)


	December 31, 2021						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2021		2020		2019		2018		2017		Prior
Construction Type
Vertical Construction	$	478,475			52.5	%	$	234,861	$	191,896	$	1,177	$	2,491	$	47,789	$	261
Horizontal Development		196,543			21.5			169,041		27,502		—		—		—		—
Acquisition		96,937			10.6			96,937		—		—		—		—		—
Investment		65,703			7.2			42,509		2,101		—		3,608		17,485		—
Rehabilitation		27,023			3.0			11,320		15,703		—		—		—		—
Land Entitlement		24,529			2.7			24,529		—		—		—		—		—
Bridge		22,534			2.5			18,072		2,537		1,925		—		—		—
Total	$	911,744			100.0	%	$	597,269	$	239,739	$	3,102	$	6,099	$	65,274	$	261
CECL allowance(2)		(10,394	)
Carrying value, net	$	901,350

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)

Includes $0.7 million in loan specific allowances for loans deemed collateral dependent based on the excess amortized cost over the fair value of the underlying collateral. In addition, $0.9 million of the CECL allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable and accrued liabilities in our condensed consolidated balance sheet.


	December 31, 2021						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2021		2020		2019		2018		2017		Prior
Collateral Type
Residential Lots	$	111,644			12.2	%	$	85,219	$	26,425	$	—	$	—	$	—	$	—
Apartments		107,765			11.8			38,232		68,356		1,177		—		—		—
Townhomes		93,300			10.2			51,240		28,979		—		1,017		11,803		261
Mixed Use		85,929			9.5			53,530		30,474		1,925		—		—		—
Single Family Housing		87,902			9.6			84,703		3,049		—		—		150		—
Condos		64,492			7.1			8,805		18,227		—		1,474		35,986		—
Commercial		61,592			6.8			61,592		—		—		—		—		—
Senior Housing		61,236			6.7			35,899		25,337		—		—		—		—
Storage		56,481			6.2			56,481		—		—		—		—		—
Unentitled Land		46,019			5.0			42,411		—		—		3,608		—		—
Entitled Land		45,098			4.9			27,763		—		—		—		17,335		—
Hotel		31,665			3.5			4,886		26,779		—		—		—		—
Offices		15,348			1.7			8,280		7,068		—		—		—		—
Commercial Lots		10,227			1.1			6,670		3,557		—		—		—		—
Quadplex		9,769			1.1			9,769		—		—		—		—		—
Commercial Other		9,080			1.0			9,080		—		—		—		—		—
Retail		7,873			0.9			6,385		1,488		—		—		—		—
Duplex		6,324			0.7			6,324		—		—		—		—		—
Total	$	911,744			100.0	%	$	597,269	$	239,739	$	3,102	$	6,099	$	65,274	$	261
CECL allowance(2)		(10,394	)
Carrying value, net	$	901,350

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)


	December 31, 2021						Year Originated (1)
(dollars in thousands)	Carrying Value			% of Portfolio			2021		2020		2019		2018		2017		Prior
LTV (2)
0 - 40%	$	53,907			5.9	%	$	32,634	$	—	$	—	$	3,608	$	17,665	$	—
41 - 45%		48,431			5.3			44,380		4,051		—		—		—		—
46 - 50%		63,690			7.0			41,356		21,317		—		1,017		—		—
51 - 55%		92,238			10.1			74,978		17,260		—		—		—		—
56 - 60%		79,039			8.7			27,115		40,190		—		—		11,473		261
61 - 65%		559,997			61.4			372,645		146,640		3,102		1,474		36,136		—
66 - 70%		645			0.1			645		—		—		—		—		—
71 - 80%		—			0.0			—		—		—		—		—		—
Above 80%		13,797			1.5			3,516		10,281		—		—		—		—
Total	$	911,744			100.0	%	$	597,269	$	239,739	$	3,102	$	6,099	$	65,274	$	261
CECL allowance(3)		(10,394	)
Carrying value, net	$	901,350

(1)

Represents the year of either origination or amendment where the loan incurred a full re-underwriting in connection with the amendment.

(2)

Represents LTV as of origination or latest amendment. LTVs above 65% generally represent loans in contractual default status where we have agreed to extend funds to the borrower above 65% in order to ensure successful completion of the construction and return of capital.

(3)