COMMERCIAL LOAN INVESTMENTS

9 Months Ended

Sep. 30, 2017

COMMERCIAL LOAN INVESTMENTS

COMMERCIAL LOAN INVESTMENTS

NOTE 3. COMMERCIAL LOAN INVESTMENTS

Our investments in commercial loans or similar structured finance investments, such as mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by commercial or residential real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The first mortgage loans we invest in or originate are for commercial real estate located in the United States and its territories, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property.

On July 31, 2017, the Company originated a $3.0 million first mortgage loan secured by a parcel of beachfront land in the City of Daytona Beach Shores, Florida which the borrower intends to develop as a residential condominium (the “Beach Loan”). The Beach Loan matures on August 1, 2018, includes a one-year extension option, bears a fixed interest rate of 11.00%, and requires payments of interest only prior to maturity. At closing, a loan origination fee of $60,000 was received by the Company. Should the borrower seek to obtain financing for the development of the project the Beach Loan would likely be paid off in connection with that financing.

As of September 30, 2017, the Company owned four performing commercial loan investments which have an aggregate outstanding principal balance of approximately $27.0 million. These loans are secured by real estate, or the borrower’s equity interest in real estate, located in Daytona Beach Shores, Florida, Sarasota, Florida, Dallas, Texas, and Atlanta, Georgia, and have an average remaining maturity of approximately 0.9 years and a weighted average interest rate of 9.6%. 

The Company sold its two commercial loan investments secured by hotel properties in Atlanta, Georgia and Dallas, Texas which have an aggregate principal value of $15.0 million at a slight premium to par. See Note 21, “Subsequent Events.” These two loans have been classified as held for sale on the accompanying consolidated balance sheets as of September 30, 2017 as summarized below:

	Date of	Maturity	Original Face		Current Face		Lower of Cost
Description	Investment	Date	Amount		Amount		or Market		Coupon Rate
Mezz – Hotel – Atlanta, GA	January 2014	February 2019	$	5,000,000	$	5,000,000	$	5,000,000	12.00%
Mezz – Hotel, Dallas, TX	September 2014	September 2018		10,000,000		10,000,000		10,000,000	30 day LIBOR plus 7.50%
Total			$	15,000,000	$	15,000,000	$	15,000,000

The portion of the Company’s commercial loan investment portfolio held for investment was comprised of the following at September 30, 2017:

	Date of	Maturity	Original Face		Current Face		Carrying
Description	Investment	Date	Amount		Amount		Value		Coupon Rate
B-Note – Retail Shopping Center, Sarasota, FL	May 2014	June 2018	$	8,960,467	$	8,960,467	$	8,960,467	30 ‑day LIBOR plus 7.50%
First Mortgage - Land Parcel, Daytona Beach, FL	July 2017	August 2018		3,000,000		3,000,000		2,950,144	11.00%
Total			$	11,960,467	$	11,960,467	$	11,910,611

The carrying value of the commercial loan investment portfolio at September 30, 2017 consisted of the following:

	Total
Current Face Amount	$	11,960,467
Unamortized Fees		—
Unaccreted Origination Fees		(49,856)
Total Commercial Loan Investments	$	11,910,611

The Company’s commercial loan investment portfolio was comprised of the following at December 31, 2016:

	Date of	Maturity	Original Face		Current Face		Carrying
Description	Investment	Date	Amount		Amount		Value		Coupon Rate
Mezz – Hotel – Atlanta, GA	January 2014	February 2019	$	5,000,000	$	5,000,000	$	5,000,000	12.00%
B-Note – Retail Shopping Center, Sarasota, FL	May 2014	June 2017		8,960,467		8,960,467		8,960,467	30 day LIBOR plus 7.50%
Mezz – Hotel, Dallas, TX	September 2014	September 2017		10,000,000		10,000,000		10,000,000	30 day LIBOR plus 7.25%
Total			$	23,960,467	$	23,960,467	$	23,960,467

The carrying value of the commercial loan investment portfolio as of December 31, 2016 was equal to the face amount. No commercial loan investments were classified as held for sale as of December 31, 2016.