Loans Receivable

6 Months Ended

Jun. 30, 2011

Loans Receivable [Abstract]

Loans Receivable

5. Loans Receivable

The Trust’s loans receivable at June 30, 2011 and December 31, 2010 are as follows (in thousands):

			Carrying Amount				Contractual
		Stated	June 30,		December 31,		Maturity
Description	Loan Position	Interest Rate	2011		2010		Date
Beverly Hilton (1)	B-Note	Libor + 1.74%	$	9,590	$	7,899	08/09/11
Sealy Northwest Atlanta (1)	Whole Loan	8.0%		20,678		—	11/01/11
Westwood (1)	Whole Loan	11.00%		3,637		3,500	10/31/11
Metropolitan Tower	B-Note	Libor + 1.51%		—		10,312
Moffett Towers (1)	B-Note	Libor + 6.48%		23,099		21,752	01/31/12
Siete Square	B-Note	10.37%		—		2,488
160 Spear	B-Note	9.75% (2)		8,662		6,674	06/09/12
160 Spear	Mezzanine	15.00%		4,844		3,029	06/09/12
Magazine (1)	Mezzanine	Libor + 1.23%		17,712		—	07/09/12
Legacy Orchard (1)	Whole Loan	15.00%		9,750		9,750	10/31/14
San Marbeya (1)	Whole Loan	5.88%		26,748		26,966	01/01/15
CDH CDO LLC	Unsecured	12.00%		742		3,498	12/30/15
Rockwell	Mezzanine	12.00%		262		255	05/01/16
Marc 8 South Michigan (1)	Mezzanine	8.0%		4,942		—	05/31/16
Marc 11 East Adams (1)	Mezzanine	8.0%		2,280		—	05/31/16
Marc 29 East Madison (1)	Mezzanine	8.0%		5,405		—	05/31/16
500-512 7th Ave	B-Note	7.19%		9,962		9,954	07/11/16
180 N. Michigan (1)	Mezzanine	8.50% (3)		2,617		1,862	12/31/16
Wellington Tower	Mezzanine	6.79%		2,507		2,456	07/11/17
			$	153,437	$	110,395

(1)	The Trust determined that certain loans receivable are variable interests in VIEs primarily based on the fact that the underlying entities do not have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support. The Trust does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and is not required to consolidate the underlying entity.
(2)	The Trust holds a B note in this loan. Interest on the B note equals the difference between (i) interest on the entire outstanding loan principal balance ($73,796 at June 30, 2011) at a rate of 6.48215% per annum less (ii) interest payable on the outstanding principal balance of the A note ($35,000 at June 30, 2011) at a rate of 9.75% per annum. As a result, the effective yield on the Trust’s $3,410 cash investment is 40.8%.
(3)	Represents tenant improvement and capital expenditure loans collateralized by a subordinate mortgage or the ownership interests in the owner of the applicable property.

The carrying amount of loans receivable includes accrued interest of $697,000 and $558,000 at June 30, 2011 and December 31, 2010, respectively, and cumulative accretion of $10,056,000 and $9,803,000 at June 30, 2011 and December 31, 2010, respectively. The fair value of the Trust’s loans receivable, exclusive of interest receivables was approximately $165,527,000 and $114,477,000 at June 30, 2011 and December 31, 2010, respectively.

As of June 30, 2011, the weighted average coupon on our loans receivable was 6.06% and the weighted average yield to maturity was 12.55%.

With the exception of the San Marbeya loan receivable, none of the loans receivable are directly financed. On January 14, 2011, the Trust restructured the San Marbeya first mortgage loan to create a $15,150,000 senior participation which bears interest at 4.85% and a $15,744,000 junior participation which bears interest at 6.4%. The Trust accounts for the loan participation as a secured borrowing.

The following table summarizes the Trust’s interest, dividend and discount accretion income for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Interest, dividends and discount accretion detail:
Interest on loan assets	$	2,687	$	836	$	5,397	$	1,557
Accretion of loan discount		2,289		2,001		8,793		3,742
Interest and dividends on REIT securities		118		753		576		1,500
Total interest, dividends, and discount accretion	$	5,094	$	3,590	$	14,766	$	6,799

At June 30, 2011, the Trust’s loan receivables have accretable discount yet to be recognized as income totaling $13,008,000.

Credit Quality of Loans Receivable and Loan Losses

The Trust evaluates impairment on its loan portfolio on an individual basis and has developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Grading categories include debt yield, debt service coverage ratio, length of loan, property type, loan type, and other more subjective variables that include property or collateral location, market conditions, industry conditions, and sponsor’s financial stability. Management reviews each category and assigns an overall numeric grade for each loan to determine the loan’s risk of loss and to provide a threshold for the determination of whether a specific allowance analysis is necessary. A loan’s grade of credit quality is determined quarterly.

All loans with a positive score do not require a loan loss allowance. Any loan graded with a neutral score or “zero” is subject to further review of the collectability of the interest and principal based on current conditions and qualitative factors to determine if impairment is warranted. Any loan with a negative score is deemed impaired and management then would measure the specific impairment of each loan separately using the fair value of the collateral less costs to sell.

Management estimates impairment by calculating the estimated fair value less costs to sell of the underlying collateral securing the loan based on the present value of expected future cash flows, and comparing the fair value to the loan’s net carrying value. If the fair value is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level the Trust believes is adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at June 30, 2011 (in thousands, except for number of loans).

			Carrying
			Value of
	# of		Loans		# of		Whole		# of				# of		Mezzanine
Internal Credit Quality	Loans (1)		Receivable		Loans		Loans		Loans		B-Notes		Loans		Loans
Greater than zero		14	$	127,089		4	$	60,813		3	$	28,213		7	$	38,063
Equal to zero		2		25,606				—		1		23,099		1		2,507
Less than zero		—		—				—				—				—
Subtotal		16	$	152,695		4	$	60,813		4	$	51,312		8	$	40,570

(1) The Trust holds unsecured loans at June 30, 2011 not included above that have a carrying amount of $742. During the three months ended June 30, 2011, the Trust received payments of $3,420 on its unsecured loans and the balance was repaid during the third quarter of 2011.

Non Performing Loans

The Trust considers a loan to be non-performing and places loans on non-accrual status at such time as management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. While on non-accrual status, based on the Trust’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan’s carrying value. If and when a loan is brought back into compliance with its contractual terms, the Trust will resume accrual of interest. As of June 30, 2011 and December 31, 2010, there were no past due payments. There was no provision for loan loss recorded during the three and six month periods ended June 30, 2011 and 2010.

Loan Receivable Activity

Activity related to loans receivable is as follows (in thousands):

	January 1, 2011 to			January 1, 2010 to
	June 30, 2011			December 31, 2010
Balance at beginning of period	$	110,395		$	26,101
Purchase and advances		44,161			122,301
Proceeds from sale		—			(12,876	)
Interest (received) accrued, net		161			361
Repayments		(12,717	)		(15,064	)
Loan accretion		8,793			8,782
Discount accretion received in cash		(8,540	)		—
Transfer from loan securities		662			—
Transfer foreclosed loans to investment in real estate		—			(19,210	)
Transfer Marc Realty seller financing from equity investments		12,544			—
Transfer 450 W 14th St bridge loan to preferred equity investments		(2,022	)		—
Balance at end of period	$	153,437		$	110,395

In addition to our initial purchase price of certain loans, we have future funding requirements. At June 30, 2011 we had future funding requirements pursuant to two loans receivable totaling approximately $2,783,000.