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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-39210
__________________________________
NexPoint Real Estate Finance, Inc.
(Exact Name of Registrant as Specified in Its Charter)
__________________________________
Maryland 84-2178264
(State or other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
300 Crescent Court, Suite 700, Dallas, Texas
75201
(Address of Principal Executive Offices) (Zip Code)
(214) 276-6300
(Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.01 per share NREF New York Stock Exchange
8.50% Series A Cumulative Redeemable Preferred
Stock, par value 0.01 per share
NREF-PRA New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o
Non-Accelerated Filer x Smaller reporting company x
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 10, 2023, the registrant had 17,184,231 shares of its common stock, par value $0.01 per share, outstanding.
i

NEXPOINT REAL ESTATE FINANCE, INC.
Form 10-Q
Quarter Ended March 31, 2023
INDEX
Page
PART I—FINANCIAL INFORMATION
1
2
3
4
5
PART II—OTHER INFORMATION
ii

Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, our performance and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s then-current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result,” the negative version of these words and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.
Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
Our loans and investments expose us to risks similar to and associated with debt-oriented real estate investments generally;
Commercial real estate-related investments that are secured, directly or indirectly, by real property are subject to delinquency, foreclosure and loss, which could result in losses to us;
Fluctuations in interest rate and credit spreads could reduce our ability to generate income on our loans and other investments, which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments;
Risks associated with the ownership of real estate;
Our loans and investments are concentrated in terms of type of interest, geography, asset types and sponsors and may continue to be so in the future;
We have a substantial amount of indebtedness which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs;
We have limited operating history as a standalone company and may not be able to operate our business successfully, find suitable investments, or generate sufficient revenue to make or sustain distributions to our stockholders;
We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Advisors, L.P. (our “Sponsor”), members of the management team of NexPoint Real Estate Advisors VII, L.P. (our “Manager”) or their affiliates;
We are dependent upon our Manager and its affiliates to conduct our day-to-day operations; thus, adverse changes in their financial health or our relationship with them could cause our operations to suffer;
Our Manager and its affiliates face conflicts of interest, including significant conflicts created by our Manager’s compensation arrangements with us, including compensation which may be required to be paid to our Manager if our management agreement is terminated, which could result in decisions that are not in the best interests of our stockholders;
We pay substantial fees and expenses to our Manager and its affiliates, which payments increase the risk that you will not earn a profit on your investment;
If we fail to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes, cash available for distributions (“CAD”) to be paid to our stockholders could decrease materially, which would limit our ability to make distributions to our stockholders;
iii

Risks associated with the current COVID-19 pandemic, including unpredictable variants and the future outbreak of other highly infectious or contagious diseases;
Risks associated with the Highland Capital Management, L.P. (“Highland”) bankruptcy, including related litigation and potential conflicts of interest;
Risks associated with a single material weakness that was identified in our review of internal control over financial reporting and the determination that our internal control over financial reporting and disclosure controls and procedures were therefore not effective as of December 31, 2022; and
Any other risks included under Part I, Item1A, “Risk Factors,” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023 (our “Annual Report”).
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.
iv

PART 1FINANCIAL INFORMATION
Item 1. Financial Statements
NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31, 2023 December 31, 2022
(Unaudited)
ASSETS
Cash and cash equivalents $ 38,830  $ 20,048 
Restricted cash 1,495  299 
Real estate investments, net (Note 9) 59,072  245,222 
Loans, held-for-investment, net 284,548  256,147 
Common stock investments, at fair value 76,998  78,264 
Equity method investments 1,000  — 
Mortgage loans, held-for-investment, net 723,343  726,531 
Accrued interest and dividends 17,467  15,665 
Mortgage loans held in variable interest entities, at fair value 6,747,377  6,720,246 
CMBS structured pass-through certificates, at fair value (Note 7) 44,308  46,876 
MSCR notes, at fair value 10,015  10,313 
Mortgage backed securities, at fair value 37,007  32,328 
Accounts receivable and other assets 1,106  2,197 
TOTAL ASSETS $ 8,042,566  $ 8,154,136 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Secured financing agreements, net $ 687,480  $ 687,885 
Master repurchase agreements 350,399  331,020 
Unsecured notes, net 205,176  204,960 
Mortgages payable, net 32,235  121,236 
Accounts payable and other accrued liabilities 5,377  6,231 
Accrued interest payable 10,189  7,986 
Bonds payable held in variable interest entities, at fair value 6,278,734  6,249,804 
Total Liabilities 7,569,590  7,609,122 
Redeemable noncontrolling interests in the OP 95,712  96,501 
Stockholders' Equity:
Noncontrolling interest in subsidiary 95  64,529 
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 2,000,000 and 2,000,000 shares issued and 1,645,000 and 1,645,000 shares outstanding, respectively
16  16 
Common stock, $0.01 par value: 500,000,000 shares authorized; 17,471,218 and 17,366,930 shares issued and 17,184,231 and 17,079,943 shares outstanding, respectively
172  171 
Additional paid-in capital 392,440  392,124 
Retained earnings (accumulated deficit) (2,697) 4,435 
Preferred stock held in treasury at cost; 355,000 shares and 355,000, respectively
(8,567) (8,567)
Common stock held in treasury at cost; 286,987 shares and 286,987 shares, respectively
(4,195) (4,195)
Total Stockholders' Equity 377,264  448,513 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,042,566  $ 8,154,136 
See Notes to Consolidated Financial Statements
1

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended March 31,
2023 2022
Net interest income
Interest income $ 16,161  $ 31,133 
Interest expense (12,212) (8,818)
Total net interest income $ 3,949  $ 22,315 
Other income (loss)
Change in net assets related to consolidated CMBS variable interest entities 11,003  3,416 
Change in unrealized gain (loss) on CMBS structured pass-through certificates (752) (4,340)
Change in unrealized gain (loss) on common stock investments (1,267) 329 
Change in unrealized gain (loss) on MSCR notes (298) — 
Change in unrealized (loss) on mortgage backed securities (606) — 
Reversal of (provision for) credit losses, net 34  (151)
Other income 317  173 
Gain on deconsolidation of real estate owned 1,490  — 
Revenues from consolidated real estate owned (Note 9) 1,028  2,387 
Total other income (loss) $ 10,949  $ 1,814 
Operating expenses
General and administrative expenses 2,152  1,763 
Loan servicing fees 1,043  1,141 
Management fees 828  728 
Expenses from consolidated real estate owned (Note 9) 1,497  2,428 
Total operating expenses $ 5,520  $ 6,060 
Net income 9,378  18,069 
Net (income) attributable to preferred shareholders (874) (874)
Net (income) loss attributable to redeemable noncontrolling interests (1,937) (4,783)
Net (income) loss attributable to redeemable noncontrolling interests in subsidiaries —  (6)
Net income attributable to common stockholders $ 6,567  $ 12,406 
Weighted-average common shares outstanding - basic 17,118 13,855
Weighted-average common shares outstanding - diluted 22,678 22,030
Earnings per share outstanding - basic
$ 0.38  $ 0.90 
Earnings per share outstanding - diluted
$ 0.37  $ 0.78 
Dividends declared per common share $ 0.6850  $ 0.5000 
See Notes to Consolidated Financial Statements
2

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(dollars in thousands)
(Unaudited)

Three Months Ended March 31, 2023 Series A Preferred Stock Common Stock Additional
Paid-in Capital
Retained
Earnings (accumulated deficit)
Less Dividends
Common Stock
Held in Treasury
at Cost
Preferred Stock
Held in Treasury
at Cost
Noncontrolling
interest
in CMBS VIEs
Noncontrolling
interest
in Subsidiary
Total
 
Number of Shares Par Value Number of Shares Par Value
Balances, December 31, 2022 1,645,000 $ 16  17,079,943 $ 171  $ 392,124  $ 4,435  $ (4,195) $ (8,567) $ —  $ 64,529  $ 448,513 
Vesting of stock-based compensation 104,288 1 316 317 
Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate (64,434) (64,434)
Cumulative effect of adoption of ASU 2016-13 (See Note 2) (1,624) (1,624)
Net income attributable to preferred stockholders 874  874 
Net income attributable to common stockholders 6,567 6,567 
Preferred stock dividends declared ($0.5313 per share)
(874) (874)
Common stock dividends declared ($0.6850 per share)
(12,075) (12,075)
Balances, March 31, 2023 1,645,000 $ 16  17,184,231 $ 172  $ 392,440  $ (2,697) $ (4,195) $ (8,567) $ —  $ 95  $ 377,264 
Three Months Ended March 31, 2022 Series A Preferred Stock Common Stock Additional
Paid-in Capital
Retained
Earnings
Less Dividends
Common Stock
Held in Treasury
at Cost
Preferred Stock
Held in Treasury
at Cost
Noncontrolling
interest
in CMBS VIEs
Noncontrolling
interest
in Subsidiary
Total
 
Number of Shares Par Value Number of Shares Par Value
Balances, December 31, 2021 1,645,000 $ 16  9,163,934  $ 92  $ 222,300  $ 28,367  $ (4,195) $ (8,567) $ 7,175  $ 95  $ 245,283 
Vesting of stock-based compensation —  60,309  532  —  —  —  —  —  533 
Issuance of common shares through at-the-market offering, net —  91,428  1,811  —  —  —  —  —  1,812 
Conversion of redeemable noncontrolling interests in the OP —  5,169,603  51  113,484  —  —  —  —  —  113,535 
Noncontrolling interest in CMBS VIEs —  —  —  —  —  —  —  (7,175) —  (7,175)
Net income attributable to preferred stockholders —  —  —  —  874  —  —  —  —  874 
Net income attributable to common stockholders —  —  —  —  12,406  —  —  —  —  12,406 
Preferred stock dividends declared ($0.5313 per share)
—  —  —  —  (874) —  —  —  —  (874)
Common stock dividends declared ($0.5000 per share)
—  —  —  —  (7,521) —  —  —  —  (7,521)
Balances, March 31, 2022 1,645,000 $ 16  14,485,274  $ 145  $ 338,127  $ 33,252  $ (4,195) $ (8,567) $ —  $ 95  $ 358,873 
3

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
For the Three Months Ended March 31,
2023 2022
Cash flows from operating activities
Net income $ 9,378  $ 18,069 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums 3,531  9,900 
Accretion of discounts (3,500) (3,030)
Depreciation and amortization of real estate investment 476  944 
Amortization of deferred financing costs 11  12 
Reversal of (provision for) credit losses, net (34) 151 
Net change in unrealized (gain) loss on investments held at fair value 2,564  8,545 
Realized gain on deconsolidation of real estate owned (1,490) — 
Vesting of stock-based compensation 847  673 
Payment in kind income (209) (168)
Changes in operating assets and liabilities:
Accrued interest 247  (1,912)
Accounts receivable and other assets 292  (1,317)
Accrued interest payable 3,290  3,711 
Accounts payable, accrued expenses and other liabilities (453) 2,138 
Net cash provided by operating activities 14,950  37,716 
Cash flows from investing activities
Proceeds from payments received on mortgage loans held in variable interest entities 70,071  211,277 
Proceeds from payments received on mortgage loans held for investment 36,743  124,633 
Proceeds from payments received on mortgage backed securities 517  — 
Originations of bridge loan —  (13,433)
Originations of loans, held-for-investment, net (28,816) (52,862)
Purchases of equity method investment (1,000) — 
Purchases of CMBS structured pass-through certificates, at fair value —  (4,543)
Purchases of CMBS securitizations held in variable interest entities, at fair value —  (7,100)
Purchases of mortgage backed securities, at fair value (5,733) — 
Adjustment on deconsolidation of real estate (4,992) — 
Acquisitions to real estate investments —  (184,552)
Additions to real estate investments (58) (21)
Net cash provided by investing activities 66,732  73,399 
Cash flows from financing activities
Principal repayments on borrowings under secured financing agreements (405) (86,410)
Distributions to bondholders of variable interest entities (64,480) (195,887)
Borrowings under master repurchase agreements 26,801  25,141 
Principal repayments on borrowings under master repurchase agreements (7,422) (14,474)
Proceeds received on borrowings under secured financing agreements —  89,634 
Proceeds received from unsecured notes offering, net —  34,173 
Borrowings under bridge facility —  55,000 
Proceeds from the issuance of common stock through public offering, net of offering costs —  1,812 
Proceeds from the issuance of common stock —  113,535 
Redemption of redeemable noncontrolling interests in the OP —  (113,535)
Payments for taxes related to net share settlement of stock-based compensation (530) (140)
Dividends paid to common stockholders (11,771) (7,197)
Dividends paid to preferred stockholders (874) (874)
Distributions to redeemable noncontrolling interests in the OP (3,023) (3,569)
Contributions from noncontrolling interests —  655 
Net cash used in financing activities (61,704) (102,136)
Net increase in cash, cash equivalents and restricted cash 19,978  8,979 
Cash, cash equivalents and restricted cash, beginning of period 20,347  33,232 
Cash, cash equivalents and restricted cash, end of period $ 40,325  $ 42,211 
Supplemental Disclosure of Cash Flow Information
Interest paid 9,793  4,910 
Supplemental Disclosure of Noncash Investing and Financing Activities
Adjustment to loans, held for investment, net on deconsolidation of real estate 36,022  — 
Adjustment to real estate investments, net on deconsolidation of real estate (185,732) — 
Adjustment to accrued interest and dividends on deconsolidation of real estate 2,049  — 
Adjustment to accounts receivable and other assets on deconsolidation of real estate (799) — 
Adjustment to mortgages payable, net on deconsolidation of real estate 89,012  — 
Adjustment to accounts payable and accrued liabilities on deconsolidation of real estate 705  — 
Adjustment to accrued interest payable on deconsolidation of real estate 1,087  — 
Adjustment to noncontrolling interest in subsidiary on deconsolidation of real estate 64,434  — 
Adjustment to retained earnings on deconsolidation of real estate 1,490  — 
Adjustment to redeemable noncontrolling interest in the OP on deconsolidation of real estate (297) — 
Increase in dividends payable upon vesting of restricted stock units 304  324 
See Notes to Consolidated Financial Statements
4

NEXPOINT REAL ESTATE FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NexPoint Real Estate Finance, Inc. (the “Company”, “we”, “our”) is a commercial mortgage real estate investment trust (a "REIT") incorporated in Maryland on June 7, 2019. The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2020. The Company is focused on originating, structuring and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common equity investments, as well as multifamily commercial mortgage-backed securities securitizations (“CMBS securitizations”), multifamily structured credit risk notes (“MSCR Notes”) and mortgage-backed securities, or our target assets. Substantially all of the Company’s business is conducted through NexPoint Real Estate Finance Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. As of March 31, 2023, the Company holds approximately 83.41% of the common limited partnership units in the OP (“OP Units”) which represents 100.00% of the Class A OP Units, and the OP owned all of the common limited partnership units (“SubOP Units”) of its subsidiary partnerships (collectively, the “Subsidiary OPs”) (see Note 14).
The OP also directly owns all of the membership interests of a limited liability company (the “Mezz LLC”) through which it owns a portfolio of mezzanine loans, as further discussed below. NexPoint Real Estate Finance OP GP, LLC (the “OP GP”) is the sole general partner of the OP.
The Company commenced operations on February 11, 2020 upon the closing of its initial public offering of shares of its common stock (the “IPO”). Prior to the closing of the IPO, the Company engaged in a series of transactions through which it acquired an initial portfolio consisting of senior pooled mortgage loans backed by single family rental (“SFR”) properties (the “SFR Loans”), the junior most bonds of multifamily CMBS securitizations (the “CMBS B-Pieces”), mezzanine loan and preferred equity investments in real estate companies and properties in other structured real estate investments within the multifamily, SFR and self-storage asset classes (the “Initial Portfolio”). The Initial Portfolio was acquired from affiliates (the “Contribution Group”) of NexPoint Advisors, L.P. (our “Sponsor”), pursuant to a contribution agreement with the Contribution Group through which the Contribution Group contributed their interest in the Initial Portfolio to special purpose entities (“SPEs”) owned by the Subsidiary OPs, in exchange for SubOP Units (the “Formation Transaction”). Subsequent to the Formation Transaction, the Company has continued to invest in asset types and real estate sectors within the Initial Portfolio and expanded to include additional asset types and real estate sectors.
The Company is externally managed by NexPoint Real Estate Advisors VII, L.P. (the “Manager”) through a management agreement dated February 6, 2020 and amended as of July 17, 2020 and November 3, 2021, that expires on February 6, 2024 and is automatically renewed for successive one-year terms thereafter unless earlier terminated (as amended, the “Management Agreement”), by and between the Company and the Manager. The Manager conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Management Agreement is in effect. All of the Company’s investment decisions are made by the Manager, subject to general oversight by the Manager’s investment committee and the Company’s board of directors (the “Board”). The Manager is wholly owned by our Sponsor.
The Company’s primary investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term. The Company intends to achieve this objective primarily by originating, structuring and investing in our target assets. The Company concentrates on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 metropolitan statistical areas ("MSAs"). In addition, the Company targets lending or investing in properties that are stabilized or have a “light transitional” business plan, meaning a property that requires limited deferred funding to support leasing or ramp-up of operations and for which most capital expenditures are for value-add improvements. Through active portfolio management the Company seeks to take advantage of market opportunities to achieve a superior portfolio risk-mix that delivers attractive total returns.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts
5

realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2023.
The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of March 31, 2023 and December 31, 2022 and results of operations for the three months ended March 31, 2023 and 2022 have been included. Such adjustments are normal and recurring in nature. The unaudited information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022, and notes thereto in its Annual Report on Form 10-K filed with the SEC on March 31, 2023.
Use of Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. It is at least reasonably possible that these estimates could change in the near term. Estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.
Principles of Consolidation
The Company accounts for subsidiary partnerships in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has power to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. As of March 31, 2023, the Company has determined it must consolidate the OP and the Subsidiary OPs under the VIE model as it was determined the Company both controls the direct activities of the OP and Subsidiary OPs and possesses the right to receive benefits that could potentially be significant to the OP and Subsidiary OPs. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries. The Company’s sole significant asset is its investment in the OP, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the OP.
Variable Interest Entities
The Company evaluates all of its interests in VIEs for consolidation. When the Company’s interests are determined to be variable interests, the Company assesses whether it is deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. FASB ASC Topic 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. The Company considers its variable interests, as well as any variable interests of its related parties in making this determination. Where both of these factors are present, the Company is deemed to be the primary beneficiary, and it consolidates the VIE. Where either one of these factors is not present, the Company is not the primary beneficiary, and it does not consolidate the VIE (see Note 6).
CMBS Trusts
The Company consolidates the trusts that issue beneficial ownership interests in mortgage loans secured by commercial real estate (commonly known as CMBS) when the Company holds a variable interest in, and management considers the Company to be the primary beneficiary of, those trusts. Management believes the performance of the assets that underlie CMBS issuances most significantly impact the economic performance of the trust, and the primary beneficiary is generally the entity that conducts activities that most significantly impact the performance of the underlying assets. In particular, the most subordinate tranches of CMBS expose the holder to greater variability of economic
6

performance when compared to more senior tranches since the subordinate tranches absorb a disproportionately higher amount of the credit risk related to the underlying assets. Generally, a trust designates the most junior subordinate tranche outstanding as the controlling class, which entitles the holder of the controlling class to unilaterally appoint, remove and replace the special servicer for the trust. For the CMBS that the Company consolidates, the Company owns 100% of the most subordinate tranche of the securities. The subordinate tranche includes the controlling class and has the ability to remove and replace the special servicer.
On the Consolidated Balance Sheets as of March 31, 2023, the Company consolidated each of the Freddie Mac K-Series securitization entities (the “CMBS Entities”) that were determined to be VIEs and for which the Company is the primary beneficiary. The CMBS Entities are independent of the Company, and the assets and liabilities of the CMBS Entities are not owned by and are not legal obligations of ours. Our exposure to the CMBS Entities is through the subordinated tranches. For financial reporting purposes, the underlying mortgage loans held by the trusts are recorded as a separate line item on the balance sheet under “Mortgage loans held in variable interest entities, at fair value.” The liabilities of the trusts consist solely of obligations to the CMBS holders of the consolidated trusts, excluding the CMBS B-Piece investments held by the Company. The liabilities are presented as “Bonds payable held in variable interest entities, at fair value” on the Consolidated Balance Sheets. The CMBS B-Pieces held by the Company, and the interest earned thereon are eliminated in consolidation. Management has elected the measurement alternative in ASC 810 to report the fair value of the assets and liabilities of the consolidated CMBS Entities in order to provide users of the financial statements with better information regarding the effects of credit risk and other market factors on the CMBS B-Pieces owned by the Company. Management has elected to show interest income and interest expense related to the CMBS Entities in aggregate with the change in fair value as “Change in net assets related to consolidated CMBS variable interest entities.” The residual difference between the fair value of the CMBS Entities’ assets and liabilities represents the Company’s investments in the CMBS B-Pieces at fair value.
Investment in subsidiaries
The Company conducts its operations through the OP, which directly or through a subsidiary, acts as the general partner of the Subsidiary OPs. The Subsidiary OPs own investments through limited liability companies that are SPEs which own investments directly. The OP is the sole member of the Mezz LLC, which owns investments directly. The OP has three classes of OP Units: Class A, Class B and Class C. Class A OP Units and Class B OP Units each have 50.0% of the voting power of the OP Units and Class C OP Units have no voting power. Each Class A OP Unit, Class B OP Unit and Class C OP Unit otherwise represents substantially the same economic interest in the OP. The Company is the majority limited partner of the OP in terms of economic interests, holding approximately 83.41% of the OP Units in the OP as of March 31, 2023 which represent 100% of the Class A OP Units, and the OP GP must generally receive approval of the Board to take any actions. As such, the Company consolidates the OP. The Company consolidates the SPEs where it is the primary beneficiary, as well as any VIEs where it is the primary beneficiary. All of the investments the SPEs own are consolidated in the consolidated financial statements. Generally, the assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company notwithstanding equity pledges various lenders may have in certain entities or guarantees provided by certain entities. As of March 31, 2023, there are no outstanding redeemable noncontrolling interests issued by the Subsidiary OPs.
Redeemable Noncontrolling Interests
Noncontrolling interests represent the ownership interests in consolidated subsidiaries held by entities other than the Company. Those noncontrolling interests that the holder is allowed to redeem before liquidation or termination of the entity that issued those interests are considered redeemable noncontrolling interests.
The OP and the Subsidiary OPs have issued redeemable noncontrolling interests classified on the Consolidated Balance Sheets as temporary equity in accordance with ASC 480. This is presented as “Redeemable noncontrolling interests in the OP” on the Consolidated Balance Sheets and their share of “Net Income (Loss)” as “Net Income (Loss) attributable to redeemable noncontrolling interests” in the accompanying Consolidated Statements of Operations.
The redeemable noncontrolling interests were initially measured at the fair value of the contributed assets in accordance with ASC 805-50. The redeemable noncontrolling interests will be adjusted to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests. Capital contributions, distributions and profits and losses are allocated to the redeemable noncontrolling interests in accordance with the terms of the partnership agreements of the Subsidiary OPs and the OP.
7

Acquisition Accounting
The Company accounts for the assets acquired in the Formation Transaction as asset acquisitions pursuant to ASC 805-50, rather than as business combinations. Substantially all of the fair value of the assets acquired are concentrated in a group of similar identifiable assets, i.e. the SFR Loans represent one acquisition of similar identifiable assets, and the acquisition of the CMBS B-Pieces represents an additional acquisition of similar identifiable assets. Additionally, there were no corresponding in-place workforce, servicing platforms or any other item that could be considered an input or process associated with these assets. As such, the SFR Loans and the CMBS B-Pieces do not constitute businesses as defined by ASC 805-10-55.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. Substantially all amounts on deposit with major financial institutions exceed insured limits.
From time to time, the Company may have to post cash collateral to satisfy margin calls due to changes in fair value of the underlying collateral subject to master repurchase agreements. This cash is listed as restricted cash on the Consolidated Balance Sheets. Restricted cash is also stated at cost, which approximates fair value.
Mortgage and Other Loans Held-For-Investment, net
Loans that are held-for-investment are carried at their aggregate outstanding face amount, net of applicable (i) unamortized origination or acquisition premium and discounts, (ii) unamortized deferred fees and other direct loan origination costs, (iii) valuation allowance for credit losses and (iv) write-downs of impaired loans. The effective interest method is used to amortize origination or acquisition premiums and discounts and deferred fees or other direct loan origination costs. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.
Purchase Price Allocation
The Company considers the acquisition of real estate investments as asset acquisitions. Upon acquisition of a property, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment and intangible lease assets, in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) (see Note 11), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property, did not have to incur to obtain the residents. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.
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Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations and replacements are capitalized at cost. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:
Land Not depreciated
Buildings
30 years
Improvements
15 years
Furniture, fixtures, and equipment
3 years
Intangible lease assets
6 months
Post-acquisition, construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above.
Secured Financing and Master Repurchase Agreements
The Company's borrowings under secured financing agreements and master repurchase agreements are treated as collateralized financing arrangements carried at their contractual amounts, net of unamortized debt issuance costs, if any.
Income Recognition
Interest Income - Loans and mortgage loans held-for-investment, CMBS structured pass-through certificates, mortgage loans held in variable interest entities, bridge loans, MSCR Notes and mortgage backed securities where the Company expects to collect the contractual interest and principal payments are considered to be performing loans. The Company recognizes income on performing loans in accordance with the terms of the loan on an accrual basis. Interest income also includes amortization of loan premiums or discounts and loan origination costs and prepayment penalties.
Realized Gain (Loss) on Investments - The Company recognizes the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized gains or losses, respectively. The Company reverses cumulative, unrealized gains or losses previously reported in its Consolidated Statements of Operations with respect to the investment sold at the time of the sale.
Rental Revenue
The Company owns one multifamily property whereby its primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. See Note 9 for additional information regarding this multifamily property. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the related terms of the leases. The Company records an allowance to reflect revenue that may not be collectable. This is recorded through a provision for bad debts, which is included in revenues from consolidated real estate owned in the accompanying Consolidated Statements of Operations. Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, pets and administrative, application and other fees and are recognized when earned. The Company implemented the provisions of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) as of December 31, 2021. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases (“ASC 842”), effective January 1, 2022. The Company presents the disclosure of leases in the consolidated statements of operations and began presenting all rentals and reimbursements from
9

tenants within revenues and expenses from consolidated real estate owned on the Consolidated Statements of Operations (Note 9).
Expense Recognition
Interest expense, in accordance with the Company’s financing agreements, is recorded on the accrual basis. General and administrative expenses are expensed as incurred.
Allowance for Credit Losses
In prior periods, the Company, with the assistance of an independent valuations firm, performed a quarterly evaluation of loans classified as held for investment for impairment on a loan-by-loan basis in accordance with ASC 310-10-35, Receivables, Subsequent Measurement (“ASC 310-10-35”). If the Company determined that it was probable that it would be unable to collect all amounts owed according to the contractual terms of a loan, impairment of that loan was indicated. If a loan was considered to be impaired, the Company would establish an allowance for loan losses, through a valuation provision in earnings that reduced carrying value of the loan to the present value of expected future cash flows discounted at the loan’s contractual effective rate or the fair value of the collateral, if repayment was expected solely from the collateral. For non-impaired loans with no specific allowance the Company determined an allowance for loan losses in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”), which represented management’s best estimate of incurred losses inherent in the portfolio at the balance sheet date, excluding impaired loans and loans carried at fair value. Management considered quantitative factors likely to cause estimated credit losses, including default rate and loss severity rates. The Company also evaluated qualitative factors such as macroeconomic conditions, evaluations of underlying collateral, trends in delinquencies and non-performing assets. Increases to (or reversals of) the allowance for loan loss for the fiscal year ended December 31, 2022 are included in “Loan loss (provision)” on the accompanying Consolidated Statements of Operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses on Financial Instruments (“ASU 2016-13”), which establishes credit losses on certain types of financial instruments. The new approach changes the impairment model for most financial assets and requires the use of a current expected credit loss ("CECL") model for financial instruments measured at amortized cost and certain other instruments. This model applies to trade and other receivables, loans, debt securities, net investments in leases and off-balance sheet credit exposures (such as loan commitments, standby letters of credit and financial guarantees not accounted for as insurance) and requires entities to estimate the lifetime expected credit loss on such instruments and record an allowance that represents the portion of the amortized cost basis that the entity does not expect to collect.
We adopted the guidance as of January 1, 2023. The implementation process included the utilization of loan loss forecasting models, updates to our loan credit loss policy documentation, changes to internal reporting processes and related internal controls, and overall operational readiness for our adoption of the new standard. We have implemented loan loss forecasting models for estimating expected life-time credit losses, at the individual loan level, for our loan portfolio. The CECL forecasting methods used by the Company include (i) a probability of default and loss given default method using underlying third-party CMBS/Commercial Real Estate loan database with historical loan losses from 1998 to 2022, and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. We might use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data. Significant inputs to our forecasting methods include (i) key loan-specific inputs such as loan-to-value, vintage year, loan-term, underlying property type, occupancy, geographic location, performance against the underwritten business plan, and our internal loan risk rating, and (ii) a macro-economic environment forecast. The allowance for loan and lease losses reserve as of December 31, 2022, was $0.7 million and the CECL reserve as of January 1, 2023, is $2.3 million. As such, the cumulative effect of adoption of ASU 2016-13 is a $1.6 million reduction in retained earnings. The reversal of (provision for) credit losses of $0.034 million is included in other income on the accompanying Consolidated Statements of Operations, resulting in a March 31, 2023 ending allowance for credit loss of $2.3 million.
Significant judgment is required in determining impairment and in estimating the resulting loss allowance, and actual losses, if any, could materially differ from those estimates.
The Company performs a quarterly review of the portfolio. In conjunction with this review, the Company assesses the risk factors of each loan, including, without limitation, loan-to-value ratio, debt yield, property type, geographic and local market dynamics, physical condition, collateral, cash-flow volatility, leasing and tenant profile, loan structure, exit
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plan and project sponsorship. Based on a 5-point scale, our loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows:
1 – Outperform – Materially exceeds performance metrics (for example, technical milestones, occupancy, rents and net operating income) included in original or current credit underwriting and business plan;
2 – Exceeds Expectations – Collateral performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan;
3 – Satisfactory – Collateral performance meets, or is on track to meet, underwriting; business plan is met or can reasonably be achieved;
4 – Underperformance – Collateral performance falls short of underwriting, material differences exist from business plan, or both; technical milestones have been missed; defaults may exist or may soon occur absent material improvement; and
5 – Risk of Impairment/Default – Collateral performance is significantly worse than underwriting; major variance from business plan; loan covenants or technical milestones have been breached; timely exit from loan via sale or refinancing is questionable.
The Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, as well as the financial and operating capability of the borrower. Specifically, the collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the collateral’s liquidation value. The Company also evaluates the financial condition of any loan guarantors, as well as any changes in the borrower’s competency in managing and operating the collateral. In addition, the Company considers the overall economic environment, real estate or industry sector and geographic sub-market in which the borrower operates. Such impairment analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.
The Company considers loans to be past-due when a monthly payment is due and unpaid for 60 days or more. Loans will be placed on nonaccrual status and considered non-performing when full payment of principal and interest is in doubt, which generally occurs when they become 120 days or more past-due unless the loan is both well secured and in the process of collection. Accrual of interest on individual loans is discontinued when management believes that, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Our policy is to cease accruing interest when a loan’s delinquency exceeds 120 days. All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off are reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status.
For individual loans, a troubled debt restructuring is a formal restructuring of a loan where, for economic or legal reasons related to the borrower’s financial difficulties, a concession that would not otherwise be considered is granted to the borrower. The concession may be granted in various forms, including providing a below-market interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date or a combination of these. An individual loan that has had a troubled debt restructuring is considered to be impaired and is subject to the relevant accounting for impaired loans. As of and for the three months ended March 31, 2023, the Company had no loan modifications, and, thus no troubled debt restructurings.
A loan is written off when it is no longer realizable and/or it is legally discharged.
The Company will evaluate acquired loans and debt securities for which it is probable at acquisition that all contractually required payments will not be collected in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. During the three months ended March 31, 2023, there were no loans acquired with deteriorated credit quality.
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Fair Value
GAAP requires the categorization of the fair value of financial instruments into three broad levels that form a hierarchy based on the transparency of inputs to the valuation.
Level 1 – Inputs are adjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 – Inputs are other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar instruments in active markets, and inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 – Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, related market activity for the asset or liability.
The Company follows this hierarchy for our financial instruments. Classifications will be based on the lowest level of input that is significant to the fair value measurement. The Company reviews the valuation of Level 3 financial instruments as part of our quarterly process.
Valuation of Consolidated VIEs
The Company reports the financial assets and liabilities of each consolidated CMBS trust at fair value using the measurement alternative included in ASU No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). Pursuant to ASU 2014-13, both the financial assets and financial liabilities of the consolidated CMBS trusts are measured using the fair value of the financial liabilities (which are considered more observable than the fair value of the financial assets) and the equity of the CMBS trusts beneficially owned by the Company. As a result, the CMBS issued by the consolidated trusts, but not beneficially owned by us, are presented as financial liabilities in our consolidated financial statements, measured at their estimated fair value; the Company measured the financial assets as the total estimated fair value of the CMBS issued by the consolidated trust, regardless of whether such CMBS represent interests beneficially owned by the Company. Under the measurement alternative prescribed by ASU 2014-13, “Net income (loss)” reflects the economic interests in the consolidated CMBS beneficially owned by the Company, presented as “Change in net assets related to consolidated CMBS variable interest entities” in the Consolidated Statements of Operations, which includes applicable (1) changes in the fair value of CMBS beneficially owned by the Company, (2) interest income, interest expense and servicing fees earned from the CMBS trusts and (3) other residual returns or losses of the CMBS trusts, if any.
Valuation Methodologies
CMBS Trusts - The financial liabilities and equity of the consolidated CMBS trusts were valued using broker quotes. Broker quotes represent the price that an investment could be sold for in a market transaction and represent fair market value. Loans and bonds with quotes that are based on actual trades with a sufficient level of activity on or near the valuation date are classified as Level 2 assets. Loans and bonds that are priced using quotes derived from implied values, bid/ask prices for trades that were never consummated, or a limited amount of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable.
CMBS Structured Pass-Through Certificates, MSCR Notes and Mortgage Backed Securities - Interest only tranches of CMBS structured pass-through certificates (“CMBS I/O Strips”), MSCR Notes and mortgage backed securities are categorized as Level 2 assets in the fair value hierarchy. CMBS I/O Strips, MSCR Notes and mortgage backed securities are valued using broker quotes. Broker quotes represent the price that an investment could be sold for in a market transaction and represent fair market value. Loans and bonds with quotes that are based on actual trades with a sufficient level of activity on or near the valuation date are classified as Level 2 assets.
SFR Loans, Preferred Equity Investments and Mezzanine Loans - SFR Loans, preferred equity and mezzanine loan investments are categorized as Level 3 assets in the fair value hierarchy. SFR Loans, preferred equity and mezzanine loan investments are valued using a discounted cash flow model using discount rates derived from observable market data applied to the internal rate of return implied by the expected contractual cash flows. The valuation is done for disclosure purposes only as these investments are not carried at fair value on the Consolidated Balance Sheets.
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Common Stock Investments - The common stock investment in NexPoint Storage Partners, Inc. (“NSP”) is categorized as a Level 3 asset in the fair value hierarchy. Despite our ability to exercise significant influence, the Company chose to value the NSP investment using the fair value option in accordance with ASC 825-10. The common stock investment in a private ground lease REIT (the “Private REIT”) is presented at fair value using the fair value option in accordance with ASC 825-10. The investment is categorized as a Level 3 asset in the fair value hierarchy.
Equity Method Investments - Under the equity method of accounting, the Company initially recognizes its investment at cost and subsequently adjusts the carrying amount of the investments for its share of earnings and losses reported by the investee, distributions received, and other-than-temporary impairments.
Repurchase Agreements - The repurchase agreements are categorized as Level 3 liabilities in the fair value hierarchy as such liabilities represent borrowings on collateral with terms specific to each borrower. Given the short to moderate term of the floating-rate facilities, the Company expects the fair value of repurchase agreements to approximate their outstanding principal balances.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis - Certain assets not measured at fair value on an ongoing basis but that are subject to fair-value adjustments only in certain circumstances, such as when there is evidence of impairment, will be measured at fair value on a nonrecurring basis. For first mortgage loans, mezzanine loans and preferred equity investments, the Company applies the amortized cost method of accounting.
Overall, our determination of fair value is based upon the best information available for a given circumstance and may incorporate assumptions that are our best estimates after consideration of a variety of internal and external factors. When an independent valuation firm expresses an opinion on the fair value of a financial instrument in the form of a range, the Company selects a value within the range provided by the independent valuation firm, generally the midpoint, to assess the reasonableness of our estimated fair value for that financial instrument.
Income Taxes
The Company has elected to be taxed as a REIT. As a result of the Company’s REIT qualification, the Company does not expect to pay U.S. federal corporate level taxes. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. If the Company fails to meet these requirements, it could be subject to federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. Taxable income from certain non-REIT activities is managed through a taxable REIT subsidiary (“TRS”), which is subject to U.S. federal and applicable state and local corporate income taxes. As of March 31, 2023, the Company believes it is in compliance with all applicable REIT requirements and had no significant taxes associated with its TRS.
The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. There are no examinations in progress, and none are expected at this time.
The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. The Company had no material unrecognized tax benefit or expense, accrued interest or penalties for open tax years 2020 through 2023.
Recent Accounting Pronouncements
Section 107 of the Jumpstart Our Business Startups Act (“JOBS Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards
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would otherwise apply to private companies. The Company has elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. The Company may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.
In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which updated the effective dates of implementation to align the implementation date for annual and interim financial statements as well as clarify the scope of the guidance in ASU 2016-13. This standard’s effective date is the same as ASU 2016-13.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326. Financial Instruments – Credit Losses, which is intended to clarify the guidance introduced by ASU 2016-13. This standard’s effective date is the same as ASU 2016-13.
In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief for Topic 326. Financial Instruments – Credit Losses, which provides for an option to irrevocably elect the fair-value option for certain financial assets previously measured at amortized cost basis. Other than the Company’s investment in CMBS, the Company does not currently expect to elect the fair-value option for assets expected to be held at amortized cost. This standard’s effective date is the same as ASU 2016-13.
In March 2020, the FASB issued AU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the U.S. Dollar London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance is effective upon issuance and generally may be elected over time through December 31, 2024. The Company has not adopted any of the optional expedients or exceptions through March 31, 2023 but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 ("ASU 2022-06") which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 had no impact on the Company’s consolidated financial statements for the three months ended March 31, 2023.
3. Loans Held for Investment, Net
The Company’s investments in mortgage loans, mezzanine loans, preferred equity and convertible notes are accounted for as loans held for investment. The mortgage loans are presented as “Mortgage loans, held-for-investment, net” and the mezzanine loans, preferred equity and convertible notes are presented as “Loans, held-for-investment, net” on the Consolidated Balance Sheets. The following tables summarize our loans held-for-investment as of March 31, 2023 and December 31, 2022, respectively (dollars in thousands):
Loan Type Outstanding Face Amount Carrying Value (1) Loan Count Weighted Average
  Fixed Rate (2)   Coupon (3) Life (years) (4)
March 31, 2023
Mortgage loans, held-for-investment $ 687,602  $ 723,343  15 100.00  % 4.81  % 5.11
Mezzanine loans, held-for-investment 133,207  135,336  22 78.31  % 9.48  % 6.05
Preferred equity, held-for-investment 150,209  149,212  13 60.26  % 11.23  % 3.49
$ 971,018  $ 1,007,891  50 90.88  % 6.44  % 4.99
(1)Carrying value includes the outstanding face amount plus unamortized purchase premiums/discounts and any allowance for loan losses.
(2)The weighted-average of loans paying a fixed rate is weighted on current principal balance.
(3)The weighted-average coupon is weighted on outstanding face amount.
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(4)The weighted-average life is weighted on outstanding face amount and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.
Loan Type Outstanding Face Amount Carrying Value (1) Loan Count   Weighted Average
  Fixed Rate (2) Coupon (3) Life (years) (4)
December 31, 2022
Mortgage loans, held-for-investment $ 688,046  $ 726,531  15 100.00  % 4.81  % 5.36
Mezzanine loans, held-for-investment 163,021  165,182  23 63.99  % 10.42  % 5.39
Preferred equity, held-for-investment 91,382  90,965  10 67.69  % 11.51  % 2.76
$ 942,449  $ 982,678  48 90.64  % 6.43  % 5.11
(1)Carrying value includes the outstanding face amount plus unamortized purchase premiums/discounts and any allowance for loan losses.
(2)The weighted-average of loans paying a fixed rate is weighted on current principal balance.
(3)The weighted-average coupon is weighted on outstanding face amount.
(4)The weighted-average life is weighted on outstanding face amount and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.
For the three months ended March 31, 2023 and 2022, the loan and preferred equity portfolio activity was as follows (in thousands):
For the Three Months Ended March 31,
2023 2022
Balance at December 31, $ 982,678  $ 1,088,881 
Recognition of retained preferred equity investment upon deconsolidation of real estate (Note 15) 36,022  — 
Cumulative effect of adoption of ASU 2016-13 (See Note 2) (1,624) — 
Originations 28,816  99,708 
Proceeds from principal repayments (36,743) (124,633)
PIK distribution reinvested in Preferred Units 209  168 
Amortization of loan premium, net (1) (1,501) (7,818)
Reversal of (provision for) credit losses, net 34  (151)
Balance at March 31, $ 1,007,891  $ 1,056,155 
(1)Includes net amortization of loan purchase premiums.
As of March 31, 2023, and December 31, 2022, there were $55.0 million and $40.9 million of unamortized premiums on loans, held-for-investment, net, respectively, on the Consolidated Balance Sheets.
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As discussed in Note 2, the Company evaluates loans classified as held-for-investment on a loan-by-loan basis every quarter. In conjunction with the review of the portfolio, the Company assesses the risk factors of each loan and assign a risk rating based on a variety of factors. Loans are rated “1” through “5,” from least risk to greatest risk, respectively. See Note 2 for a more detailed discussion of the risk factors and ratings. The following tables allocate the principal balance and net book value of the loan portfolio based on our internal risk ratings (dollars in thousands):
Risk Rating March 31, 2023
Number of
Loans
Carrying
Value
% of Loan
Portfolio
1 $ —  — 
2 —  — 
3 50 1,007,891  100.00  %
4 —  — 
5 —  — 
50 $ 1,007,891  100.00  %
Risk Rating December 31, 2022
Number of
Loans
Carrying
Value
% of Loan
Portfolio
1 $ —  — 
2 —  — 
3 48 982,678  100.00  %
4 —  — 
5 —  — 
48 $ 982,678  100.00  %
As of March 31, 2023, all 50 loans held-for-investment in our portfolio were rated “3,” or “Satisfactory” based on the factors assessed by the Company and discussed in Note 2.
The following tables present the geographies and property types of collateral underlying the Company’s loans held-for-investment as a percentage of the loans’ face amounts.
Geography March 31, 2023 December 31, 2022
Georgia 33.04  % 34.04  %
Florida 18.78  % 19.34  %
Texas 12.43  % 11.21  %
Nevada 2.80  % 0.30  %
Maryland 5.43  % 5.59  %
Minnesota 6.76  % 6.97  %
California 2.16  % 4.66  %
Alabama 3.70  % 3.81  %
North Carolina 2.69  % 2.65  %
Arkansas 1.37  % 1.42  %
Other (20 and 22 states each at <1%) 10.84  % 10.01  %
100.00  % 100.00  %
*Included in “Other.”
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Collateral Property Type March 31, 2023 December 31, 2022
Single Family Rental 71.54  % 72.26  %
Multifamily 23.67  % 23.11  %
Life Science 3.06  % 2.85  %
Self-Storage 1.73  % 1.79  %
100.00  % 100.00  %
4. CMBS Trusts
As of March 31, 2023, the Company consolidated all of the CMBS Entities that it determined are VIEs and for which the Company is the primary beneficiary. The Company elected the fair-value measurement alternative in accordance with ASU 2014-13 for each of the trusts and carries the fair values of the trust’s assets and liabilities at fair value in its Consolidated Balance Sheets, recognizes changes in the trust’s net assets, including changes in fair-value adjustments and net interest earned, in its Consolidated Statements of Operations and records cash interest received from the trusts and cash interest paid to bondholders of the CMBS not beneficially owned by the Company as financing cash flows.
The following table presents the Company’s recognized Trust’s Assets and Liabilities (in thousands):
Trust's Assets March 31, 2023 December 31, 2022
Mortgage loans held in variable interest entities, at fair value $ 6,747,377  $ 6,720,246 
Accrued interest receivable 4,370  4,029 
Trust's Liabilities
Bonds payable held in variable interest entities, at fair value (6,278,734) (6,249,804)
Accrued interest payable (3,514) (3,207)
The following table presents “Change in net assets related to consolidated CMBS variable interest entities” (in thousands):
For the Three Months Ended March 31,
2023 2022
Net interest earned $ 10,643  $ 7,953 
Unrealized gain (loss) 360  (4,537)
Change in net assets related to consolidated CMBS variable interest entities $ 11,003  $ 3,416 
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The following tables present the geographies and property types of collateral underlying the CMBS trusts consolidated by the Company as a percentage of the collateral unpaid principal balance:
Geography March 31, 2023 December 31, 2022
Texas 18.16  % 17.95  %
Florida 13.25  % 13.82  %
Arizona 3.97  % 6.98  %
California 8.24  % 9.28  %
Georgia 4.66  % 4.68  %
Washington 7.66  % 6.88  %
New Jersey 3.76  % 3.97  %
Nevada 2.33  % 1.99  %
Pennsylvania 1.19  % 1.01  %
Colorado 7.25  % 6.21  %
Connecticut 2.96  % 3.64  %
North Carolina 3.90  % 3.53  %
New York 3.23  % 2.76  %
Ohio 2.34  % 2.00  %
Virginia 1.89  % 1.62  %
Indiana 1.98  % 1.69  %
Illinois 1.59  % 1.37  %
Michigan 1.30  % 1.11  %
South Carolina * *
Maryland 1.10  % *
Missouri 1.46  % 1.25  %
Other (21 and 22 states each at <1%) 7.78  % 8.26  %
100.00  % 100.00  %
*Included in “Other.”
Collateral Property Type March 31, 2023 December 31, 2022
Multifamily 97.50  % 98.45  %
Manufactured Housing 2.50  % 1.55  %
100.00  % 100.00  %
5. Common Stock and Equity Method Investments
The Company owns approximately 25.7% of the total outstanding shares of common stock of NSP and thus can exercise significant influence over NSP. NSP is a VIE and the Company has determined that it is not the primary beneficiary of NSP. The investment qualifies to be accounted for using the equity method. However, the Company elected the fair-value option in accordance with ASC 825-10-10 for NSP.
The investment in NSP is a Level 3 asset in the fair value hierarchy and was initially measured using the entry price of the asset. The Company's valuation policy for common stock is to use readily available market prices on the relevant valuation date to the extent they are available. On a quarterly basis, the Company determines the value using widely accepted valuation techniques. A bottoms up approach was used by valuing the wholly-owned self-storage assets in aggregate and development loans individually. In this bottoms-up approach, the discounted cash flow methodology is applied to the self-storage assets owned by NSP. Additionally, the income approach is used to determine the fair value of the development loans owned by NSP whereby contractual cash flows are discounted at observable market discount rates.
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In addition, as a secondary check for reasonableness, a top down approach was applied whereby observable market terminal capitalization rates and discount rates are applied to the consolidated NSP cash flows. The valuation relies primarily on the bottoms-up approach, but uses the top down approach to corroborate the bottoms-up conclusion with a reasonable precision.
The Company owns approximately 6.36% of the total outstanding shares of common stock of the Private REIT as of March 31, 2023. The Company elected the fair-value option in accordance with ASC 825-10-10 for the Private REIT.
The investment in the Private REIT is a Level 3 asset in the fair value hierarchy and was initially measured using the convertible notes conversion share price of $17.50. On April 14, 2022, the two convertible notes converted into 1,394,213 shares or $25.0 million of common stock in the Private REIT, the parent company of the borrower under the convertible notes. As of March 31, 2023, the Company valued this investment based on the Private REIT's market approach price of $19.26 per share.
The Company owns approximately 98.0% of the total outstanding common equity of each of RFGH and RTB. The investments in RFGH and RTB are equity method investments. These investments are held in entities that are considered VIEs as the power to direct activities is not proportional to ownership interests. The Company is not the primary beneficiary, but is deemed to have significant influence, and as such accounts for them using the equity method.
The following table presents the common stock investments as of March 31, 2023 and December 31, 2022, respectively (in thousands, except share amounts):
Investment Investment
Date
Property Type Shares Fair Value
March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022
Common Stock
NexPoint Storage Partners 11/6/2020 Self-storage 41,963 41,963 $ 50,145  $ 50,380 
Private REIT 4/14/2022 Ground lease 1,394,213 1,394,213 26,853  27,884 
The following table presents “Change in unrealized gain on common stock investments” (in thousands):
For the Three Months Ended March 31,
2023 2022
Change in unrealized gain on NexPoint Storage Partners $ (235) $ 329 
Change in unrealized gain on Private REIT (1,032) — 
Change in unrealized gain on common stock investments $ (1,267) $ 329 

The following table presents the equity method investments as of March 31, 2023 and December 31, 2022, respectively (in thousands, except share amounts):
Investment Investment
Date
Property Type Shares Carrying Value
March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022
Common Equity
RFGH 2/10/2023 Multifamily 50,000 500  — 
RTB 2/24/2023 Multifamily 50,000 500  — 
6. Variable Interest Entities
Consolidated VIEs
At the end of each reporting period, the Company reassesses whether it remains the primary beneficiary for VIEs consolidated under the VIE model.
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As of March 31, 2023, the Company has accounted for the following investments as unconsolidated VIEs:
Entities Instrument Asset Type Percentage Ownership as of March 31, 2023 Relationship as of March 31, 2023
Unconsolidated Entities:
NexPoint Storage Partners, Inc. Common Stock Self-storage 25.7  % VIE
Resmark Forney Gateway Holdings, LLC Common equity Multifamily 98.0  % VIE
Resmark The Brook, LLC Common equity Multifamily 98.0  % VIE

The Company's maximum exposure to loss of value for the NSP investment, inclusive of a related guaranty, is the carrying value of the Company's $50.1 million NSP common stock investment and the guaranteed obligations with respect to NSP under the Sponsor Guaranty Agreement as described in Note 15 of $83.8 million. The Company’s maximum exposure to loss of value for the RFGH and RTB common equity investments is the $0.5 million carrying value for each investment and may include an additional $3.8 million in unfunded commitments for each investment to the extent those commitments are funded.
7. CMBS Structured Pass-Through Certificates, MSCR Notes and Mortgage Backed Securities
As of March 31, 2023, the Company held twelve CMBS I/O Strips, three MSCR Notes and seven mortgage backed securities at fair value. The CMBS I/O Strips consist of interest only tranches of Freddie Mac structured pass-through certificates with underlying portfolios of fixed-rate mortgage loans secured primarily by stabilized multifamily properties. The MSCR Notes are unguaranteed securities designed to transfer to investors a portion of the credit risk associated with eligible multifamily mortgages linked to a reference pool. Mortgage backed securities receive principal and interest on floating-rate loans secured by SFR, multifamily and self-storage properties. See Note 2 and Note 11 for additional disclosures regarding valuation methodologies for the CMBS I/O Strips, MSCR Notes and mortgage backed securities.
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The following table presents the CMBS I/O Strips, MSCR Notes and mortgage backed securities as of March 31, 2023 (in thousands):
Investment Investment
Date
Carrying Value Property Type Interest Rate Current Yield (1) Maturity Date
CMBS I/O Strips
CMBS I/O Strip 5/18/2020 $ 1,781  Multifamily 2.02  % 14.58  % 9/25/2046
CMBS I/O Strip 8/6/2020 16,976  Multifamily 2.98  % 16.44  % 6/25/2030
CMBS I/O Strip 4/28/2021 (2) 5,582  Multifamily 1.59  % 16.02  % 1/25/2030
CMBS I/O Strip 5/27/2021 3,636  Multifamily 3.39  % 16.20  % 5/25/2030
CMBS I/O Strip 6/7/2021 442  Multifamily 2.31  % 19.65  % 11/25/2028
CMBS I/O Strip 6/11/2021 (3) 3,409  Multifamily 1.19  % 13.75  % 5/25/2029
CMBS I/O Strip 6/21/2021 1,043  Multifamily 1.18  % 17.17  % 5/25/2030
CMBS I/O Strip 8/10/2021 2,405  Multifamily 1.89  % 16.35  % 4/25/2030
CMBS I/O Strip 8/11/2021 1,322  Multifamily 3.10  % 14.08  % 7/25/2031
CMBS I/O Strip 8/24/2021 247  Multifamily 2.61  % 14.83  % 1/25/2031
CMBS I/O Strip 9/1/2021 3,673  Multifamily 1.92  % 15.48  % 6/25/2030
CMBS I/O Strip 9/11/2021 3,792  Multifamily 2.95  % 14.04  % 9/25/2031
Total $ 44,308  2.47  % 15.77  %
MSCR Notes
MSCR Notes 5/25/2022 $ 3,899  Multifamily 13.98  % 13.98  % 5/25/2052
MSCR Notes 5/25/2022 4,825  Multifamily 10.98  % 10.98  % 5/25/2052
MSCR Notes 9/23/2022 1,291  Multifamily 11.33  % 12.45  % 11/25/2051
Total $ 10,015  12.19  % 12.34  %
Mortgage Backed Securities
Mortgage Backed Securities 6/1/2022 $ 9,793  Single-Family 7.79  % 8.11  % 4/17/2026
Mortgage Backed Securities 6/1/2022 8,286  Single-Family 4.87  % 5.07  % 11/19/2025
Mortgage Backed Securities 7/28/2022 535  Single-Family 6.23  % 6.33  % 10/17/2027
Mortgage Backed Securities 7/28/2022 869  Single-Family 3.60  % 4.20  % 6/20/2028
Mortgage Backed Securities 9/12/2022 3,965  Multifamily 10.56  % 10.54  % 1/25/2031
Mortgage Backed Securities 9/29/2022 7,826  Self Storage 10.34  % 10.36  % 9/15/2027
Mortgage Backed Securities 3/10/2023 5,733  Multifamily 13.07  % 13.10  % 2/25/2025
Total $ 37,007  8.67  % 8.82  %
(1)Current yield is the annualized income earned divided by the cost basis of the investment.
(2)The Company, through the Subsidiary OPs, purchased approximately $50.0 million and $15.0 million aggregate notional amount of the X1 interest-only tranche of the FHMS K-107 CMBS I/O Strip on April 28, 2021 and May 4, 2021, respectively.
(3)The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million and $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021, September 29, 2021, February 3, 2022 and March 18, 2022, respectively.
21

The following table presents the CMBS I/O Strips as of December 31, 2022 (in thousands):
Investment Investment
Date
Carrying Value Property Type Interest Rate Current Yield (1) Maturity Date
CMBS I/O Strips
CMBS I/O Strip 5/18/2020 $ 1,807  Multifamily 2.02  % 14.56  % 9/25/2046
CMBS I/O Strip 8/6/2020 18,364  Multifamily 2.98  % 15.98  % 6/25/2030
CMBS I/O Strip 4/28/2021 (2) 5,676  Multifamily 1.59  % 15.52  % 1/25/2030
CMBS I/O Strip 5/27/2021 3,693  Multifamily 3.39  % 15.73  % 5/25/2030
CMBS I/O Strip 6/7/2021 455  Multifamily 2.31  % 18.91  % 11/25/2028
CMBS I/O Strip 6/11/2021 (3) 4,188  Multifamily 1.19  % 13.34  % 5/25/2029
CMBS I/O Strip 6/21/2021 1,117  Multifamily 1.18  % 16.77  % 5/25/2030
CMBS I/O Strip 8/10/2021 2,445  Multifamily 1.89  % 15.87  % 4/25/2030
CMBS I/O Strip 8/11/2021 1,333  Multifamily 3.10  % 13.74  % 7/25/2031
CMBS I/O Strip 8/24/2021 250  Multifamily 2.61  % 14.44  % 1/25/2031
CMBS I/O Strip 9/1/2021 3,726  Multifamily 1.92  % 15.03  % 6/25/2030
CMBS I/O Strip 9/11/2021 3,822  Multifamily 2.95  % 13.70  % 9/25/2031
Total $ 46,876  2.46  % 15.32  %
MSCR Notes
MSCR Notes 5/25/2022 $ 4,019  Multifamily 13.02  % 13.02  % 5/25/2052
MSCR Notes 5/25/2022 4,988  Multifamily 10.02  % 10.02  % 5/25/2052
MSCR Notes 9/23/2022 1,306  Multifamily 10.37  % 11.40  % 11/25/2051
Total $ 10,313  11.23  % 11.36  %
Mortgage Backed Securities
Mortgage Backed Securities 6/1/2022 $ 9,638  Single-Family 7.08  % 7.39  % 4/17/2026
Mortgage Backed Securities 6/1/2022 8,966  Single-Family 4.87  % 5.08  % 11/19/2025
Mortgage Backed Securities 7/28/2022 526  Single-Family 6.23  % 6.33  % 10/17/2027
Mortgage Backed Securities 7/28/2022 819  Single-Family 3.60  % 4.23  % 6/20/2028
Mortgage Backed Securities 9/12/2022 4,473  Multifamily 9.29  % 9.27  % 1/25/2031
Mortgage Backed Securities 9/29/2022 7,906  Self Storage 9.57  % 9.59  % 9/15/2027
Total $ 32,328  7.28  % 7.45  %
(1)Current yield is the annualized income earned divided by the cost basis of the investment.
(2)The Company, through the Subsidiary OPs, purchased approximately $50.0 million and $15.0 million aggregate notional amount of the X1 interest-only tranche of the FHMS K-107 CMBS I/O Strip on April 28, 2021 and May 4, 2021, respectively.
(3)The Company, through the Subsidiary OPs, purchased approximately $80.0 million, $35.0 million, $40.0 million and $50.0 million aggregate notional amount of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June 11, 2021, September 29, 2021, February 3, 2022 and March 18, 2022, respectively.
22

The following table presents activity related to the Company’s CMBS I/O Strips, MSCR Notes and mortgage backed securities (in thousands):
For the Three Months Ended March 31,
2023 2022
Net interest earned $ 717  $ 1,165 
Change in unrealized gain (loss) on CMBS structured pass-through certificates (752) (4,340)
Change in unrealized gain (loss) on MSCR notes (298) — 
Change in unrealized (loss) on mortgage backed securities (606) — 
Total $ (939) $ (3,175)
8. Bridge Loan
On March 31, 2022, the Company, through one of the Subsidiary OPs, originated a bridge loan for $13.5 million. The bridge loan was secured by a development property in Las Vegas, Nevada, and was used by the borrower to finance the acquisition of the property prior to obtaining construction financing. The loan bore interest at a rate of 1.50% plus the Wall Street Journal Prime Rate (“WSJ Prime”) and was set to mature on October 1, 2022. On August 9, 2022, the bridge loan was paid off.
9. Real Estate Investment, net
On December 31, 2021, the Company acquired a 204-unit multifamily property in Charlotte, North Carolina (Hudson Montford). The property was 93.6% and 96.1% occupied, with effective rent per occupied unit of $1,653 per month and $1,663, per month as of March 31, 2023 (unaudited) and December 31, 2022, respectively. On February 1, 2022, the Company acquired a 368-unit multifamily property in Las Vegas, Nevada (Elysian at Hughes Center). As of December 31, 2022, the property was 94.0% occupied with effective rent per occupied unit of $1,927 per month as of December 31, 2022. The Company no longer maintains a common equity interest in this property and through a restructuring effective January 1, 2023, the investment is deconsolidated and presented solely as a preferred equity investment in 2023.
As of March 31, 2023, the major components of the Company's investments in multifamily properties were as follows (in thousands):
Real Estate Investment, Net Land Buildings and
Improvements
Intangible Lease
Assets
Construction in Progress Furniture,
Fixtures and
Equipment
Totals
Hudson Montford $ 10,996  $ 49,837  $ —  $ 26  $ 629  $ 61,488 
Accumulated depreciation and amortization —  (2,176) —  —  (240) (2,416)
Total Real Estate Investments, Net $ 10,996  $ 47,661  $ —  $ 26  $ 389  $ 59,072 
23

As of December 31, 2022, the major components of the Company's investments in multifamily properties were as follows (in thousands):
Real Estate Investments, Net Land Buildings and
Improvements
Intangible Lease
Assets
Construction in Progress Furniture,
Fixtures and
Equipment
Totals
Hudson Montford $ 10,996  $ 49,831  $ —  $ $ 602  $ 61,431 
Elysian at Hughes 25,590  160,141  —  —  —  185,731 
Accumulated depreciation and amortization —  (1,752) —  —  (188) (1,940)
Total Real Estate Investments, Net $ 36,586  $ 208,220  $ —  $ $ 414  $ 245,222 
The following table reflects the revenue and expenses for the three months ended March 31, 2023 and 2022, for our multifamily property (in thousands).
For the Three Months Ended March 31,
2023 2022
Revenues
Rental income $ 1,018  $ 2,180 
Other income 10  207 
Total revenues $ 1,028  $ 2,387 
Expenses
Interest expense 581  669 
Real estate taxes and insurance 172  404 
Property operating expenses 185  367 
Property general and administrative expenses 35  45 
Property management fees 29  63 
Depreciation and amortization 476  944 
Rate cap (income) expense 194  (351)
Debt service bridge —  287 
Casualty loss (175) — 
Total expenses 1,497  2,428 
Net income (loss) from consolidated real estate owned $ (469) $ (41)
24

10. Debt
The following table summarizes the Company’s financing arrangements in place as of March 31, 2023:
  March 31, 2023
  Facility Collateral
  Date issued Outstanding
face amount
Carrying value Final stated
maturity
Weighted
average interest
rate (1)
Weighted
average life
(years) (2)
Outstanding
face amount
Amortized cost
basis
Carrying value
(3)
Weighted
average life
(years) (2)
Master Repurchase Agreements
CMBS
Mizuho(4) 4/15/2020 $ 350,399  $ 350,399  N/A (5) 6.72  % 0.10 $ 967,094  $ 541,495  $ 536,115  6.8
Asset Specific Financing
Single Family Rental loans
Freddie Mac 7/12/2019 628,228  628,228  7/12/2029 2.35  % 5.1 687,602  723,343  723,343  5.1
Mezzanine loans
Freddie Mac 10/20/2020 59,252  59,252  8/1/2031 0.30  % 7.0 96,817  99,188  99,188  7.0
Multifamily properties
CBRE 12/31/2021 32,480  32,235  6/1/2028 (6) 7.34  % 5.2 N/A 59,072  59,072  5.2
Unsecured Financing
Various 10/15/2020 36,500  35,606  10/25/2025 7.50  % 2.6 N/A N/A N/A 2.6
Various 4/20/2021 165,000  163,070  4/15/2026 5.75  % 3.0 N/A N/A N/A N/A
Various 10/18/2022 6,500  6,500  10/18/2027 7.50  % 4.6 N/A N/A N/A N/A
Total/weighted average $ 1,278,359  $ 1,275,290  4.19  % 3.5 $ 1,751,513  $ 1,423,098  $ 1,417,718  6.1
(1)Weighted-average interest rate using unpaid principal balances.
(2)Weighted-average life is determined using the maximum maturity date of the corresponding loans, assuming all extension options are exercised by the borrower.
(3)CMBS are shown at fair value on an unconsolidated basis. SFR Loans and mezzanine loans are shown at amortized cost.
(4)On April 15, 2020, three of our subsidiaries entered into a master repurchase agreement with Mizuho Securities ("Mizuho"). Borrowings under these repurchase agreements are collateralized by portions of the CMBS B-Pieces, CMBS I/O Strips, MSCR Notes and mortgage backed securities.
(5)The master repurchase agreement with Mizuho does not have a stated maturity date. The transactions in place have a one-month to two-month tenor and are expected to roll accordingly.
(6)Debt was assumed upon acquisition of this property and recorded at the outstanding principal amount, net of debt issuance costs. The loan can be prepaid at a 1.0% prepayment premium on any unpaid principal. The loan is open to pre-payment in the last three months of the term.
25

The following table summarizes the Company’s financing arrangements in place as of December 31, 2022:
December 31, 2022
Facility Collateral
  Date issued Outstanding
face amount
Carrying value Final stated
maturity
Weighted
average interest
rate (1)
Weighted
average life
(years) (2)
Outstanding
face amount
Amortized cost
basis
Carrying value
(3)
Weighted
average life
(years) (2)
Master Repurchase Agreements
CMBS
Mizuho(4) 4/15/2020 $ 331,020  $ 331,020  N/A (5) 5.83  % 0.2 $ 974,440  $ 543,919  $ 539,736  7.0
Asset Specific Financing
Single Family Rental loans
Freddie Mac 7/12/2019 628,633  628,633  7/12/2029 2.35  % 5.4 688,046  726,531  726,531  5.4
Mezzanine loans
Freddie Mac 10/20/2020 59,252  59,252  8/1/2031 0.30  % 7.3 105,817  108,390  108,390  7.3
Multifamily properties
CBRE 12/31/2021 32,480  32,176  6/1/2028 (6) 5.80  % 5.4 N/A 59,491  59,491  5.4
CBRE 2/1/2022 89,634  89,060  2/1/2032 3.52  % 9.1 N/A 185,731  185,731  9.1