Claros Mortgage Trust Inc

(unaudited)

Note 1. Organization

Claros Mortgage Trust, Inc. (referred to throughout this report as the “Company,” “we,” “us” and “our”) is a Maryland Corporation formed on April 29, 2015 for the purpose of creating a diversified portfolio of income-producing loans collateralized by institutional quality commercial real estate. We commenced operations on August 25, 2015 (“Commencement of Operations”) and generally conduct our business through wholly-owned subsidiaries. Unless the context requires otherwise, any references to the Company refers to the Company and its consolidated subsidiaries. The Company is traded on the New York Stock Exchange, or NYSE, under the symbol “CMTG”.

We elected and intend to maintain our qualification to be taxed as a real estate investment trust (“REIT”) under the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), for U.S. federal income tax purposes. As such, we generally are not subject to U.S. federal income tax on that portion of our income that we distribute to stockholders. See Note 13 – Income Taxes for further detail.

We are externally managed by Claros REIT Management LP (the “Manager”), our affiliate, through a management agreement (the “Management Agreement”) pursuant to which our Manager provides a management team and other professionals who are responsible for implementing our business strategy, subject to the supervision of our board of directors (the “Board”). In exchange for its services, our Manager is entitled to management fees and, upon the achievement of required performance hurdles, incentive fees. See Note 11 – Related Party Transactions for further detail.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

These unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of our financial position, results of operations and cash flows have been included. Our results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or any other future period.

We consolidate all entities that are controlled either through majority ownership or voting rights. We also identify entities for which control is achieved through means other than through voting rights (a variable interest entity or “VIE”) using the analysis as set forth in Accounting Standards Codification (“ASC”) 810, Consolidation of Variable Interest Entities, and determine when and which variable interest holder, if any, should consolidate the VIE. We do not have any consolidated variable interest entities as of September 30, 2024 and December 31, 2023. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to our judgment include, but are not limited to, the adequacy of our current expected credit loss reserve, the determination of the fair value of real estate assets acquired and liabilities assumed, and the impairment of certain assets.

Risks and Uncertainties

In the normal course of business, we primarily encounter two significant types of economic risk: credit and market. Credit risk is the risk of default on our loans receivable that results from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the loans receivable due to changes in interest rates, spreads or other market factors, including risks that impact the value of the collateral underlying our loans. We believe that the carrying values of our loans receivable are reasonable taking into consideration these risks.

The current expected credit loss (“CECL”) reserve required under ASC 326, Financial Instruments – Credit Losses, reflects our current estimate of potential credit losses related to our loan portfolio. Changes to the CECL reserve are recognized through a provision for or reversal of current expected credit loss reserve on our consolidated statements of operations. ASC 326 specifies the reserve should be based on relevant information about past events, including historical loss experience, current loan portfolio, market conditions and reasonable and supportable macroeconomic forecasts for the duration of each loan.

General CECL Reserve

Our loans are typically collateralized by real estate, or in the case of mezzanine loans, by an equity interest in an entity that owns real estate. We consider key credit quality indicators in underwriting loans and estimating credit losses, including: the capitalization of borrowers and sponsors; the expertise of the borrowers and sponsors in a particular real estate sector and geographic market; collateral type; geographic region; use and occupancy of the property; property market value; loan-to-value (“LTV”) ratio; loan amount and lien position; our risk rating for the same and similar loans; and prior experience with the borrower/sponsor. This information is used to assess the financial and operating capability, experience and profitability of the borrower/sponsor. Ultimate repayment of our loans is sensitive to interest rate changes, general economic conditions, liquidity, LTV ratio, existence of a liquid investment sales market for commercial properties, and availability of replacement financing.

We regularly evaluate on a loan-by-loan basis, the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, the financial and operating capability of the borrower/sponsor, the financial strength of loan guarantors, if any, and the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management personnel and evaluated by senior management on at least a quarterly basis, utilizing various data sources, including, to the extent available, (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections, (iii) sales and financing comparables, (iv) current credit spreads for refinancing and (v) other relevant market data.

We arrive at our general CECL reserve using the Weighted Average Remaining Maturity, or WARM method, which is considered an acceptable loss-rate method for estimating CECL reserves by the Financial Accounting Standards Board (“FASB”). The application of the WARM method to estimate a general CECL reserve requires judgment, including the appropriate historical loan loss reference data, the expected timing and amount of future loan fundings and repayments, the current credit quality of our portfolio, and our expectations of performance and market conditions over the relevant time period.

The WARM method requires us to reference historical loan loss data from a comparable data set and apply such loss rate to each of our loans over their expected remaining duration, taking into consideration expected economic conditions over the forecasted timeframe. Our general CECL reserve reflects our forecast of the current and future macroeconomic conditions that may impact the performance of the commercial real estate assets securing our loans and the borrower’s ultimate ability to repay. These estimates include unemployment rates, price indices for commercial properties, and market liquidity, all of which may influence the likelihood and magnitude of potential credit losses for our loans during their expected remaining duration. Additionally, further adjustments may be made based upon loan positions senior to ours, the risk rating of a loan, whether a loan is a construction loan, whether the loan’s initial maturity is near-term, or the economic conditions specific to the property type of a loan’s underlying collateral.

To estimate an annual historical loss rate, we obtained historical loss rate data for loans most comparable to our loan portfolio from a commercial mortgage-backed securities database licensed by a third party, Trepp, LLC, which contains historical loss data from January 1, 1999 through September 30, 2024. We believe this CMBS data is the most relevant, available, and comparable dataset to our portfolio.

When evaluating the current and future macroeconomic environment, we consider the aforementioned macroeconomic factors. Historical data for each metric is compared to historical commercial real estate credit losses in order to determine the relationship between the two variables. We use projections of each macroeconomic factor, obtained from a third party, to approximate the impact the macroeconomic outlook may have on our loss rate. Selections of these economic forecasts require judgment about future events that, while based on the information available to us as of the balance sheet date, are ultimately subjective and uncertain, and the actual economic conditions could vary significantly from the estimates we made. Following a reasonable and supportable forecast period, we use a straight-line method of reverting to the historical loss rate. Additionally, we assess the obligation to extend credit through our unfunded loan commitments through their expected remaining duration, adjusted for projected fundings from interest reserves, if applicable, which is considered in the estimate of the general CECL reserve. For both the funded and unfunded portions of our loans, we consider our internal risk rating of each loan as the primary credit quality indicator underlying our assessment.

We evaluate the credit quality of each of our loans receivable on an individual basis and assign a risk rating at least quarterly. We have developed a loan grading system for all of our outstanding loans receivable that are collateralized directly or indirectly by real estate. Grading criteria include, but are not limited to, as-is or as-stabilized debt yield, term of loan, property type, property or collateral location, loan type, structure, collateral cash flow volatility and other more subjective variables that include, but are not limited to, as-is or as-stabilized collateral value, market conditions, industry conditions, borrower/sponsor financial stability, and borrower/sponsor exit plan. While evaluating the credit quality of each loan within our portfolio, we assess these quantitative and qualitative factors as a whole and with no pre-prescribed weight on their impact to our determination of a loan’s risk rating. However, based upon the facts and circumstances for each loan and the overall market conditions, we may consider certain previously mentioned factors more or less relevant than others. We utilize the grading system to determine each loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific CECL reserve is necessary. Based on a 5-point scale, the loans are graded “1” through “5,” from less risk to greater risk, which gradings are defined as follows:

Very Low Risk

Low Risk

Medium Risk

High Risk/Potential for Loss: A loan that has a risk of realizing a principal loss

Impaired/Loss Likely: A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss

Specific CECL Reserve

In certain circumstances, we may determine that a loan is no longer suited for the WARM method due to its unique risk characteristics or where we have deemed the borrower/sponsor to be experiencing financial difficulty and the repayment of the loan’s principal is collateral-dependent. We may instead elect to employ different methods to estimate credit losses that also conform to ASC 326 and related guidance. For such loans, we would separately measure the specific reserve for each loan by using the estimated fair value of the loan’s collateral. If the estimated fair value of the collateral is less than the carrying value of the loan, an asset-specific reserve is created as a component of our overall current expected credit loss reserve. Specific reserves are equal to the excess of a loan’s carrying value to the estimated fair value of the collateral, less estimated costs to sell, if recovery of our investment is expected from the sale of the collateral and such costs will reduce amounts recovered by us.

If we have determined that a loan, a portion of a loan, or accrued interest receivable previously recognized under our revenue recognition policy is uncollectible, we will write off the amount deemed uncollectible through an adjustment to our current expected credit loss reserve. Significant judgment is required in determining impairment and in estimating the resulting credit loss reserve, and actual losses, if any, could materially differ from those estimates.

See Note 3 - Loan Portfolio - Current Expected Credit Losses for further detail.

Recent Accounting Guidance

The FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). The standard provides improvements to income tax disclosure requiring disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-09 is not expected to have a material impact on our consolidated financial statements.

The FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). The standard provides improvements to reportable segment disclosure requirements for annual and interim reporting, primarily through enhanced disclosures about significant segment expenses. The standard is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-07 is not expected to have a material impact on our consolidated financial statements.

Note 3. Loan Portfolio

Loans Receivable

Our loan receivable held-for-investment portfolio as of September 30, 2024 was comprised of the following loans ($ in thousands, except for number of loans):

(1)

(2)

Net of specific CECL reserves of$111.5 million.

(3)

The weighted average spread is expressed as a spread over the relevant floating benchmark rates. One-month term Secured Overnight Financing Rate (“SOFR”) as of September 30, 2024 was 4.85%. Weighted average is based on outstanding principal as of September 30, 2024. For loans placed on non-accrual, the spread used in calculating the weighted average spread is 0%.

(4)

Reflects the weighted average interest rate based on the applicable floating benchmark rate (if applicable), including SOFR floors (if applicable). Weighted average is based on outstanding principal as of September 30, 2024 and includes loans on non-accrual status. For loans placed on non-accrual, the spread used in calculating the weighted average interest rate is 0%.

(5)

Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans (if any), and pari passu participations in senior mortgage loans.

Our loans receivable held-for-investment portfolio as of December 31, 2023 was comprised of the following loans ($ in thousands, except for number of loans):

(1)

(2)

Net of specific CECL reserves of $72.6 million.

(3)

The weighted average is expressed as a spread over the relevant floating benchmark rates. SOFR as of December 31, 2023 was 5.35%. Weighted average is based on unpaid principal balance as of December 31, 2023. For loans placed on non-accrual, the spread used in calculating the weighted average spread is 0%.

(4)

Reflects the weighted average interest rate based on the applicable floating benchmark rate (if applicable), including SOFR floors (if applicable). Weighted average is based on unpaid principal balance as of December 31, 2023 and includes loans on non-accrual status. For loans placed on non-accrual, the interest rate used in calculating the weighted average interest rate is 0%.

(5)

Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans (if any), and pari passu participations in senior mortgage loans.

Activity relating to our loans receivable held-for-investment portfolio for thenine months ended September 30, 2024 ($ in thousands):

(1)

Balance at December 31, 2023 does not include general CECL reserve.

During the three months ended September 30, 2024, we received the full repayment of a risk rated 4 office loan with an unpaid principal balance of $122.5 million. In connection with this repayment, we received cash proceeds of $25.1 million and acquired a loan receivable with a total unpaid principal balance of $100.0 million secured by a retail and entertainment property located in New Jersey and other forms of credit support.

Sales of Loans Receivable

As of September 30, 2024 and December 31, 2023, and during the nine months ended September 30, 2024, we reclassified the following loans to held-for-sale ($ in thousands):

(1)

Reflects risk rating of the loan receivable prior to reclassification to held-for-sale.

(2)

Loan classified as held-for-sale as of September 30, 2024.

(3)

Loan classified as held-for-sale as of December 31, 2023 and sold in January 2024.

(4)

Upon reclassification to held-for-sale, we recognized an additional $23.2 million charge-off of accrued interest receivable. The cumulative charge-offs were attributable to the delinquency of the loan and its $36.5 million of remaining unfunded commitments.

(5)

Loan sold in October 2024.

(6)

Principal charge-off attributable to the construction status of the loan’s collateral asset and its $44.9 million of remaining unfunded commitments. During the three months ended June 30, 2024, we recorded an additional principal charge-off of $0.6 million relating to transaction costs incurred. The loan was on non-accrual status effective October 1, 2023. The loan sold in April 2024.

(7)

Principal charge-off attributable to the construction status of the loan’s collateral asset and its $105.0 million of remaining unfunded commitments.

During the three months ended September 30, 2023, we sold a senior loan collateralized by a portfolio of multifamily properties located in San Francisco, CA. We obtained a true-sale-at-law opinion and determined the transaction constituted a sale. Concurrent with the sale, we entered into an agreement with the transferee which provides for a share of cash flows from the senior loan upon the transferee meeting certain financial metrics. As of September 30, 2024, we have not recognized any value to this interest on our consolidated financial statements.

Modifications of Loans Receivable Held-for-Investment

During the three months ended September 30, 2024, we modified a mixed-use loan receivable with an unpaid principal balance of $75.5 million, resulting in a $7.2 million principal repayment and the remaining $68.3 million principal being bifurcated into a $30.0 million loan secured by a retail property and a $38.3 million unsecured personal loan, both of which are accompanied by credit support.

During the three months ended December 31, 2023, we modified a loan with a borrower that was experiencing financial difficulties, resulting in a maturity extension to June 10, 2024. As of September 30, 2024, the loan had total commitments and an amortized cost basis of$78.6 million, represents approxi mately 1.3% of total loans receivable held-for-investment, based on carrying value net of any specific CECL reserves, is current on interest payments, is in maturity default, and is risk rated 4. The loan is considered in determining our general CECL reserve.

During the three months ended June 30, 2022, we modified a loan with a borrower that was experiencing financial difficulties, resulting in a decrease in the index rate floor from 1.57% to 1.00% and modified extension requirements. During the year ended December 31, 2023, we further modified this loan to provide for an initial maturity extension to September 18, 2023. As of September 30, 2024, the loan had total commitments and an amortized cost basis of $87.8 million, represents approximately 1.4% of total loans receivable held-for-investment, based on carrying value net of any specific CECL reserves, is current on interest payments, is in maturity default, and is risk rated 4. The loan is considered in determining our general CECL reserve.

Concentration of Risk

The following table presents our loans receivable held-for-investment by loan type, as well as property type and geographic location of the properties collateralizing these loans as of September 30, 2024 and December 31, 2023 ($ in thousands):

(1)

Net of specific CECL reserves of$111.5 million at September 30, 2024.

(2)

Net of specific CECL reserves of $72.6 million at December 31, 2023.

(3)

Senior loans include senior mortgages and similar credit quality loans, including related contiguous subordinate loans and pari passu participations in senior mortgage loans.

(4)

At September 30, 2024, mixed-use comprises of 3% office,3% multifamily,1% retail,1% hospitality, and immaterial amounts of for sale condo. At December 31, 2023, mixed-use comprises of 3% office,2% retail,2% multifamily,1% hospitality, and immaterial amounts of for sale condo.

Interest Income and Accretion

The following table summarizes our interest and accretion income from our loan portfolio and interest on cash balances for thethree and nine months ended September 30, 2024 and 2023, respectively ($ in thousands):

(1)

For thethree months ended September 30, 2024 and 2023, we recognized$2.7 million and$1.3 million of default interest, late fees, pre-payment penalties, and/or accelerated fees following repayments prior to maturity. For the nine months ended September 30, 2024 and 2023, we recognized$4.0 million and$1.6 million, respectively, in default interest, late fees, pre-payment penalties, and/or accelerated fees following repayments prior to maturity.

Loan Risk Ratings

As further described in Note 2 – Summary of Significant Accounting Policies, we evaluate the credit quality of our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, we assess the risk factors of each loan and assign a risk rating based on several factors, including, but not limited to, as-is or as-stabilized debt yield, term of loan, property type, property or collateral location, loan type, structure, collateral cash flow volatility and other more subjective variables that include, but are not limited to, as-is or as-stabilized collateral value, market conditions, industry conditions, borrower/sponsor financial stability, and borrower/sponsor exit plan. While evaluating the credit quality of each loan within our portfolio, we assess these quantitative and qualitative factors as a whole and with no pre-prescribed weight on their impact to our determination of a loan’s risk rating. However, based upon the facts and circumstances for each loan and the current market conditions, we may consider certain previously mentioned factors more or less relevant than others. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 – Summary of Significant Accounting Policies.

The following tables allocate the principal balance and carrying value of our loans receivable held-for-investment based on our internal risk ratings as of September 30, 2024 and December 31, 2023 ($ in thousands):

(1)

Net of specific CECL reservesof$111.5 million.

(1)

Net of specific CECL reserves of$72.6 million.

As of September 30, 2024 and December 31, 2023, the average risk rating of our portfolio was 3.5 and 3.3, respectively, weighted by unpaid principal balance.

The following table presents the carrying value and significant characteristics of our loans receivable held-for-investment on non-accrual status as of September 30, 2024 ($ in thousands):

(1)

During the three months ended September 30, 2024, cost recovery proceeds of $0.9 million were received for this loan while on non-accrual status.

(2)

During the three months ended September 30, 2024, cost recovery proceeds of $2.0 million were received for this loan while on non-accrual status.

(3)

During the three months ended September 30, 2024, cost recovery proceeds of $0.2 million were received for this loan while on non-accrual status.

(4)

During the three months ended September 30, 2024, cost recovery proceeds of $2.0 million were received for this loan while on non-accrual status.

(5)

Loans classified as non-accrual represented 13.1% of the total loans receivable held-for-investment at September 30, 2024, based on carrying value net of any specific CECL reserves. Excludes four loans with an aggregate carrying value of $394.8 million that are in maturity default but remain on accrual status as the borrower is either current on interest payments or interest is deemed collectible based on the underlying collateral value. Additionally, as of September 30, 2024, we have two loans with an aggregate carrying value of $520.0 million that are delinquent on interest payments but remain on accrual status as the interest is deemed collectible based on the underlying collateral value.

The following table presents the carrying value and significant characteristics of our loans receivable held-for-investment on non-accrual status as of December 31, 2023 ($ in thousands):

(1)

During the year ended December 31, 2023, interest income of $0.3 million was recognized on a cash basis for this loan while on non-accrual status.

(2)

During the year ended December 31, 2023, cost recovery proceeds of $1.6 million were received for this loan while on non-accrual status.

(3)

This loan was sold in April 2024. During the year ended December 31, 2023, cost recovery proceeds of $0.4 million were received for this loan while on non-accrual status.

(4)

Loans classified as non-accrual represented 9.2% of the total loans receivable held-for-investment at December 31, 2023, based on carrying value net of any specific CECL reserves. Excludes four loans with an aggregate carrying value of $490.2 million that are in maturity default but remain on accrual status as the borrower is either current on interest payments or interest is deemed collectible based on the underlying collateral value. Additionally, as of December 31, 2023, we have one loan with an aggregate carrying value of $78.4 million that is delinquent on interest payments but remains on accrual status as the interest is deemed collectible based on the underlying collateral value.

The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to our loan commitments. See Note 2 for further detail of our current expected credit loss reserve methodology.

The following table illustrates the changes in the current expected credit loss reserve for our loans receivable held-for-investment for thenine months ended September 30, 2024 and 2023, respectively ($ in thousands):

(1)

CECL reserve for unfunded commitments is included in other liabilities on the consolidated balance sheets. CECL reserve for accrued interest receivable, if any, is included in other assets on the consolidated balance sheets.

(2)

Represents CECL reserve as a percent of total unpaid principal balance of loans receivable held-for-investment. As of September 30, 2024, specific CECL reserves approximated 21.4% of unpaid principal balance of loans with specific CECL reserves. As of September 30, 2024, general CECL reserves approximated 2.1% of unpaid principal balance of loans subject to the general CECL reserve.

During the nine months ended September 30, 2024, we recorded a provision for current expected credit losses of$182.6 million, which consisted of a$45.5 million increase in our general CECL reserve and a$137.1 million increase in our specific CECL reserve prior to principal and accrued interest receivable charge-offs. The increase in general CECL reserves was primarily attributable to changes in the historical loss rate of the analogous dataset and changes in risk ratings, non-accrual status, and expected remaining duration within our loan portfolio, offset by the reduction in the size of our loan portfolio. As of September 30, 2024, our total current expected credit loss reserve was$237.1 million.

During the nine months ended September 30, 2023, we recorded a provision for current expected credit losses of$148.4 million, which included a$151.5 million increase in our specific CECL reserve prior to a principal charge-off and a reversal of$3.1 million of general CECL reserves. This reversal of general CECL reserves was primarily attributable to the seasoning of our loan portfolio and a reduction in the size of our loan portfolio, offset by deteriorating macroeconomic conditions. As of September 30, 2023, our total current expected credit loss reserve was$154.9 million.

Specific CECL Reserves

In certain circumstances, we may determine that a loan is no longer suited for the WARM method as we have deemed the borrower to be experiencing financial difficulty and the repayment of the loan’s principal is collateral dependent. The following table presents a summary of our loans receivable held-for-investment with specific CECL reserves as of September 30, 2024 ($ in thousands):

(1)

During thenine months ended September 30, 2024, we recorded additional specific CECL reserves totaling$0.9 million as a result of protective advances made. Effective January 1, 2023, this loan was placed on non-accrual status. As of September 30, 2024, this loan is in maturity default.

(2)

During thenine months ended September 30, 2024, we reversed our specific CECL reserve by$0.4 million based on changes to the collateral value, offset by cost recovery proceeds received. Effective April 1, 2023, this loan was placed on non-accrual status. As of September 30, 2024, this loan is in maturity default.

(3)

As of September 30, 2024, we recognized a specific CECL reserve of$16.7 million. Effective January 1, 2024, this loan was placed on non-accrual status.

(4)

During thenine months ended September 30, 2024, we recorded additional specific CECL reserves totaling$8.9 million based on changes to the collateral value, offset by cost recovery proceeds received. Effective September 1, 2023, this loan was placed on non-accrual status. As of September 30, 2024, this loan is in maturity default.

(5)

As of September 30, 2024, we recognized a specific CECL reserve of$7.2 million. Effective January 1, 2024, this loan was placed on non-accrual status.

(6)

As of September 30, 2024, we recognized a specific CECL reserve of$5.7 million. Effective January 1, 2024, this loan was placed on non-accrual status.

(7)

Effective June 30, 2023, the loan was placed on non-accrual status. As of September 30, 2024, this loan is in maturity default.

Fair market values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair market values used to determine specific CECL reserves as of September 30, 2024 include assumptions of property specific cash flows over estimated holding periods, assumptions of property redevelopment costs, assumptions of leasing activities, discount rates ranging from 6.0% to 9.5%, and market and terminal capitalization rates ranging from 5.25% to 8.25%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, recent and projected property cash flows, and anticipated real estate and capital market conditions.

Our primary credit quality indicator is our internal risk rating, which is further discussed above. The following table presents the carrying value of our loans receivable held-for-investment as of September 30, 2024 by year of origination and risk rating, and principal charge-offs recognized during the nine months ended September 30, 2024 ($ in thousands):

(1)

Net of specific CECL reserves of$111.5 million.

(2)

Principal charge-off of$46.5 million comprised of a principal charge-off of $42.8 million recognized in connection with the sale of a senior loan in April 2024 and a principal charge-off of $3.7 million recognized in connection with the sale of a senior loan in October 2024. Principal charge-off of $0.3 million recognized in connection with the sale of a subordinate loan in October 2024. Principal charge-off of$28.1 million recognized in connection with the anticipated sale of a senior loan.

(3)

Reflects a loan receivable acquired in connection with a full loan repayment during thethree months ended September 30, 2024.

The following table details overall statistics for our loans receivable held-for-investment:

(1)

Represents the weighted average annualized yield to initial maturity of each loan, inclusive of coupon, and fees received, based on the applicable floating benchmark rate/floors (if applicable), in place as of September 30, 2024 and December 31, 2023. For loans placed on non-accrual, the annualized yield to initial maturity used in calculating the weighted average annualized yield to initial maturity is 0%.

(2)

Term to fully extended maturity is determined based on the maximum maturity of each of the corresponding loans, assuming all extension options are exercised by the borrower; provided, however, that our loans may be repaid prior to such date.

Note 4. Equity Method Investment

As of September 30, 2024 and December 31, 2023, we hold a 51% interest in CMTG/TT Mortgage REIT LLC (“CMTG/TT”). We are not deemed to be the primary beneficiary of CMTG/TT in accordance with ASC 810, therefore we do not consolidate this joint venture. During its active investment period, CMTG/TT originated loans collateralized by institutional quality commercial real estate. As of September 30, 2024, the sole remaining loan held by CMTG/TT had an unpaid principal balance of$78.5 million and was placed on non-accrual status effective April 1, 2023. As of September 30, 2024, the carrying value of our 51% equity interest in CMTG/TT approximated$42.4 million.

At each reporting period, we assess whether there are any indicators of other-than-temporary impairment of our equity investment. There were no other than temporary impairments of our equity method investment through September 30, 2024.

Note 5. Real Estate Owned

The following table presents detail related to our hotel portfolio and mixed-use real estate owned, net as of September 30, 2024 and December 31, 2023 ($ in thousands):

Depreciation expense related to our hotel portfolio and mixed-use real estate owned for the three months ended September 30, 2024 and 2023 was$2.4 million and$2.4 million, respectively. Depreciation expense related to our hotel portfolio and mixed-use real estate owned for the nine months ended September 30, 2024 and 2023 was$7.2 million and$6.5 million, respectively. At each reporting period, we assess whether there are any indicators of impairment of our real estate owned assets. There wereno impairments of our real estate owned assets through September 30, 2024.

The following table presents additional detail related to the revenues and operating expenses of our real estate owned properties ($ in thousands):

Leases

We have non-cancelable operating leases for space in our mixed-use property. These leases provide for fixed rent payments, which we recognize on a straight-line basis, and variable rent payments, including reimbursement of certain operating expenses and miscellaneous fees, which we recognize when earned. As of September 30, 2024, the future minimum fixed rents under our non-cancellable leases for each of the next five years and thereafter are as follows ($ in thousands):

(1)

Contractual lease payments due for the remaining three months of 2024.

Lease Intangibles

Upon acquisition of our mixed-use property on June 30, 2023, $20.1 millionof the purchase price was allocated to lease related intangible assets including $4.8 million to in-place lease values, $17.9 million to above market lease values, $4.2 million to below market lease values, and $1.6 million to other lease related values.

As of September 30, 2024 and December 31, 2023, our lease intangibles are comprised of the following ($ in thousands):

Amortization of in-place and other lease values for the three months ended September 30, 2024 and 2023 was$0.2 million and$0.2 million, respectively. Amortization of in-place and other lease values for the nine months ended September 30, 2024 and 2023 was$0.6 million and$0.2 million, respectively. Amortization of above market lease values for the three months ended September 30, 2024 and 2023 was$0.4 million and$0.4 million, respectively. Amortization of above market lease values for the nine months ended September 30, 2024 and 2023 was$1.3 million and$0.4 million, respectively. Amortization of below market lease values for the three months ended September 30, 2024 and 2023 was$0.1 million and$0.1 million, respectively. Amortization of below market lease values for the nine months ended September 30, 2024 and 2023 was$0.3 million and$0.1 million, respectively.

As of September 30, 2024, the estimated amortization of these intangibles is approximately as follows ($ in thousands):

(1)

Amortization of in-place and other lease values is recognized in depreciation and amortization expense on our consolidated statements of operations.

(2)

Amortization of above and below market lease values, net is recognized in revenue from real estate owned on our consolidated statements of operations.

(3)

Represents amortization for the remaining three months of 2024.

At acquisition, the weighted average amortization period for in-place and other lease values, above-market lease values, and below market lease values was approximately 8.9 years,10.5 years, and 11.3 years, respectively.

Note 6. Debt Obligations

As of September 30, 2024 and December 31, 2023, we financed certain of our loans receivable using repurchase agreements, a term participation facility, the sale of loan participations, and/or notes payable. Further, we have a secured term loan and debt related to real estate owned. Our financings bear interest at a rate equal to SOFR plus a credit spread.

The following table summarizes our financings as of September 30, 2024 and December 31, 2023 ($ in thousands):

(1)

Weighted average spread over the applicable benchmark rate is based on unpaid principal balance. SOFR as of September 30, 2024 and December 31, 2023 was 4.85% and 5.35%, respectively.

(2)

The repurchase agreements and term participation facility are partially recourse to us. As of September 30, 2024 and December 31, 2023, the weighted average recourse on both ourrepurchase agreements and term participation facility was 30%and 30%, respectively.

Repurchase Agreements and Term Participation Facility

Repurchase Agreements

The following table summarizes our repurchase agreements by lender as of September 30, 2024 ($ in thousands):

(1)

Facility maturity dates may be extended, subject to meeting prescribed conditions.

(2)

Net of specific CECL reserves, if any.

The Deutsche Bank AG, New York Branch repurchase agreement reached its maturity in June 2024, upon which the facility was terminated.

The following table summarizes our repurchase agreements by lender as of December 31, 2023 ($ in thousands):

(1)

Facility maturity dates may be extended, subject to meeting prescribed conditions.

(2)

Net of specific CECL reserves, if any.

(3)

Assumes as of right extension is exercised, subject to meeting prescribed conditions.

Term Participation Facility

On November 4, 2022, we entered into a master participation and administration agreement to finance certain of our mortgage loans. As of September 30, 2024, the facility had $464.3 millionin financing commitments of which$385.5 million was outstanding. As of December 31, 2023, the facility had $654.4 million in financing commitments of which$465.4 million was outstanding.

Our term participation facility as of September 30, 2024 is summarized as follows ($ in thousands):

Our term participation facility as of December 31, 2023 is summarized as follows ($ in thousands):

Loan Participations Sold

As of September 30, 2024, we haveno loan participations sold. Our loan participations sold as of December 31, 2023 are summarized as follows ($ in thousands):

(1)

Carrying value of collateral includes cash reserve balances held by our financing counterparty.

Notes Payable

Our notes payable as of September 30, 2024 are summarized as follows ($ in thousands):

Our notes payable as of December 31, 2023 are summarized as follows ($ in thousands):

Secured Term Loan, Net

On August 9, 2019, we entered into a $450.0 million secured term loan which, on December 1, 2020, was modified to increase the aggregate principal amount by $325.0 million, increase the interest rate, and to increase the quarterly amortization payment. On December 2, 2021, we further modified our secured term loan to reduce the interest rate to the greater of (i)SOFR plus a 0.10% credit spread adjustment, and (ii)0.50%, plus a credit spread of 4.50%. Our secured term loan is collateralized by a pledge of equity in certain subsidiaries and their related assets.

The secured term loan as of September 30, 2024 is summarized as follows ($ in thousands):

(1)

SOFR at September 30, 2024 was 4.85%.

The secured term loan as of December 31, 2023 is summarized as follows ($ in thousands):

(1)

SOFR at December 31, 2023 was 5.35%.

Debt Related to Real Estate Owned, Net

On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a foreclosure of a hotel portfolio. On February 7, 2024, we modified our debt related toreal estate owned to provide for, among other things, an extension of the contractual maturity date to November 9, 2024, a $10.0 million principal paydown, and the designation of a portion of the loan becoming partial recourse to us. Concurrent with this modification, we purchased an interest rate cap with a notional amount of $280.0 million and a strike rate of 5.00% through the extended contractual maturity date for $0.5 million.

Our debt related to real estate owned as of September 30, 2024 is summarized as follows ($ in thousands):

(1)

SOFR at September 30, 2024 was 4.85%, which is lower than the 5.00% ceiling provided by our interest rate cap. See Note 7 - Derivatives for further detail.

Our debt related to real estate owned as of December 31, 2023 is summarized as follows ($ in thousands):

(1)

SOFR at December 31, 2023 was 5.35%, which exceeded the 3.00% ceiling provided by our interest rate cap. See Note 7 – Derivatives for further detail.

Short-Term Funding Facility

On June 29, 2022, we entered into a full recourse revolving credit facility with $150.0 million in capacity, which generally provided interim financing for eligible loans for up to 180 days at an initial advance rate of up to 75%. As of December 31, 2023, we hadno outstanding balance on the facility. On September 25, 2024, we terminated this facility, at which point we hadno outstanding balance.

Interest Expense and Amortization

The following table summarizes our interest and amortization expense on our secured financings, debt related to real estate owned and secured term loan for thethree and nine months ended September 30, 2024 and 2023, respectively ($ in thousands):

(1)

For thethree months ended September 30, 2024 and 2023, interest on debt related to real estate owned includes$1.1 million and $131,000 of amortization of deferred financing costs, respectively. For the nine months ended September 30, 2024 and 2023, interest on debt related to real estate owned includes$2.5 million and $394,000 of amortization of financing costs, respectively.

Financial Covenants

Our financing agreements generally contain certain financial covenants. For example, our ratio of earnings before interest, taxes, depreciation, and amortization to interest charges (“Interest Coverage Ratio”), as defined in our repurchase agreements and term participation facility shall not be less than 1.3 to 1.0, whereas our ratio of earnings before interest, taxes, depreciation, and amortization to interest charges as defined in our secured term loan shall not be less than 1.5 to 1.0. Further, (i) our tangible net worth, as defined in the agreements, shall not be less than$1.86 billion as of each measurement date; (ii) cash liquidity shall not be less than the greater of (x) $50 million or (y)5% of our recourse indebtedness (which includes our secured term loan); and (iii) our indebtedness shall not exceed 77.8% of our total assets. As of September 30, 2024, we are in compliance with all covenants under our financing agreements. The requirements set forth in (i) through (iii) above are based upon the most restrictive financial covenants in place as of the reporting date. Further, we have modified the Interest Coverage Ratio in our repurchase agreements and term participation facility to provide that for the quarters ended June 30, 2024 through September 30, 2025, our Interest Coverage Ratio shall not be less than 1.1 to 1.0. Future compliance with our financial covenants is dependent upon the results of our operating activities, our financial condition, and the overall market conditions in which we and our borrowers operate. The impact of macroeconomic conditions on the commercial real estate and capital markets, including high benchmark interest rates compared to recent historical standards, may make it more difficult for us to satisfy these covenants in the future. Non-compliance with financial covenants may result in our lenders exercising their rights and remedies as provided for in the respective agreements. As market conditions evolve, we may continue to work with our counterparties on modifying financial covenants as needed; however, there is no assurance that our counterparties will agree to such modifications.

Note 7. Derivatives

On June 2, 2021 and in connection with our debt related to real estate owned, we acquired an interest rate cap with a notional amount of $290.0 million, a strike rate of 3.00%, and a maturity date of February 15, 2024 for $0.3 million. Such interest rate cap effectively limited the maximum interest rate of our debt related to real estate owned to 5.83% through its maturity. On February 7, 2024 and in connection with the modification of our debt related to real estate owned, we acquired an interest rate cap with a notional amount of $280.0 million, a strike rate of 5.00%, and a maturity date of November 15, 2024 for $0.5 million. Such interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 7.90% through its maturity.

Changes in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated statements of operations and the fair value is recorded in other assets on our consolidated balance sheets. Proceeds received from our counterparty related to the interest rate cap are recorded as proceeds from interest rate cap on our consolidated statements of operations. As of September 30, 2024 the fair value of our interest rate cap was de minimis, and as of December 31, 2023, the fair value of our interest rate cap was$0.9 million. During the three months ended September 30, 2024 and 2023, we recognized$0.2 million and$1.7 million, respectively, of proceeds from interest rate cap. During the nine months ended September 30, 2024 and 2023, we recognized$1.3 million and$4.4 million, respectively, of proceeds from interest rate cap.

Note 8. Fair Value Measurements

ASC 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value as well as disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

Therefore, a fair value measurement should be determined based on the assumptions that market participants would use when pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement fall is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Financial Instruments Reported at Fair Value

The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the interest rate cap are based on a third-party expert’s expectation of future interest rates derived from observable market interest rate curves and volatilities. Our interest rate cap is classified as Level 2 in the fair value hierarchy. As of September 30, 2024 the fair value of our interest rate cap was de minimis, and as of December 31, 2023, the fair value of our interest rate cap was$0.9 million.

Financial Instruments Not Reported at Fair Value

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value were as follows ($ in thousands):

Note 9. Equity

Common Stock

Our charter provides for the issuance of up to 500,000,000 shares of common stock with a par value of $0.01 per share. We had 139,362,657 and 138,745,357 shares of common stock issued and 139,362,657 and 138,745,357 shares of common stock outstanding as of September 30, 2024 and December 31, 2023, respectively.

The following table provides a summary of the number of shares of common stock outstanding during thenine months ended September 30, 2024 and 2023, respectively:

At the Market Stock Offering Program

On May 10, 2024, we entered into an equity distribution agreement with certain sales agents, pursuant to which we may sell, from time to time, up to an aggregate sales price of $150.0 million of our common stock pursuant to a continuous offering program (the “ATM Agreement”) under our in place effective shelf registration statement (the “Shelf”) with the SEC. Sales of our common stock made pursuant to the ATM Agreement may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended. The timing and amount of actual sales will depend on a variety of factors including market conditions, the trading price of our common stock, our capital needs, and our determination of the appropriate sources of funding to meet such needs. During thenine months ended September 30, 2024, we didnot issue any shares of our common stock pursuant to the ATM Agreement, and we incurred $0.5 million of professional and legal fees to establish the program which are included in general and administrative expense on our consolidated statement of operations. As of September 30, 2024, the ATM Agreement has not been utilized, and $150.0 million remained available for issuance of our common stock pursuant to the ATM Agreement.

Dividends

The following tables detail our dividend activity for common stock ($ in thousands, except per share data):

Note 10. Earnings Per Share

We calculate basic earnings per share (“EPS”) using the two-class method, which defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities. Under the two-class method, both distributed and undistributed earnings are allocated to common stock and participating securities based on their respective rights. Basic EPS is calculated by dividing our net income (loss) less participating securities’ share in earnings by the weighted average number of shares of common stock outstanding during each period.

Diluted EPS is calculated under the more dilutive of the treasury stock or the two-class method. Under the treasury stock method, diluted EPS is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding plus the incremental potential shares of common stock assumed issued during the period if they are dilutive.

As of September 30, 2024 and 2023, we hadno dilutive securities. As a result, basic and diluted EPS are the same. The calculation of basic and diluted EPS is as follows ($ in thousands, except for share and per share data):

(1)

For thethree months ended September 30, 2024 and 2023, dividends on participating securities excludes$9,000 and$9,000 of dividends on fully vested restricted stock units (“RSU”). For the nine months ended September 30, 2024 and 2023, dividends on participating securities excludes$42,000 and$24,000 of dividends on fully vested RSUs.

(2)

Amounts as of September 30, 2024 and 2023 include 95,380 and 37,467 fully vested RSUs.

For the three months ended September 30, 2024 and 2023,2,459,978 and 2,569,993 of weighted average unvested RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive. For the nine months ended September 30, 2024 and 2023,2,755,785 and 2,668,889 weighted average RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive.

Note 11. Related Party Transactions

Our activities are managed by our Manager. Pursuant to the terms of the Management Agreement, our Manager is responsible for originating investment opportunities, providing asset management services and administering our day-to-day operations. Our Manager is entitled to receive a management fee, an incentive fee, and a termination fee as defined below.

The following table summarizes our management and incentive fees ($ in thousands):

Management Fees

Effective October 1, 2015, our Manager earns a base management fee in an amount equal to 1.50% per annum of Stockholders’ Equity, as defined in the Management Agreement. Management fees are reduced by our pro rata share of any management fees and incentive fees (if incentive fees are not incurred by us) incurred to our Manager by CMTG/TT. Management fees are paid quarterly, inarrears, and$18.1 million and$9.3 million were accrued and were included in management fee payable – affiliate, on our consolidated balance sheets at September 30, 2024 and December 31, 2023, respectively.

Incentive Fees

Our Manager is entitled to an incentive fee equal to 20% of the excess of our Core Earnings on a rolling four-quarter basis, as defined in the Management Agreement, over a 7.00% return on Stockholders’ Equity. Incentive fees are reduced by our pro rata share of any incentive fees incurred to our Manager by CMTG/TT.

There wereno accrued incentive fees on our consolidated balance sheets as of September 30, 2024 and December 31, 2023.

Termination Fees

If we elect to terminate the Management Agreement, we are required to pay our Manager a termination fee equal to three times the sum of the average total annual amount of management fees and the average annual incentive fee paid by us over the prior two years.

Reimbursable Expenses

Our Manager or its affiliates are entitled to reimbursement for certain documented costs and expenses incurred by them on our behalf, as set forth in the Management Agreement, excluding any expenses specifically required to be borne by our Manager under the Management Agreement. For the three months ended September 30, 2024 and 2023, we incurred$1.0 million and$1.1 million respectively, of reimbursable expenses incurred on our behalf by our Manager which are included in general and administrative expenses on our consolidated statements of operations. For the nine months ended September 30, 2024 and 2023, we incurred$3.2 million and$3.0 million of reimbursable expenses incurred on our behalf by our Manager. As of September 30, 2024 and December 31, 2023,$2.0 million and$1.0 million, respectively, of reimbursable expenses incurred on our behalf and due to our Manager are included in other liabilities on our consolidated balance sheets.

Note 12. Stock-Based Compensation

Incentive Award Plan

We are externally managed and do not currently have any employees. On March 30, 2016, we adopted the 2016 Incentive Award Plan (the “Plan”) to promote the success and enhance the value of the Company by linking the individual interests of employees of our Manager and its affiliates to those of our stockholders. As of September 30, 2024, the maximum remaining number of shares that may be issued under the Plan is 3,977,252 shares. Awards granted under the Plan may be granted with the right to receive dividend equivalents and generally vest in equal installments on the specified anniversaries of the grant.

Deferred Compensation Plan

On May 24, 2022, we adopted the Deferred Compensation Plan to provide our directors and certain executives with an opportunity to defer payment of their stock-based compensation or RSUs and director cash fees, if applicable, pursuant to the terms of the Deferred Compensation Plan.

Under our Deferred Compensation Plan, certain of our Board members elected to receive the annual fees and/or time-based RSUs to which they are entitled under our Non-Employee Director Compensation Program in the form of deferred RSUs. Accordingly, for the three months ended September 30, 2024 and 2023, we issued 6,098 and 4,210, respectively, of deferred RSUs in lieu of cash fees to such directors and recognized a related expense of approximately$47,000 and$48,000, respectively. For the nine months ended September 30, 2024 and 2023, we issued 14,576 and 11,097, respectively, of deferred RSUs in lieu of cash fees to such directors and recognized a related expense of approximately$144,000 and$139,000, respectively. Such related expense is included in general and administrative expenses on our consolidated statements of operations.

Non-Employee Director Compensation Program

The Board awards time-based RSUs to eligible non-employee Board members on an annual basis as part of such Board members’ annual compensation in accordance with the Non-Employee Director Compensation Program. The time-based awards are generally issued in the second quarter on the date of the annual meeting of our stockholders, in conjunction with the director’s election to the Board, and the awards vest on the earlier of (x) the one-year anniversary of the grant date and (y) the date of the next annual meeting of our stockholders following the grant date, subject to the applicable participants’ continued service through such vesting date. Effective January 1, 2024, our Non-Employee Director Compensation Program was amended to increase the value of the annual director grants and increase the annual retainer fees payable to the chair and members of the Nominating and Corporate Governing Committee, members of the Compensation Committee and the Lead Independent Director, as set forth in the Non-Employee Director Compensation Program.

Eligible non-executive members of the Board were granted the time-based RSUs under the Plan. Each RSU was granted with the right to receive dividend equivalents. Additionally, certain directors elected to defer their RSUs pursuant to the terms of the Deferred Compensation Plan. Such deferred awards will become payable on the earliest to occur of the participant’s separation from service or a change in control. The following table details the time-based RSUs granted to non-executive members of the Board:

Stock-Based Compensation Expense

For the three months ended September 30, 2024 and 2023, we recognized$5.0 million and$4.4 million, respectively, of stock-based compensation expense related to the RSUs. For the nine months ended September 30, 2024 and 2023, we recognized$13.3 million and$12.1 million, respectively, of stock-based compensation expense related to the RSUs. Such expense is considered a non-cash expense.

Stock-based compensation expense is recognized in earnings on a straight-line basis over the applicable award’s vesting period. Forfeitures of stock-based compensation awards are recognized as they occur. As of September 30, 2024, total unrecognized compensation expense was$24.0 million based on the grant date fair value of RSUs granted. This expense is expected to be recognized over a remaining period of 1.6 years from September 30, 2024.

We may allow participants of the Plan to settle their tax liabilities through a reduction of their vested RSU delivery. Such amount will result in a corresponding adjustment to additional paid-in capital and a cash payment to our Manager or its affiliates in order to remit the required statutory tax withholding to each respective taxing authority. During the three months ended September 30, 2024, we delivered a total of 408,224 shares of our common stock for 652,425 vested RSUs and concurrently recorded a$2.1 million adjustment to additional paid-in capital on our consolidated statement of changes in equity. During the nine months ended September 30, 2024, we delivered a total of 596,454 shares of our common stock for 1,012,741 vested RSUs and concurrently recorded a$3.5 million adjustment to additional paid-in capital on our consolidated statement of changes in equity. During the three and nine months ended September 30, 2023, we delivered a total of 342,786 shares of our common stock for 703,318 vested RSUs and concurrently recorded a$3.9 million adjustment to additional paid-in capital on our consolidated statement of changes in equity.

The following tables detail the time-based RSU activity during thenine months ended September 30, 2024 and 2023:

Note 13. Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 2015 and expect to continue to operate so as to qualify as a REIT. As a result, we will generally not be subject to federal and state income tax on that portion of our income that we distribute to stockholders if we (i) distribute at least 90% of our taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains, and (ii) comply with certain other requirements to qualify as a REIT. Since Commencement of Operations, we have been in compliance with all REIT requirements and we plan to continue to operate so that we meet the requirements for taxation as a REIT. Therefore, other than amounts relating to our taxable REIT subsidiary (“TRS”), as described below, we have not provided for current income tax expense related to our REIT taxable income for thethree and nine months ended September 30, 2024 and 2023, respectively. Additionally, no provision has been made for federal or state income taxes in the accompanying financial statements, as we believe we have met the prescribed requisite requirements.

Our real estate owned hotel portfolio is held in a TRS. A TRS is a corporation that is owned directly or indirectly by a REIT and has jointly elected with the REIT to be treated as a TRS for tax purposes. Given the TRS’s history of generating taxable losses, we are not able to conclude that it is more likely than not that we will realize the future benefit of the TRS’s deferred tax assets and therefore recorded a full valuation allowance. Given the full valuation allowance, we did not record a provision for income taxes for the three and nine months ended September 30, 2024 and 2023, and we didnot have any deferred tax assets or deferred tax liabilities as of September 30, 2024 and December 31, 2023. The deferred tax asset and valuation allowance at September 30, 2024 were $28.0 million, respectively. The deferred tax asset and valuation allowance at December 31, 2023 were $21.7 million, respectively.

We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions, if applicable, are included as a component of the provision for income taxes in our consolidated statements of operations. As of September 30, 2024 and December 31, 2023, we havenot recorded any amounts for uncertain tax positions.

Our tax returns are subject to audit by taxing authorities. As of the date of this filing, tax years 2021 and onward remain open to examination by major taxing jurisdictions in which we are subject to taxes.

Note 14. Commitments and Contingencies

We hold a 51% interest in CMTG/TT as a result of committing to invest $124.9 million in CMTG/TT. Distributions representing repayment proceeds from CMTG/TT’s loans may be recalled by CMTG/TT, if the repayment occurred at leastsix months prior to the loan’s initial maturity date. As of September 30, 2024 and December 31, 2023, we have contributed$163.1 million to CMTG/TT and have received return of capital distributions of$123.3 million, of which$111.1 million were recallable. As of September 30, 2024 and December 31, 2023, our remaining capital commitment to CMTG/TT was$72.9 million.

As of September 30, 2024 and December 31, 2023, we had aggregate unfunded loan commitments of$584.2 million and$1.1 billion respectively, which amounts will generally be funded to finance construction or leasing related expenditures by our borrowers, subject to them achieving certain conditions precedent to such funding. These future commitments will expire over the remaining term of the loans, none of which exceed five years.

Our contractual payments due under all financings were as follows as of September 30, 2024 ($ in thousands):

(1) Includes financings outstanding of $354.1 million related to seven loans in maturity default with aggregate unpaid principal balance of $734.8 million.

(2) Initial maturity is based on the earlier of the initial maturity date of each individual corresponding loan receivable or the maximum maturity date under the respective financing agreement, assuming conditions to extend are met.

(3) Fully extended maturity is based on the earlier of the fully extended maturity date of each individual corresponding loan receivable or the maximum maturity date under the respective financing agreement, assuming conditions to extend are met.

In the normal course of business, we may enter into contracts that contain a variety of representations and provide for general indemnifications. Our maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we expect the risk of loss to be remote.

Note 15. Subsequent Events

We have evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that the following events have occurred:

In October 2024, we sold twoloans. After the repayment of senior financing and transaction costs, the sales generated net liquidity of $51.0 million. See Note 3 - Loan Portfolio for further information.