BrightSpire Capital Inc

3. Loans and Preferred Equity Held for Investment, net

The following table provides a summary of the Company’s loans and preferred equity held for investment, net (dollars in thousands):

(1)Calculated based on contractual interest rate. As of December 31, 2023, all variable rate loans utilize Term Secured Overnight Financing Rate (“Term SOFR”).

(2)Represents loans transferred into securitization trusts that are consolidated by the Company.

The Company had $15.9 million and $16.4 million ofinterest receivable related to its loans and preferred equity held for investment, net as of December 31, 2023 and December 31, 2022, respectively. This is included in receivables, net on the Company’s consolidated balance sheets.

Activity relating to the Company’s loans and preferred equity held for investment, net was as follows (dollars in thousands):

(1)Provision for loan losses excludes a de minimis amount for the years ended December 31, 2023 and December 31, 2022 as determined by the Company’s PD/LGD model for unfunded commitments reported on the consolidated statement of operations, with a corresponding offset to accrued and other liabilities recorded on the Company’s consolidated balance sheets.

(2)Refer to Note 5, “Real Estate, net and Real Estate Held for Sale” for further discussion.

(3)During the third quarter of 2023, the Company charged offone Mezzanine B Note (as defined below) which was deemed uncollectible relating to a multifamily property in Milpitas, California for $14.5 million and the Company charged off the related $14.5 million of CECL reserves.

Loan Modifications

The Company may amend or modify a loan depending on the loan’s specific facts and circumstances. These loan modifications typically include additional time for the borrower to refinance or sell the collateral property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan’s maturity, and/or deferral of scheduled principal payments. In exchange for a modification, the Company may receive a partial repayment of principal, a short-term accrual of capitalized interest for a portion of interest due, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection, and/or increase the loan coupon.

During the second quarter of 2023, the Company amended and restructured a development mezzanine loan related to a multifamily property located in Milpitas, California (the “Development Mezzanine Loan”), bifurcating it into a $30.2 million Mezzanine A note (the “Mezzanine A Note”) and a $14.5 million Mezzanine B note (the “Mezzanine B Note”) to facilitate a new equity contribution from the borrower behind the Mezzanine A Note and ahead of the Mezzanine B Note. As part of the restructuring, the Company extended the terms of both the Mezzanine A Note and the Mezzanine B Note to be conterminous with the senior loan, which was extended to March 2025, with an additionalone-year extension option to March 2026. Prior to the amendment, the Development Mezzanine Loan had a fixed interest rate of 13%. After the amendment, the Mezzanine A Note has a fixed interest rate of 10% and the Mezzanine B Note has a fixed interest rate of 12%. In connection with the amendment and restructuring of the Development Mezzanine Loan, the Company placed the Mezzanine B Note on nonaccrual status in April 2023 and recorded a $14.5 million specific CECL reserve during the first quarter of 2023. As of December, 2023, the amortized cost basis of the Mezzanine A Note was $32.6 million. During the third quarter of 2023, the Mezzanine B Note was charged off as the Company deemed this amount uncollectible.

During the fourth quarter of 2023, the Company amended a Tualatin, Oregon senior loan with an outstanding principal balance of $39.4 million. The modification reduces the loan spread from 3.96% to 1.5%, and includes an exit fee upon repayment of the loan of 2.5% of the principal balance. The modification allows the sponsor to utilize tenant improvements and leasing commission funds for capital improvements such as rezoning the collateral for additional commercial uses, and exploring rezoning certain parcels for multifamily use. Additionally, the sponsor funded $0.3 million into a reserve to fund operating shortfalls.

Nonaccrual and Past Due Loans and Preferred Equity

Loans and preferred equity that are 90 days or more past due as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status.

The following table provides an aging summary of loans and preferred equity held for investment at carrying values before CECL reserve (dollars in thousands):

(1)At December 31, 2023, includesone Denver, Colorado multifamily senior loan which was placed on nonaccrual status on December 9, 2023 with a carrying value of $28.8 million.

(2)At December 31, 2022, represents the Long Island City, New York office senior loan which was in interest payment default and was placed on a nonaccrual status on September 9, 2022. In June 2023, this loan was foreclosed through a deed-in-lieu of foreclosure. Refer to Note 5, “Real Estate, netand Real Estate Held for Sale” for further discussion.

(3)At December 31, 2022 represents the New York, New York Hotel mezzanine loan which was in maturity default as of March 2022.

Current Expected Credit Loss Reserve

The following table provides details on the changes in CECL reserves for the years ended December 31, 2023 and 2022 (dollars in thousands):

(1)Excludes a de minimis amount of CECL reserves related to unfunded commitments reported on the consolidated statement of operations for the years ended December 31, 2023 and 2022.

(2)For the year ended December 31, 2022, excludes $0.2 million related to additional proceeds received onone senior loan collateralized by a student housing property which was resolved in the first quarter of 2022.

(3)During the third quarter of 2023, the Company deemed the $14.5 million Mezzanine B Note uncollectible and charged off the related $14.5 million of specific CECL reserves. During the first quarter of 2022, the Company received a $36.5 million repayment onone senior loan collateralized by a student housing property, which was $1.3 million less than the unpaid principal balance. As such, during the fourth quarter of 2021, the Company had recorded a $1.3 million specific CECL reserve on the loan, as the loss was probable at that point in time and was subsequently charged off in the first quarter of 2022.

The following provides details on the Company’s loans that had specific CECL reserves during the years ended December 31, 2023 and 2022:

Long Island City Office Senior Loans

During the third quarter of 2022, the Company recorded $57.2 million of specific CECL reserves related totwo Long Island City, New York office senior loans. During the first quarter of 2023, the Company recorded an additional $10.6 million of specific CECL reserves related toone Long Island City, New York office senior loan. The specific CECL reserves were based on the estimated fair value of the collateral using a discounted cash flow model, which included inputs based on the location, type and nature of the property, current and prospective leasing data and anticipated market conditions. Refer to Note 13, “Fair Value” for information on valuation inputs. During the second quarter of 2023, the Company acquired legal title through a deed-in-lieu of foreclosure of thetwo Long Island City, New York office properties. The CECL reserves related to these properties were charged off and the net amount is reflected as an addition to real estate, net. Refer to Note 5, “Real Estate, net and Real Estate Held for Sale” for further discussion.

Washington, D.C. Office Senior Loan

During the first quarter of 2023, the Company recorded specific CECL reserves of $29.9 million related toone Washington, D.C. office senior loan. During the third quarter of 2023, the Company recorded additional specific reserves of $4.8 million relating to this loan. The specific CECL reserve was based on the estimated fair value of the collateral using a discounted cash flow model, which included inputs based on the location, type and nature of the property, current and prospective leasing data and anticipated market conditions. During the fourth quarter of 2023, the Company acquired legal title through a judicial foreclosure. Refer to Note 13, “Fair Value” for information on valuation inputs. The CECL reserves related to this property was charged off and the net amount is reflected as an addition to real estate, net. Refer to Note 5, “Real Estate, net and Real Estate Held for Sale” for further discussion.

Development Mezzanine Loan

During the first quarter of 2023, the Company recorded specific CECL reserves of $14.5 million related to the Development Mezzanine Loan. The specific CECL reserve for the Development Mezzanine Loan was recorded in connection with the restructuring and modification of the loan in April 2023, which is collateralized by a multifamily property with a retail component. The specific CECL reserve was based on the estimated proceeds the Company expects to receive upon the resolution of the asset. Refer to Note 13, “Fair Value” for information on valuation inputs. During the third quarter of 2023, the Company deemed the $14.5 million Development Mezzanine Loan uncollectible and charged off the related $14.5 million of specific CECL reserves.

Oakland, CA Office Senior Loan

During the second quarter of 2023, the Company recorded specific CECL reserves of $10.9 million related toone Oakland, California office senior loan. The estimated fair value of the collateral was determined by using a discounted cash flow model, which included inputs based on the location, type and nature of property, current and prospective leasing data and anticipated market conditions. In July 2023, this property was acquired through a deed-in-lieu of foreclosure. The CECL reserves related to this property were charged off and the net amount is reflected as an addition to real estate, net. Refer to Note 5, “Real Estate, net and Real Estate Held for Sale” for further discussion.

Phoenix, AZ Multifamily Loan

During the fourth quarter of 2023, the Company recorded specific CECL reserves of $10.0 million related toone Phoenix, Arizona multifamily property. The specific CECL reserve was based on the estimated fair value of the collateral using a discounted cash flow model, which included inputs based on the location, type and nature of the property, current and prospective leasing data and anticipated market conditions. This property was acquired through a deed-in-lieu of foreclosure. The CECL reserves related to this property were charged off and the net amount is reflected as an addition to real estate, net. Refer to Note 5, “Real Estate, net and Real Estate Held for Sale” for further discussion.

Credit Quality Monitoring

Loans are typically secured by direct senior priority liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its loans at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity.

As of December 31, 2023, all loans and preferred equity were performing in accordance with the contractual terms of their governing documents and were categorized as performing loans, except for the Denver, Colorado multifamily senior loan, as noted in “Nonaccrual and Past Due Loans and Preferred Equity” above. As of December 31, 2022, all loans and preferred equity were performing in accordance with the contractual terms of their governing documents and were categorized as performing loans, except for the New York, New York Hotel mezzanine loan and the Long Island City, New York Office senior loan, as noted in “Nonaccrual and Past Due Loans and Preferred Equity” above. For the years ended December 31, 2023 and December 31, 2022, no debt investment contributed more than 10.0% of interest income.

The following tables provide a summary by carrying values before any CECL reserves of the Company’s loans and preferred equity held for investment by year of origination and credit quality risk ranking (dollars in thousands) as of December 31, 2023 and December 31, 2022 (dollars in thousands). Refer to Note 2, “Summary of Significant Accounting Policies” for loan risk ranking definitions.

At December 31, 2023, the weighted average risk ranking for loans and preferred equity held for investment was 3.2.

As of December 31, 2022, the weighted average risk ranking for loans and preferred equity held for investment was 3.2.

Lending Commitments

The Company has lending commitments to borrowers pursuant to certain loan agreements in which the borrower may submit a request for funding contingent on achieving certain criteria, which must be approved by the Company as lender, such as leasing, performance of capital expenditures and construction in progress with an approved budget. Assuming the terms to qualify for future advances, if any, had been met, total gross unfunded lending commitments were $168.2 million and $263.4 million at December 31, 2023 and December 31, 2022, respectively. Refer to Note 16, “Commitments and Contingencies” for further details. The Company recorded $0.4 million and $0.4 million for allowance for lending commitments in accrued and other liabilities on its consolidated balance sheets in accordance with CECL at December 31, 2023 and December 31, 2022, respectively. See Note 2, “Summary of Significant Accounting Policies” for further details.