| COMMERCIAL LOANS AND INVESTMENTS |
NOTE 4. COMMERCIAL LOANS AND INVESTMENTS Our investments in commercial loans or similarly structured investments, such as preferred equity, mezzanine loans or other subordinated debt, have been and are expected to continue to be secured by real estate or the borrower’s pledge of its ownership interest in the entity that owns the real estate. The investments are associated with commercial real estate located in the United States, and are current or performing with either a fixed or floating rate. Some of these loans may be syndicated in either a pari-passu or senior/subordinated structure. Commercial first mortgage loans generally provide for a higher recovery rate due to their senior position in the underlying collateral. Commercial mezzanine loans are typically secured by a pledge of the borrower’s equity ownership in the underlying commercial real estate. Unlike a mortgage, a mezzanine loan is not secured by a lien on the property. An investor’s rights in a mezzanine loan are usually governed by an intercreditor agreement that provides holders with the rights to cure defaults and exercise control on certain decisions of any senior debt secured by the same commercial property. 2026 Activity. During the three months ended March 31, 2026, the Company’s $30.0 million Watters Creek preferred equity investment was repaid in full, including all accrued interest. In addition, the Company funded $5.3 million under existing construction loan commitments, net of origination fees received. 2025 Activity. During the three months ended March 31, 2025, no new commercial loans or investments were originated, however $1.4 million of funding was provided for existing construction loans. Other Activity. Certain commercial loans and investments outstanding as of March 31, 2026 required determinations, at origination, related to variable interest entity matters as described herein: | ● | Series A Preferred Investment. On July 11, 2024, the Company funded $10.0 million into an escrow account, which escrow closed on August 1, 2024 in exchange for 10,000 shares of 14.000% Series A preferred stock, with a $0.01 par value per share, of a subsidiary of a publicly-traded hospitality, entertainment and real-estate company (the “Series A Preferred Investment”). In connection with the investment, the Company received an origination fee of 1.0% or $0.1 million. The investment is not redeemable prior to July 11, 2029, except upon the occurrence of certain specified events. The Company determined, pursuant to FASB ASC Topic 810, Consolidation, that we do not have a variable interest in the entity underlying the Series A Preferred Investment; accordingly, FASB Topic ASC 320, Investments-Debt Securities, was applied and the investment was recorded in the consolidated balance sheets as a commercial loan investment at the time of acquisition. |
The Company’s commercial loans and investments were comprised of the following at March 31, 2026 (in thousands): | | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Mortgage Note – Founders Square – Dallas, TX | | March 2023 | | March 2027 | | | 15,000 | | | 15,000 | | | 14,941 | | 9.50% | Series A Preferred Investment | | July 2024 | | July 2029 | | | 10,000 | | | 10,000 | | | 9,934 | | 14.00% | Construction Loan - Rivana - Herndon, VA (1) | | September 2024 | | September 2028 | | | 59,450 | | | 36,907 | | | 35,346 | | 11.54% | Construction Loan - Whole Foods - Forsyth, GA | | November 2024 | | May 2027 | | | 40,200 | | | 16,509 | | | 16,333 | | 12.15% | Mortgage Note - Mainstreet - Daytona Beach, FL | | August 2025 | | August 2030 | | | 5,000 | | | 5,000 | | | 4,978 | | 6.50% | | | | | | | $ | 129,650 | | $ | 83,416 | | $ | 81,532 | | | CECL Reserve | | | | | | | | | | | | | (819) | | | Total Commercial Loans and Investments | | | | | | | | | | | | $ | 80,713 | | |
| (1) | Amounts funded prior to December 31, 2025 carry a coupon rate of 11.50%, while draws subsequent to that date have a 12.00% coupon rate, including 10.00% cash and 2.00% accrued paid-in-kind interest. The disclosed rate of 11.54% represents the weighted average coupon rate as of March 31, 2026. |
The Company’s commercial loans and investments were comprised of the following at December 31, 2025 (in thousands): | | | | | | | | | | | | | | | | Description | | Date of Investment | | Maturity Date | | Original Face Amount | | Current Face Amount | | Carrying Value | | Coupon Rate | Preferred Investment – Watters Creek – Allen, TX | | April 2022 | | April 2026 | | $ | 30,000 | | $ | 30,000 | | $ | 29,980 | | 9.50% | Mortgage Note – Founders Square – Dallas, TX (1) | | March 2023 | | March 2027 | | | 15,000 | | | 15,000 | | | 14,992 | | 8.75% | Series A Preferred Investment | | July 2024 | | July 2029 | | | 10,000 | | | 10,000 | | | 9,929 | | 14.00% | Construction Loan - Rivana - Herndon, VA (2) | | September 2024 | | September 2028 | | | 59,450 | | | 34,246 | | | 32,478 | | 11.50% | Construction Loan - Whole Foods - Forsyth, GA | | November 2024 | | May 2027 | | | 40,200 | | | 13,804 | | | 13,588 | | 12.15% | Mortgage Note - Mainstreet - Daytona Beach, FL | | August 2025 | | August 2030 | | | 5,000 | | | 5,000 | | | 4,977 | | 6.50% | | | | | | | $ | 159,650 | | $ | 108,050 | | $ | 105,944 | | | CECL Reserve | | | | | | | | | | | | | (1,140) | | | Total Commercial Loans and Investments | | | | | | | | | | | | $ | 104,804 | | | | | | | | | | | | | | | | | | |
| (1) | Coupon rate increased to 9.5% effective January 1, 2026. |
| (2) | Future draws funded will have a 12.0% coupon rate including 10% cash and 2.0% accrued paid-in-kind interest. |
The carrying value of the commercial loans and investments portfolio at March 31, 2026 and December 31, 2025 consisted of the following (in thousands): | | | | | | | | | As of | | | March 31, 2026 | | December 31, 2025 | Current Face Amount | | $ | 83,416 | | $ | 108,050 | Unaccreted Origination Fees | | | (675) | | | (778) | Unaccreted Exit Fees | | | (1,209) | | | (1,328) | CECL Reserve | | | (819) | | | (1,140) | Total Commercial Loans and Investments | | $ | 80,713 | | $ | 104,804 |
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