Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Summary Table

The following table summarizes the carrying values and estimated fair values of the Company’s financial instruments at September 30, 2021: 
September 30, 2021 December 31, 2020
Carrying Value Estimated Fair Value Fair Value Method (A) Carrying Value Estimated Fair Value
Real estate securities, available-for-sale $ 3,414  $ 3,414  Pricing models - Level 3 $ 3,223  $ 3,223 
Cash and cash equivalents 63,867  63,867    47,786  47,786 
Restricted cash, current and noncurrent 4,151  4,151    3,047  3,047 
Junior subordinated notes payable $ 51,177  $ 27,445  Pricing models - Level 3 $ 51,182  $ 18,591 
Pricing models are used for (i) real estate securities that are not traded in an active market, and, therefore, have little or no price transparency, and for which significant unobservable inputs must be used in estimating fair value, or (ii) debt obligations which are private and not traded.
Fair Value Measurements

The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level One inputs are quoted prices available for identical assets or liabilities in active markets; Level Two inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; and Level Three inputs are unobservable and reflect management's own assumptions.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximate fair value because of their short-term nature. The Company’s real estate securities and debt obligations are currently not traded in active markets and therefore have little or no price transparency. As a result, the Company has estimated the fair value of these illiquid instruments based on internal pricing models subject to the Company’s controls described below.

The Company has various processes and controls in place to ensure that fair value measurements are reasonably estimated. With respect to broker and pricing service quotations, and in order to ensure these quotes represent a reasonable estimate of fair value, the Company’s quarterly procedures include a comparison of such quotations to quotations from different sources, outputs generated from its internal pricing models and transactions completed, as well as on its knowledge and experience of these markets. With respect to fair value estimates generated based on the Company’s internal pricing models, the Company’s management validates the inputs and outputs of the internal pricing models by comparing them to available independent third-party market parameters and models, where available, for reasonableness. The Company believes its valuation methods and the assumptions used are appropriate and consistent with other market participants.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodologies used to determine fair value and such changes could result in a significant increase or decrease in the fair value. For the Company’s investments in real estate securities categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs include the discount rates, assumptions relating to prepayments, default rates and loss severities.

Significant Unobservable Inputs
The following table provides quantitative information regarding the significant unobservable inputs used by the Company for assets and liabilities measured at fair value on a recurring basis as of September 30, 2021:
      Weighted Average Significant Input
Asset Type Amortized Cost Basis Fair Value Discount
Cumulative Default Rate Loss
ABS - Non-Agency RMBS $ 2,159  $ 3,414  11.0  % 7.5  % 2.8  % 65.0  %

All of the inputs used have some degree of market observability, based on the Company’s knowledge of the market, relationships with market participants, and use of common market data sources. Collateral prepayment, default and loss severity projections are in the form of “curves” or “vectors” that vary for each monthly collateral cash flow projection. Methods used to develop these projections vary by asset class but conform to industry conventions. The Company uses assumptions that generate its best estimate of future cash flows of each respective security.

Real estate securities measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended September 30, 2021 as follows:
  ABS - Non-Agency RMBS
Balance at December 31, 2020 $ 3,223 
Total gains (losses) (A)  
Included in other comprehensive income (loss) (214)
Amortization included in interest income 425 
Purchases, sales and repayments (A)  
Proceeds (20)
Balance at September 30, 2021 $ 3,414 

(A) There were no purchases, sales or transfers into or out of Level 3 during the nine months ended September 30, 2021.

Liabilities for Which Fair Value is Only Disclosed
The following table summarizes the level of the fair value hierarchy, valuation techniques and inputs used for estimating each class of liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed:
Type of Liabilities Not Measured At Fair Value for Which Fair Value Is Disclosed Fair Value Hierarchy Valuation Techniques and Significant Inputs
Junior subordinated notes payable Level 3 Valuation technique is based on discounted cash flows. Significant inputs include:
l Amount and timing of expected future cash flows
l Interest rates
l Market yields and the credit spread of the Company