Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2022
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, 2022: 
September 30, 2022 December 31, 2021
Carrying Value Estimated Fair Value
Fair Value Method (A)
Carrying Value Estimated Fair Value
Real estate securities, available-for-sale $ 2,041  $ 2,041  Pricing models - Level 3 $ 3,486  $ 3,486 
Cash and cash equivalents 11,655  11,655    58,286  58,286 
Restricted cash, current and noncurrent 4,564  4,564    4,278  4,278 
Junior subordinated notes payable $ 51,169  $ 35,307  Pricing models - Level 3 $ 51,174  $ 27,625 
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 categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company follows this hierarchy for its financial instruments measured at fair value.

Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on observable market parameters, including:
quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves observable at commonly quoted intervals, implied volatilities and credit spreads), and
market corroborated inputs (derived principally from or corroborated by observable market data).
Level 3 - Valuations determined using unobservable inputs that are supported by little or no market activity, and that are significant to the overall fair value measurement.

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.
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 those of 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, 2022:
      Weighted Average Significant Input
Asset Type Amortized Cost Basis Fair Value Discount
Cumulative Default Rate Loss
ABS - Non-Agency RMBS $ 2,875  $ 2,041  12.0  % 7.5  % 2.6  % 55.0  %

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, 2022 as follows:
  ABS - Non-Agency RMBS
Balance at December 31, 2021 $ 3,486 
Total gains (losses) (A)
Included in other comprehensive income (loss) (1,997)
Amortization included in interest income 566 
Purchases, sales and repayments (A)
Balance at September 30, 2022 $ 2,041 

(A)None of the gains (losses) recorded in earnings during the period is attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting date. There were no purchases or sales during the nine months ended September 30, 2022. There were no transfers into or out of Level 3 during the nine months ended September 30, 2022.

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