References in this quarterly report to "we," "us" or the "Company" refer to
ACRES Commercial Realty Corp. The following discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the consolidated financial statements and accompanying notes
appearing elsewhere in this report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements can
generally be identified by our use of forward-looking terminology such as "may,"
"will," "continue," "expect," "intend," "anticipate," "estimate," "believe,"
"look forward" or other similar words or terms. Because such statements include
risks, uncertainties and contingencies, actual results may differ materially
from the expectations, intentions, beliefs, plans or predictions of the future
expressed or implied by such forward-looking statements. For information
identifying important factors that could cause actual results to differ
materially from those anticipated in the forward-looking statements, including,
without limitation, factors impacting whether we will be able to maintain our
sources of liquidity and whether we will be able to identify sufficient suitable
investments to increase our originations, please refer to the Risk Factors
section of the Company's Annual Report on Form 10-K for the year ended December
31, 2021 filed with the U.S. Securities and Exchange Commission (the "SEC").
Except as expressly required by applicable securities law, the Company disclaims
any intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.

Overview

We are a Maryland corporation and an externally managed real estate investment
trust ("REIT") that is primarily focused on originating, holding and managing
commercial real estate ("CRE") mortgage loans and equity investments in
commercial real estate properties through direct ownership and joint ventures.
Our manager is ACRES Capital, LLC (our "Manager"), a subsidiary of ACRES Capital
Corp. (collectively, "ACRES"), a private commercial real estate lender
exclusively dedicated to nationwide middle market CRE lending with a focus on
multifamily, student housing, hospitality, office and industrial property in top
United States ("U.S.") markets. Our Manager draws upon the management team of
ACRES and its collective investment experience to provide its services. Our
objective is to provide our stockholders with total returns over time, including
quarterly distributions and capital appreciation, while seeking to manage the
risks associated with our investment strategies as well as to maximize long-term
stockholder value by maintaining stability through our available liquidity and
diversified CRE loan portfolio.

In December 2019, a novel strain of coronavirus ("COVID-19") was identified. The
resulting spread of COVID-19 throughout the globe led the World Health
Organization to designate COVID-19 as a pandemic and numerous countries,
including the U.S, to declare national emergencies. Many countries responded to
the initial and ensuing outbreaks of COVID-19 by instituting quarantines and
restrictions on travel and limiting operations of non-essential offices and
retail centers, which resulted in the closure or remote operation of
non-essential businesses, increased rates of unemployment and market disruption
in connection with the economic uncertainty. The aforementioned quarantines and
travel restrictions contributed significantly to economic disruptions across the
country that directly impacted our borrowers and their ability to pay and to
stay current with their debt obligations in 2020 and 2021, causing significant
increases in our provisions for credit losses. During the height of the
pandemic, we used a variety of legal and structural options to manage credit
risk effectively, including through forbearance and extension provisions or
other agreements.

Due in large part to the development and distribution of vaccines and other
treatments, the U.S. and other countries around the world have eased or removed
restrictions entirely, financial markets are more liquid, collateral performance
has improved and unemployment rates have stabilized to some degree; as such, at
September 30, 2022, we have substantially reversed provisions for credit losses
related to macroeconomic factors impacted by COVID-19. For additional discussion
with respect to the potential impact of COVID-19 on our liquidity and capital
resources, see "Liquidity and Capital Resources."

Currently, domestic and global markets are grappling with managing rising
inflation rates, supply chain disruptions and energy market dislocations. These
additional market pressures are manifesting themselves in higher consumer prices
and have led domestic and global monetary policy makers to raise historically
low short-term interest rates at rates much faster than originally anticipated
by domestic and global financial markets in hopes of containing inflation and
staving off or tempering an economic recession. The U.S. Federal Reserve has
raised the Federal Funds rate by 3.00% in five rate hikes between March 2022 and
September 2022 to combat inflation, and more rate hikes are expected in the near
future. These increases in the cost of capital and goods are expected to cause
short-term dislocations in various investment and financing markets in which we
participate as we and other market participants adjust to the new financing
environment.

We continuously monitor the effects of domestic and global events, including but
not limited to the current and expected impacts of inflation, labor shortages,
supply chain matters and rising interest rates, on our operations and financial
position to ensure that we remain responsive and adaptable to the dynamic
changes in our operating environment. However, it is inherently difficult to

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accurately assess the continuing impact of domestic or global macroeconomic
events on our revenues, profitability and financial position. In response, we
continue to actively and responsibly manage corporate liquidity and operations
in light of changing macroeconomic circumstances, and our Manager continuously
monitors for new capital opportunities and executes on agreements that are
expected to enhance our returns.

We target originating transitional floating-rate CRE loans between $10.0 million
and $100.0 million. During the three and nine months ended September 30, 2022,
we originated six and 18 floating-rate CRE whole loans, respectively, with total
commitments of $181.3 million and $592.8 million, respectively. We anticipate
that our CRE loan originations, CRE debt securitizations and other CRE-related
investments for the year ended December 31, 2022 will be between $600.0 million
and $800.0 million.

Our CRE loan portfolio, which had $2.1 billion and $1.9 billion carrying values
at September 30, 2022 and December 31, 2021, respectively, comprised:

• First mortgage loans, which we refer to as whole loans. These loans are

typically secured by first liens on CRE property, including the following

property types: multifamily, office, hotel, self-storage, retail, student

housing, manufactured housing, industrial, healthcare and mixed-use. At

September 30, 2022 and December 31, 2021, our whole loans had a carrying

         value of $2.1 billion and $1.9 billion, respectively, or 99.8%, of the
         CRE loan portfolio.

• Mezzanine debt is senior to the borrower’s equity but is subordinated to

other third-party debt. These loans are subordinated CRE loans, usually

secured by a pledge of the borrower’s equity ownership in the entity that

         owns the property or by a second lien mortgage on the property.  At
         September 30, 2022 and December 31, 2021, our mezzanine loan had a
         carrying value of $4.5 million and $4.4 million, respectively, or 0.2% of
         the CRE loan portfolio.


We generate our income primarily from the spread between the revenues we receive
from our assets and the cost to finance our ownership of those assets, including
corporate debt.

While the CRE whole loans included in the CRE loan portfolio are substantially
composed of floating-rate loans benchmarked to market rates including the London
Interbank Offered Rate ("LIBOR") and the Secured Overnight Financing Rate
("SOFR"), asset yields are protected through the use of benchmark floors and
minimum interest periods that typically range from 12 to 18 months at the time
of a loan's origination. Our benchmark floors provide asset yield protection
when the benchmark rate falls below an in-place benchmark floor. Our net
investment returns are enhanced by a decline in the cost of our floating-rate
liabilities that do not have benchmark floors. Our net investment returns will
be negatively impacted by the rising cost of our floating-rate liabilities that
do not have floors until the benchmark rate is above the benchmark floor, at
which point our floating-rate loans and floating-rate liabilities will be match
funded, effectively locking in our net interest margin until the benchmark floor
rate is activated again or the floating-rate loan is paid off or refinanced.

At September 30, 2022, our $2.1 billion floating-rate CRE loan portfolio, at
par, which includes one whole loan without a benchmark floor, had a weighted
average benchmark floor of 0.67%. At December 31, 2021, our par-value $1.9
billion floating-rate CRE loan portfolio, which included one loan without a
benchmark floor, had a weighted average benchmark floor of 0.75%. The decrease
in the weighted average benchmark floor was a result of older CRE floating-rate
loans with higher floors paying off and being replaced with newer loans with
lower floors. With the trend of rising benchmark rates in 2022 (both LIBOR and
SOFR), we have seen the coupons on all of our floating-rate assets and debt rise
accordingly. Because we have equity invested in each floating-rate loan, and
because in all instances the benchmark rates are above our loan floors, the rise
in interest rates expected by the market will result in an increase in our net
interest income. See "Interest Rate Risk" in "Item 3: Quantitative and
Qualitative Disclosures About Market Risk."

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Our portfolio comprises loans with a diverse array of collateral types. We
increased our multifamily portfolio allocation to 75.0% at September 30, 2022 up
from 69.7% at December 31, 2021. The following charts show our portfolio
allocation by property type at September 30, 2022 and December 31, 2021:

[[Image Removed]][[Image Removed]]

All but two of our loans were current on contractual payments at September 30,
2022. Each of these two loans, which were in maturity default, had recent
appraisals in excess of their par balances and, as such, did not require
individual reserves for current expected credit losses ("CECL"). Additionally,
we have executed extensions on six loans at a weighted average extension of two
months in exchange for $254,000 of fees during the nine months ended
September 30, 2022.

Our CRE mezzanine loan earns interest at a fixed rate.

From time to time, we may acquire real estate property through direct equity
investments or as a result of our lending activities. At September 30, 2022, the
total carrying value of our net real estate-related assets and liabilities was
$82.6 million on four properties owned. The existence of net capital loss
carryforwards available until December 31, 2025, allows for potential future
capital gains on these investments to be shielded from income taxes.
Additionally, at September 30, 2022, our investments in real estate comprise two
hotel properties with a combined carrying value of $53.3 million classified as
properties held for sale and offset by liabilities held for sale of $3.0
million.

We use leverage to enhance our returns. The cost of borrowings to finance our
investments is a significant part of our expenses. Our net interest income
depends on our ability to control these expenses relative to our revenue. Our
CRE loans may initially be financed with term facilities, such as CRE loan
warehouse financing facilities, in anticipation of their ultimate
securitization. We ultimately seek to finance our CRE loans through the use of
non-recourse long-term, match-funded CRE debt securitizations.

Our asset-specific borrowings comprised term warehouse financing facilities, CRE
debt securitizations, our senior secured financing facility and mortgage
payable. We executed the optional redemptions on Exantas Capital Corp.
2020-RSO9, Ltd. (“XAN 2020-RSO9”) and Exantas Capital Corp. 2020-RSO8, Ltd.
(“XAN 2020-RSO8”) in February 2022 and March 2022, respectively.

At September 30, 2022 and December 31, 2021, we had outstanding balances on our
CRE loan term warehouse financing facilities of $379.1 million and $66.8
million, respectively, or 19.8% and 3.7%, respectively, of total outstanding
borrowings. At September 30, 2022 and December 31, 2021, we had outstanding
balances of $1.2 billion and $1.5 billion, respectively, on CRE debt
securitizations, or 64.4% and 80.8%, respectively, of total outstanding
borrowings. At September 30, 2022, we had outstanding borrowings on our senior
secured financing facility of $85.5 million, or 4.5% of total outstanding
borrowings. At September 30, 2022, we had outstanding borrowings on our mortgage
payable of $18.2 million, or 1.0% of total outstanding borrowings. At
December 31, 2021, we had no outstanding borrowings on our senior secured
financing facility nor on our mortgage payable.

In February 2022, we repurchased $39.8 million par value of our 4.50%
convertible senior notes due 2022 ("4.50% Convertible Senior Notes"). In
conjunction with the repurchase, we accelerated $460,000 of the convertible note
discount, which was recorded as an extinguishment of debt cost, and $114,000 of
deferred debt issuance costs, which were recorded in interest expense. In August
2022, the remaining $48.2 million of outstanding notes were paid off upon
maturity at par.

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In January 2020, we adopted updated accounting guidance that replaced the
incurred loss approach with the CECL model for the determination of our
allowance for loan losses. We reevaluate our CECL allowance quarterly,
incorporating our current expectations of macroeconomic factors considered in
the determination of our CECL reserves. At September 30, 2022, the CECL
allowance on our CRE loan portfolio was $7.9 million, or 0.37% of our $2.1
billion loan portfolio. At December 31, 2021, the CECL allowance on our CRE loan
portfolio was $8.8 million, or 0.46% of our $1.9 billion of our loan portfolio.
During the three months ended September 30, 2022, we recorded a provision for
credit losses that reflected current macroeconomic expectations related to
rising inflation, interest rates and expected unemployment. For the year ended
December 31, 2021, we recorded net reversals of credit losses, which at the
time, reflected improvements in macroeconomic conditions, improved collateral
operating performance and improvements in or resolutions of
individually-evaluated loans.

Additionally, the steady decline in our CECL reserves from our highest reserve
balance in June 30, 2020 of $61.1 million, or 3.44% of the par balance of our
CRE loan portfolio, to our current reserve balance at September 30, 2022 of $7.9
million, or 0.37% of the par balance of our CRE loan portfolio, has been due to
the following: the successful resolution of our individually evaluated loans
with specific reserves, the overall newer vintage of our CRE loan portfolio
(with 16.3% of the portfolio, at September 30, 2022, being originated prior to
the fourth quarter of 2020) as well as the increasing percentage allocation of
our CRE loan portfolio to multifamily loans over time. Multifamily loans have
historically had the lowest credit losses of any asset class for us and as a
sample population in the third-party model that we use to support our CECL
reserves. Our percentage allocation of our CRE loan portfolio to multifamily has
grown from 58.4% at June 30, 2020 to 75.0% at September 30, 2022.

During the three months ended September 30, 2022, we recorded no charge-offs.
During the nine months ended September 30, 2022, we recorded $2.3 million in
charge-offs, primarily attributable to the discounted payoff of one loan that
resulted in a realized loss of $2.3 million for which a CECL allowance was
established at December 31, 2021.

We historically used derivative financial instruments, including interest rate
swaps, to hedge a portion of the interest rate risk associated with our
borrowings. In April 2020, we terminated all interest rate hedges in conjunction
with the disposition of our financed commercial mortgage-backed securities
("CMBS") portfolio. At September 30, 2022 and December 31, 2021, we had
unrealized losses in connection with the terminated hedges of $7.1 million and
$8.5 million, respectively, which will be amortized into interest expense over
the remaining life of the debt. We recognized amortization expense on these
terminated contracts of $438,000 and $1.4 million, respectively, during the
three and nine months ended September 30, 2022.

Common stock book value was $25.08 per share at September 30, 2022, a $1.21 per
share increase from December 31, 2021, primarily resulting from the accretive
benefit of our board of directors, or our Board-approved common stock repurchase
program, offset by net losses from operations incurred during the quarter.

Impact of Reference Rate Reform

As discussed in the "Overview" section above, our CRE whole loans and our
asset-specific borrowings are primarily benchmarked to one-month LIBOR. In March
2021, the United Kingdom's Financial Conduct Authority announced that it would
cease publication of the one-week and two-month USD LIBOR immediately after
December 31, 2021 and cease publication of the remaining tenors immediately
after June 30, 2023.

While there is no consensus on what rate or rates may become accepted
alternatives to LIBOR, the U.S. Federal Reserve, in conjunction with the
Alternative Reference Rates Committee, a steering committee comprising large
U.S. financial institutions, has identified SOFR, a new index calculated by
short-term repurchase agreements backed by U.S. Treasury securities, as its
preferred alternative rate for LIBOR. All our underwritten loans contain terms
that allow for a change to an alternative benchmark rate upon the
discontinuation of LIBOR. In September 2021, January 2022 and February 2022, the
term warehouse financing facilities with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase"), Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") and
Barclays Bank PLC ("Barclays"), respectively, were amended to allow for the
transition to alternative rates, including rates tied to SOFR, subject to
benchmark transition events. Beginning in January 2022, all loans are
underwritten using SOFR as the benchmark rate.

The transition from LIBOR to SOFR or to another alternative rate may result in
financial market disruptions and significant increases in benchmark rates,
resulting in increased financing costs to us, any of which could have an adverse
effect on our business, results of operations, financial condition, and the
market price of our common stock. Further discussion of the risk related to
ongoing reference rate reform is provided in the section entitled "Risk Factors"
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Results of Operations

Our net income allocable to common shares for the three months ended
September 30, 2022 was $713,000, or $0.08 per share-basic ($0.08 per
share-diluted). Our net loss allocable to common shares for the nine months
ended September 30, 2022 was $1.4 million, or $(0.15) per share-basic ($(0.15)
per share-diluted), as compared to net (loss) income allocable to common shares
for the three and nine months ended September 30, 2021 of ($9.8) million, or
$(1.03) per share-basic ($(1.03) per share-diluted) and $10.7 million, or $1.09
per share-basic ($1.09 per share-diluted), respectively.

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Net Interest Income

The following tables analyze the change in interest income and interest expense
for the comparative three and nine months ended September 30, 2022 and 2021 by
changes in volume and changes in rates. The changes attributable to the combined
changes in volume and rate have been allocated proportionately, based on
absolute values, to the changes due to volume and changes due to rates (dollars
in thousands, except amounts in footnotes):
                                                   Three Months Ended 

September 30, 2022 Compared to Three Months Ended

                                                                            September 30, 2021
                                                                                                   Due to Changes in
                                                                      Percent
                                                Net Change           Change (1)               Volume               Rate
Increase (decrease) in interest income:
CRE whole loans (2)                             $    10,069                   43 %          $     4,970         $     5,099
Legacy CRE loan (2)(3)                                 (159 )               (100 )%                (189 )                30
Other                                                   169                  423 %                  169                   -
Total increase in interest income                    10,079                   42 %                4,950               5,129
Increase (decrease) in interest expense:
Securitized borrowings: (4)
XAN 2020-RSO8 Senior Notes                           (1,227 )               (100 )%              (1,227 )                 -
XAN 2020-RSO9 Senior Notes                           (2,053 )               (100 )%              (2,053 )                 -
ACR 2021-FL1 Senior Notes                             3,491                  107 %                 (132 )             3,623
ACR 2021-FL2 Senior Notes                             6,182                  100 %                6,182                   -
Senior secured financing facility                       502                   64 %                  502                   -
CRE - term warehouse financing facilities (4)         3,264                  225 %                2,142               1,122
4.50% Convertible Senior Notes (4)                   (2,093 )                (83 )%              (2,093 )                 -
5.75% Senior Unsecured Notes (4)                      1,158                  101 %                1,158                   -
12.00% Senior Unsecured Notes (4)                    (1,048 )                (97 )%              (1,048 )                 -
Unsecured junior subordinated debentures                280                   52 %                    -                 280
Hedging                                                 (51 )                (11 )%                 (51 )                 -
Total increase in interest expense                    8,405                   58 %                3,380               5,025
Net increase in net interest income             $     1,674                                 $     1,570         $       104

(1) Percent change is calculated as the net change divided by the respective

interest income or interest expense for the three months ended September 30,

2021.

(2) Includes an increase in fee income of $386,000 and a decrease in fee income

of $18,000 recognized on our CRE whole loans and legacy CRE loan,

respectively, that were due to changes in volume.

(3) Includes the change in interest income recognized on one legacy CRE loan with

an amortized cost of $11.5 million at December 31, 2021 classified as a CRE

loan on the consolidated balance sheet. The loan paid off in January 2022.

(4) Includes decreases in amortization expense of $779,000, $978,000 and $242,000

on our securitized borrowings, 4.50% Convertible Senior Notes and 12.00%

senior unsecured notes, respectively, and increases in amortization expense

of $110,000 and $80,000 on our CRE – term warehouse financing facilities and

    5.75% Senior Unsecured Notes, respectively, that were due to changes in
    volume.


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                                               Nine Months Ended September 

30, 2022 Compared to Nine Months Ended

September 30, 2021

                                                                                              Due to Changes in
                                                                  Percent
                                           Net Change           Change (1)               Volume               Rate
Increase (decrease) in interest income:
CRE whole loans (2)                        $    11,010                    15 %         $    13,080         $    (2,070 )
Legacy CRE loan (2)(3)                            (449 )                 (94 )%               (509 )                60
CRE preferred equity investments (2)            (1,378 )                (100 )%             (1,378 )                 -
CMBS                                              (161 )                (100 )%               (161 )                 -
Other                                              210                   288 %                 210                   -
Total increase in interest income                9,232                    12 %              11,242              (2,010 )
Increase (decrease) in interest expense:
Securitized borrowings: (4)
XAN 2019-RSO7 Senior Notes                      (5,172 )                (100 )%             (5,172 )                 -
XAN 2020-RSO8 Senior Notes                      (5,548 )                 (82 )%             (5,976 )               428
XAN 2020-RSO9 Senior Notes                      (6,517 )                 (87 )%             (6,787 )               270
ACR 2021-FL1 Senior Notes                        9,210                   185 %                 378               8,832
ACR 2021-FL2 Senior Notes                       13,471                   100 %              13,471                   -
Senior secured financing facility                 (803 )                 (26 )%               (803 )                 -
CRE - term warehouse financing
facilities (4)                                   4,800                   140 %               3,611               1,189
4.50% Convertible Senior Notes (4)              (4,984 )                 (65 )%             (4,984 )                 -
5.75% Senior Unsecured Notes (4)                 5,763                   502 %               5,763                   -
12.00% Senior Unsecured Notes (4)               (3,920 )                 (93 )%             (3,920 )                 -
Unsecured junior subordinated debentures           383                    24 %                   -                 383
Hedging                                            (52 )                  (4 )%                (52 )                 -
Total increase in interest expense               6,631                    14 %              (4,471 )            11,102
Net increase (decrease) in net interest
income                                     $     2,601                                 $    15,713         $   (13,112 )

(1) Percent change is calculated as the net change divided by the respective

interest income or interest expense for the nine months ended September 30,

2021.

(2) Includes decreases in fee income of $1.0 million and $55,000 recognized on

our CRE whole loans and legacy CRE loan, respectively, and an increase of

$64,000 on our preferred equity investments, that were due to changes in

volume.

(3) Includes the change in interest income recognized on one legacy CRE loan with

an amortized cost of $11.5 million at December 31, 2021 classified as a CRE

loan on the consolidated balance sheet. The loan paid off in January 2022.

(4) Includes decreases in amortization expense of $5.9 million, $1.9 million and

$139,000 on our securitized borrowings, 4.50% Convertible Senior Notes and

12.00% Senior Unsecured Notes, respectively, and increases in amortization

expense of $159,000 and $372,000 on our CRE – term warehouse financing

facilities and 5.75% Senior Unsecured Notes, respectively, that were due to

changes in volume.

Net Change in Interest Income for the Comparative three and nine months ended
September 30, 2022 and 2021:

Aggregate interest income increased by $10.1 million and $9.2 million for the
comparative three and nine months ended September 30, 2022 and 2021,
respectively. We attribute the changes to the following:

CRE whole loans. The increase of $10.1 million for the comparative three months
ended September 30, 2022 and 2021 was primarily attributable to an increase in
the benchmark rates and a net increase in the size of the total loan portfolio
over the comparative periods. The increase of $11.0 million for the comparative
nine months ended September 30, 2022 and 2021 was primarily attributable to a
net increase in the size of the total loan portfolio period over the comparative
periods. The aforementioned increase over the comparative nine months was
partially offset by a net decline in loan yields attributable to a decline in
the weighted-average rate floors on our total loan portfolio.

Legacy CRE loan. The decrease of $449,000 for the comparative nine months ended
September 30, 2022 and 2021 was primarily attributable to the payoff of our
remaining legacy CRE whole loan in January 2022.

CRE preferred equity investments. The decrease of $1.4 million for the
comparative nine months ended September 30, 2022 and 2021 was attributable to
the payoffs of the preferred equity investments in March 2021 and April 2021.

CMBS. The decrease of $161,000 for the comparative nine months ended
September 30, 2022 and 2021 was attributable to the disposition of our two
remaining CMBS securities in March 2021.

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Net Change in Interest Expense for the Comparative three and nine months ended
September 30, 2022 and 2021:

Aggregate interest expense increased by $8.4 million and $6.6 million for the
comparative three and nine months ended September 30, 2022 and 2021,
respectively. We attribute the changes to the following:

Securitized borrowings. The net increases of $6.4 million and $5.4 million for
the comparative three and nine months ended September 30, 2022 and 2021,
respectively, were primarily attributable to the issuance of ACRES Commercial
Realty 2021-FL2 Issuer, Ltd. ("ACR 2021-FL2") and an increase in benchmark rates
over the comparative periods. These increases were partially offset by the
liquidations of Exantas Capital Corp. 2019-RSO7, Ltd. ("XAN 2019-RSO7"), XAN
2020-RSO8 and XAN 2020-RSO9.

Senior secured financing facility. The increase of $502,000 for the comparative
three months ended September 30, 2022 and 2021 was attributable to increased
utilization of the senior secured financing facility in the third quarter 2022.
The decrease of $803,000 for the comparative nine months ended September 30,
2022 was attributable to overall lower utilization of the senior secured
financing facility during the nine months ended September 30, 2022 as compared
to the nine months ended September 30, 2021.

CRE - term warehouse financing facilities. The increases of $3.3 million and
$4.8 million for the comparative three and nine months ended September 30, 2022
and 2021, respectively, were primarily attributable to the increased utilization
of these facilities during the three and nine months ended September 30, 2022.

4.50% Convertible Senior Notes. The decreases of $2.1 million and $5.0 million
for the comparative three and nine months ended September 30, 2022 and 2021,
respectively, were primarily attributable to the partial redemption of $55.7
million of our outstanding 4.50% Convertible Senior Notes during the year ended
December 31, 2021 and the redemption of the remaining $88.0 million of our 4.50%
Convertible Senior Notes during the nine months ended September 30, 2022.

5.75% Senior Unsecured Notes. The increases of $1.2 million and $5.8 million for
the comparative three and nine months ended September 30, 2022 and 2021,
respectively, were attributable to the issuance of our 5.75% Senior Unsecured
Notes in August 2021.

12.00% Senior Unsecured Notes due 2027. The decreases of $1.0 million and $3.9
million for the comparative three and nine months ended September 30, 2022 and
2021, respectively, were attributable to the redemption of the entire
outstanding balance of our 12.00% Senior Unsecured Notes in August 2021.

Unsecured junior subordinated debentures. The increases of $280,000 and $383,000
for the three and nine months ended September 30, 2022 and 2021, respectively,
were attributable to an increase in the benchmark interest rate for our
unsecured junior subordinated debentures, over the comparative periods.

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Average Net Yield and Average Cost of Funds:

The following tables present the average net yield and average cost of funds for
the three and nine months ended September 30, 2022 and 2021 (dollars in
thousands, except amounts in footnotes):

                                 For the Three Months Ended September 30, 2022             For the Three Months Ended September 30, 2021
                                                                                                                                   Average
                                                                                                                                     Net
                                                                                                                                    Yield
                                                   Interest          Average Net                                  Interest         (Cost of
                                Average             Income          Yield (Cost of                                 Income           Funds)
                                Balance           (Expense)           Funds) (1)         Average Balance         (Expense)           (1)
Interest-earning assets
CRE whole loans,
floating-rate (2)             $  2,079,131       $     33,736                 6.44 %    $       1,724,333       $     23,667           5.45 %
Legacy CRE loan (2)                      -                  -                    - %               11,516                159           5.49 %
CRE mezzanine loan                   4,700                120                 9.96 %                4,700                120           9.96 %
Other                               62,436                209                 1.33 %               74,564                 40           0.21 %
Total interest
income/average net yield         2,146,267             34,065                 6.30 %            1,815,113             23,986           5.25 %

Interest-bearing

liabilities

Collateralized by:
CRE whole loans (3)(4)           1,659,729            (18,923 )              (4.59 )%           1,186,301             (8,764 )        (2.75 )%
General corporate debt:
Unsecured junior
subordinated debentures             51,548               (820 )              (6.22 )%              51,548               (540 )        (4.10 )%
4.50% Convertible Senior
Notes (5)                           22,970               (443 )              (7.56 )%             119,159             (2,536 )        (8.33 )%
5.75% Senior Unsecured
Notes (6)                          147,280             (2,306 )              (6.21 )%              73,379             (1,148 )        (6.21 )%
12.00% Senior Unsecured
Notes (7)(8)                             -                (32 )                  - %               26,047             (1,080 )       (16.44 )%
Hedging (9)                              -               (415 )                  - %                    -               (466 )            - %
Total interest
expense/average cost of
funds                         $  1,881,527            (22,939 )              (4.80 )%   $       1,456,434            (14,534 )        (3.67 )%
Total net interest income                        $     11,126                                                   $      9,452

(1) Average net yield includes net amortization/accretion and fee income and is

computed based on average amortized cost.

(2) Includes fee income of $2.4 million on our CRE whole loans for the three

months ended September 30, 2022 and $2.0 million and $18,000 on our CRE whole

loans and legacy CRE loan, respectively, for the three months ended

September 30, 2021.

(3) Includes amortization expense of $1.4 million and $2.1 million for the three

months ended September 30, 2022 and 2021, respectively, on our

interest-bearing liabilities collateralized by CRE whole loans.

(4) The average cost of funds for the three months ended September 30, 2021

excludes the impact of amortization of deferred debt issuance costs and

unused fees incurred on a CRE term warehouse facility that was unused during

the period.

(5) Includes aggregated amortization expense of $179,000 and $1.2 million for the

three months ended September 30, 2022 and 2021, respectively, on our 4.50%

Convertible Senior Notes. The amortization expense for the three months ended

September 30, 2021 included $304,000 of acceleration of deferred debt

issuance costs in connection with the repurchase of $55.7 million principal

amount of 4.50% Convertible Senior Notes during the period.

(6) Includes amortization expense of $150,000 and $70,000 for the three months

ended September 30, 2022 and 2021, respectively, on our 5.75% Senior

Unsecured Notes.

(7) Includes amortization expense of $32,000 and $274,000 for the three months

    ended September 30, 2022 and 2021, respectively, on our 12.00% Senior
    Unsecured Notes. The amortization expense for the three months ended
    September 30, 2021 included $218,000 of acceleration of deferred debt
    issuance costs in connection with the redemption of all $50.0 million
    principal amount of 12.00% Senior Unsecured Notes during the period.

(8) The outstanding par balance of our 12.00% Senior Unsecured Notes was redeemed

in full in August 2021. At any time and from time to time prior to July 31,

2022, we were permitted to elect to issue up to $75.0 million of principal of

additional notes. The interest expense incurred during the three months ended

September 30, 2022 comprised amortization of deferred debt issuance costs on

the remaining availability.

(9) Includes net amortization expense of $415,000 and $466,000 for the three

months ended September 30, 2022 and 2021, respectively, on 22 terminated

interest rate swap agreements that were in net loss positions at the time of

    termination. The remaining losses, reported in accumulated other
    comprehensive (loss) income on the consolidated balance sheets, will be
    accreted over the remaining life of the debt.




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                                  For the Nine Months Ended September 30, 2022                For the Nine Months Ended September 30, 2021
                                                   Interest          Average Net                                  Interest          Average Net
                                Average             Income          Yield (Cost of                                 Income           Yield (Cost
                                Balance           (Expense)           Funds) (1)         Average Balance         (Expense)         of Funds) (1)
Interest-earning assets
CRE whole loans,
floating-rate (2)             $  1,972,750       $     83,093                 5.63 %    $       1,616,398       $     72,083                5.96 %
Legacy CRE loan (2)                    211                 29                18.08 %               11,516                478                5.55 %
CRE mezzanine loan                   4,700                355                 9.96 %                4,700                355                9.96 %
CRE preferred equity
investments (2)                          -                  -                    - %               10,967              1,378               16.80 %
CMBS                                     -                  -                    - %                5,610                161                3.89 %
Other                               85,395                283                 0.44 %               73,031                 73                0.13 %
Total interest
income/average net yield         2,063,056             83,760                 5.43 %            1,722,222             74,528                5.78 %

Interest-bearing

liabilities

Collateralized by:
CRE whole loans (3)              1,545,493            (40,351 )              (3.42 )%           1,153,709            (30,910 )             (3.48 )%
General corporate debt:
Unsecured junior
subordinated debentures             51,548             (2,001 )              (5.12 )%              51,548             (1,618 )             (4.14 )%
4.50% Convertible Senior
Notes (4)                           45,795             (2,690 )              (7.75 )%             131,785             (7,674 )             (7.68 )%
5.75% Senior Unsecured
Notes (5)                          147,134             (6,911 )              (6.28 )%              24,729             (1,148 )             (6.21 )%
12.00% Senior Unsecured
Notes (6)(7)                             -               (306 )                  - %               39,615             (4,226 )            (14.26 )%
Hedging (8)                              -             (1,332 )                  - %                    -             (1,384 )                 - %
Total interest
expense/average cost of
funds                         $  1,789,970            (53,591 )              (3.81 )%   $       1,401,386            (46,960 )             (4.25 )%
Total net interest income                        $     30,169                                                   $     27,568

(1) Average net yield includes net amortization/accretion and fee income and is

computed based on average amortized cost.

(2) Includes fee income of $7.1 million on our CRE whole loans for the nine

months ended September 30, 2022 and $8.1 million and $55,000 on our CRE whole

loans and legacy CRE loan, respectively, for the nine months ended

September 30, 2021. During the nine months ended September 30, 2021, net

amortization expense of $64,000 was recorded on the preferred equity

investments in connection with their payoffs.

(3) Includes amortization expense of $5.3 million and $11.0 million for the nine

months ended September 30, 2022 and 2021, respectively, on our

interest-bearing liabilities collateralized by CRE whole loans.

(4) Includes amortization expense of $1.1 million and $3.1 million for the nine

months ended September 30, 2022 and 2021, respectively, on our 4.50%

Convertible Senior Notes. The amortization expense for the nine months ended

September 30, 2021 included $304,000 of acceleration of deferred debt

issuance costs in connection with the repurchase of $55.7 million principal

amount of 4.50% Convertible Senior Notes during the period.

(5) Includes amortization expense of $442,000 and $70,000 for the nine months

ended September 30, 2022 and 2021, respectively, on our 5.75% Senior

Unsecured Notes.

(6) Includes amortization expense of $306,000 and $445,000 for the nine months

ended September 30, 2022 and 2021, respectively, on our 12.00% Senior

Unsecured Notes. The amortization expense for the nine months ended September

30, 2021 included $218,000 of acceleration of deferred debt issuance costs in

connection with the redemption of all $50.0 million principal amount of

12.00% Senior Unsecured Notes during the period.

(7) The outstanding par balance of our 12.00% Senior Unsecured Notes was redeemed

in full in August 2021. At any time and from time to time prior to July 31,

2022, we were permitted to elect to issue up to $75.0 million of principal of

additional notes. The interest expense incurred during the nine months ended

September 30, 2022 comprised of amortization of deferred debt issuance costs

on the remaining availability.

(8) Includes net amortization expense of $1.3 million and $1.4 million for the

nine months ended September 30, 2022 and 2021, respectively, on 22 terminated

interest rate swap agreements that were in net loss positions at the time of

    termination. The remaining losses, reported in accumulated other
    comprehensive (loss) income on the consolidated balance sheets, will be
    accreted over the remaining life of the debt.

Real Estate Income and Other Revenue

The following table sets forth information relating to our real estate income
and other revenue for the periods presented (dollars in thousands):

                                              For the Three Months Ended
                                                     September 30,
                                               2022                2021           Dollar Change       Percent Change
Real estate income and other revenue:
Real estate income                         $       9,785       $       2,627     $         7,158                  272 %
Other revenue                                         25                  17                   8                   47 %
Total                                      $       9,810       $       2,644     $         7,166                  271 %




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                                              For the Nine Months Ended
                                                    September 30,
                                               2022                2021          Dollar Change       Percent Change
Real estate income and other revenue:
Real estate income                         $      21,700       $      7,013     $        14,687                  209 %
Other revenue                                         60                 49                  11                   22 %
Total                                      $      21,760       $      7,062     $        14,698                  208 %



Aggregate real estate income and other revenue increased by $7.2 million and
$14.7 million for the comparative three and nine months ended September 30, 2022
and 2021, respectively. We attribute the changes to the acquisition of two
revenue-generating properties in the fourth quarter of 2021 and two additional
revenue-generating properties in the second quarter of 2022. Real estate income
at our hotel property acquired in 2020 additionally benefited from increased
personal and business travel resulting from lifted COVID-19 restrictions that
occurred late in the spring of 2022. In the third quarter 2022, we received the
deed-in-lieu of foreclosure on a hotel property that also contributed to the
increase in real estate income for the three months ended September 30, 2022.

Operating Expenses

The following tables set forth information relating to our operating expenses
for the periods presented (dollars in thousands):

                                             For the Three Months Ended
                                                    September 30,
                                               2022                2021          Dollar Change       Percent Change
Operating expenses:
General and administrative                $        2,128       $      2,664     $          (536 )                (20 )%
Real estate expenses                              10,099              2,401               7,698                  321 %
Management fees - related party                    1,669              1,700                 (31 )                 (2 )%
Equity compensation - related party                  913                771                 142                   18 %
Corporate depreciation and amortization               21                 16                   5                   31 %
Provision for credit losses, net                   2,620                537               2,083                  388 %
Total                                     $       17,450       $      8,089     $         9,361                  116 %



                                            For the Nine Months Ended
                                                  September 30,
                                            2022                2021           Dollar Change       Percent Change
Operating expenses:
General and administrative              $      7,938       $        8,533     $          (595 )                 (7 )%
Real estate expenses                          24,055                6,713              17,342                  258 %
Management fees - related party                5,023                4,405                 618                   14 %
Equity compensation - related party            2,648                  961               1,687                  176 %
Corporate depreciation and
amortization                                      64                   75                 (11 )                (15 )%
Provision for (reversal of) credit
losses, net                                    1,342              (15,447 )            16,789                  109 %
Total                                   $     41,070       $        5,240     $        35,830                  684 %


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Aggregate operating expenses increased by $9.4 million and $35.8 million for the
comparative three and nine months ended September 30, 2022 and 2021,
respectively. We attribute the changes to the following:

General and administrative. General and administrative expenses decreased by
$536,000 and $595,000 for the comparative three and nine months ended
September 30, 2022 and 2021, respectively. The following tables summarize the
information relating to our general and administrative expenses for the periods
presented (dollars in thousands):

                                               For the Three Months Ended
                                                      September 30,
                                                2022                2021           Dollar Change      Percent Change
General and administrative:
Professional services                       $       1,009       $       1,240     $          (231 )               (19 )%
D&O insurance                                         339                 366                 (27 )                (7 )%
Wages and benefits                                    317                 339                 (22 )                (6 )%
Operating expenses                                    216                 300                 (84 )               (28 )%
Director fees                                         206                 207                  (1 )                (0 )%
Dues and subscriptions                                121                 177                 (56 )               (32 )%
Rent and utilities                                     29                  30                  (1 )                (3 )%
Travel                                                  5                   4                   1                  25 %
Tax penalties, interest and franchise tax            (114 )                 1                (115 )            (11500 )%
Total                                       $       2,128       $       2,664     $          (536 )               (20 )%



                                               For the Nine Months Ended
                                                     September 30,
                                                2022               2021          Dollar Change       Percent Change
General and administrative:
Professional services                       $      4,058       $      4,280     $          (222 )                 (5 )%
D&O insurance                                      1,054              1,031                  23                    2 %
Wages and benefits                                   966              1,157                (191 )                (17 )%
Operating expenses                                   584                837                (253 )                (30 )%
Director fees                                        619                502                 117                   23 %
Dues and subscriptions                               513                545                 (32 )                 (6 )%
Rent and utilities                                    86                 92                  (6 )                 (7 )%
Travel                                                31                 20                  11                   55 %
Tax penalties, interest and franchise tax             27                 69                 (42 )                (61 )%
Total                                       $      7,938       $      8,533     $          (595 )                 (7 )%


The decrease in general and administrative expense for the comparative three
months ended September 30, 2022 and 2021 was primarily attributable to (i) a
decrease in professional services reimbursable to the Manager and (ii) a
decrease in tax penalties, interest and franchise tax in connection with the
receipt of approximately $123,000 of interest income in the third quarter 2022
related to the receipt of a 2017 federal tax refund.

The decrease in general and administrative expense for the comparative nine
months ended September 30, 2022 and 2021 was primarily attributable to a
decrease in operating expenses related to (i) a decrease in computer software
fees, (ii) a decrease in printing fees and (iii) a decrease in operating
expenses and professional services reimbursable to the Manager.

Real estate expenses. The increases of $7.7 million and $17.3 million for the
comparative three and nine months ended September 30, 2022 and 2021,
respectively, were primarily attributable to the acquisition of two properties,
a hotel and a student housing complex, in April 2022, as well as the acquisition
of two office properties in October 2021. The increase for the comparative three
and nine months was also attributable to increased operating expenses incurred
on a hotel property acquired in November 2020 due to growth in its operations in
the current year and due to the incremental operating expenses incurred on a
hotel property on which we received the deed-in-lieu of foreclosure in July
2022.

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Management fees - related party. The increase of $618,000 for the comparative
nine months ended September 30, 2022 and 2021 was primarily attributable to an
increase in our base management fees during the nine months ended September 30,
2022. As of July 31, 2020, as part of the Fourth Amended and Restated Management
Agreement, as amended ("Management Agreement"), the monthly base management fee
payable to our Manager was amended to be the greater of 1/12th of the amount of
our equity multiplied by 1.50% or $442,000 through July 31, 2022. In June 2021,
the base management fee calculation exceeded the $442,000 for the first time
since the execution of the Management Agreement in connection with the issuance
of the 7.875% Series D Cumulative Redeemable Preferred Stock ("Series D
Preferred Stock"). As a result, the management fees incurred during the nine
months ended September 30, 2022 were greater than those incurred during the nine
months ended September 30, 2021.

Equity compensation - related party. The increase of $1.7 million for the
comparative nine months ended September 30, 2022 and 2021 was primarily
attributable to shares granted in the second quarter 2022 and the second quarter
2021 under our Manager Incentive Plan, which will vest 25% for four years, on
each anniversary of the issuance date.

Provision for (reversal of) credit losses, net. The provisions for credit losses
of $2.6 million and $1.3 million for the three and nine months ended September
30, 2022, respectively, were primarily attributable to a general decline in
macroeconomic conditions. The provision for credit losses of $537,000 for the
three months ended September 30, 2021 was primarily attributable to an increase
in the size of the CRE loan portfolio and the net reversal of credit losses of
$15.4 million for the nine months ended September 30, 2021 was attributable to
overall, general improvements in expected macroeconomic conditions at the time
and improvements in property-level operations on loan collateral at that time.

Other Income (Expense)

The following tables set forth information relating to our other income
(expense) incurred for the periods presented (dollars in thousands):

                                           For the Three Months Ended
                                                  September 30,
                                            2022                2021           Dollar Change       Percent Change
Other income (expense):
Loss on extinguishment of debt                     -       $       (9,006 )             9,006                  100 %
Gain on sale of real estate             $      1,870                    -     $         1,870                  100 %
Other income                                     130                   71                  59                   83 %
Total                                   $      2,000       $       (8,935 )   $        10,935                  122 %



                                           For the Nine Months Ended
                                                 September 30,
                                            2022               2021           Dollar Change       Percent Change
Other income (expense):
Net realized and unrealized gain on
investment securities
available-for-sale and loans and
derivatives                             $          -       $         878     $          (878 )               (100 )%
Loss on extinguishment of debt                  (460 )            (9,006 )             8,546                   95 %
Gain on sale of real estate                    1,870                   -               1,870                  100 %
Other income                                   1,103                 505                 598                  118 %
Total                                   $      2,513       $      (7,623 )   $        10,136                  133 %

Aggregate other income increased $10.9 million and $10.1 million for the
comparative three and nine months ended September 30, 2022 and 2021,
respectively. We attribute the changes to the following:

Net realized and unrealized gain on investment securities available-for-sale and
loans and derivatives. The decrease of $878,000 for the nine months ended
September 30, 2022 was attributable to the sale of our two remaining CMBS
securities for proceeds of $3.0 million, which generated non-recurring gains of
$878,000 in March 2021.

Loss on extinguishment of debt. The decrease of $8.5 million during the nine
months ended September 30, 2022 was attributable to the partial redemption of
our 4.50% Convertible Senior Notes in February 2022, which resulted in $460,000
of non-cash losses in connection with the ratable acceleration of the 4.50%
Convertible Senior Notes' market discount, as well as the full redemption of our
12.00% Senior Unsecured Notes in the third quarter of 2021 which resulted in a
loss of $7.8 million.

Gain on sale of real estate. The increase of $1.9 million during the three and
nine months ended September 30, 2022 is attributed to the sale of an office
property in the Midwest Region that generated $1.9 million of non-recurring
gains.

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Other Income. The increase of $598,000 during the comparative nine months ended
September 30, 2022 and 2021, was primarily attributable to a loan recovery
received during the nine months ended September 30, 2022 on a middle market loan
that was previously charged off.

Financial Condition

Summary

Our total assets were $2.4 billion and $2.3 billion at September 30, 2022 and
December 31, 2021, respectively.

Investment Portfolio

The tables below summarize the amortized cost and net carrying amount of our
investment portfolio, classified by asset type, at September 30, 2022 and
December 31, 2021 as follows (dollars in thousands, except amounts in
footnotes):

                                                                Net 

Carrying Percent of

         At September 30, 2022             Amortized Cost        Amount (1)         Portfolio        Weighted Average Coupon
Loans held for investment:
CRE whole loans, floating-rate            $      2,125,945     $     2,118,342            93.84 %             6.43%
CRE mezzanine loan                                   4,700               4,453             0.20 %            10.00%
                                                 2,130,645           2,122,795            94.04 %
Other investments:
Investments in unconsolidated entities               1,548               1,548             0.07 %            N/A (4)
Investments in real estate (2)                      82,555              82,555             3.66 %            N/A (4)
Property held for sale (3)                          50,232              50,232             2.23 %            N/A (4)
                                                   134,335             134,335             5.96 %
Total investment portfolio                $      2,264,980     $     2,257,130           100.00 %

                                                                Net 

Carrying Percent of

         At December 31, 2021              Amortized Cost        Amount (1)         Portfolio        Weighted Average Coupon
Loans held for investment:
CRE whole loans, floating-rate (5)        $      1,877,851     $     1,869,301            95.44 %             4.43%
CRE mezzanine loan                                   4,700               4,445             0.23 %            10.00%
                                                 1,882,551           1,873,746            95.67 %
Other investments:
Investments in unconsolidated entities               1,548               1,548             0.08 %            N/A (4)
Investment in real estate (2)                       65,465              65,465             3.34 %            N/A (4)
Property held for sale                              17,846              17,846             0.91 %            N/A (4)
                                                    84,859              84,859             4.33 %
Total investment portfolio                $      1,967,410     $     1,958,605           100.00 %

(1) Net carrying amount includes an allowance for credit losses of $7.9 million

and $8.8 million at September 30, 2022 and December 31, 2021, respectively.

(2) Includes real estate-related right of use assets of $19.5 million and $5.5

million, intangible assets of $9.1 million and $3.9 million, lease

liabilities of $43.0 million and $3.1 million and other liabilities of

$73,000 and $169,000 at September 30, 2022 and December 31, 2021,

respectively. Also includes a mortgage payable of $18.2 million at September

30, 2022.

(3) Includes property held for sale-related liabilities of $3.0 million at

September 30, 2022.

(4) There are no stated rates associated with these investments.

(5) Includes one legacy CRE whole loan with an amortized cost of $11.5 million at

    December 31, 2021, that paid off in January 2022.




CRE loans. During the nine months ended September 30, 2022, we originated $592.8
million of floating-rate CRE whole loan commitments (of which $86.9 million was
unfunded loan commitments), funded $43.7 million of previously unfunded loan
commitments and received $285.0 million in proceeds from loan payoffs and
paydowns.

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The following is a summary of our loans (dollars in thousands, except amounts in
footnotes):

                                                          Unamortized                                                                        Contractual
                                                           (Discount)                             Allowance for                               Interest             Maturity
     Description          Quantity       Principal      Premium, net (1)      Amortized Cost      Credit Losses      Carrying Value           Rates (2)

         Dates (3)(4)
At September 30, 2022:
                                                                                                                                         1M BR plus 2.75% to     October 2022
Whole loans (5)(6)             87       $ 2,140,129     $        (14,184 )   $      2,125,945     $      (7,603 )   $      2,118,342      1M BR plus 8.50%       to July 2026
Mezzanine loan (5)             1              4,700                    -                4,700              (247 )              4,453           10.00%             June 2028
Total                                   $ 2,144,829     $        (14,184 )   $      2,130,645     $      (7,850 )   $      2,122,795

At December 31, 2021:
                                                                                                                                                                 January 2022
                                                                                                                                         1M BR plus 2.70% to     to September
Whole loans (5)(6)             93       $ 1,891,795     $        (13,944 )   $      1,877,851     $      (8,550 )   $      1,869,301      1M BR plus 8.50%           2025
Mezzanine loan (5)             1              4,700                    -                4,700              (255 )              4,445           10.00%             June 2028
Total                                   $ 1,896,495     $        (13,944 )   $      1,882,551     $      (8,805 )   $      1,873,746

(1) Amounts include unamortized loan origination fees of $14.1 million and $13.6

million and deferred amendment fees of $84,000 and $307,000 at September 30,

2022 and December 31, 2021, respectively. Additionally, the amounts include

unamortized loan acquisition costs of $7,300 at December 31, 2021.

(2) Our whole loan portfolio of $2.1 billion and $1.9 billion had

weighted-average one-month benchmark rate (“BR”) floors of 0.67% and 0.75% at

September 30, 2022 and December 31, 2021, respectively. Benchmark rates

comprise one-month London Interbank Offered Rate (“LIBOR”) or one-month Term

Secured Overnight Financing Rate (“SOFR”). At September 30, 2022 and

December 31, 2021, all but one of our floating-rate whole loans had one-month

benchmark floors.

(3) Maturity dates exclude contractual extension options, subject to the

satisfaction of certain terms that may be available to the borrowers.

(4) Maturity dates exclude two and three whole loans, with amortized costs of

$29.8 million and $27.9 million, in maturity default at September 30, 2022

and December 31, 2021, respectively.

(5) Substantially all loans are pledged as collateral under various borrowings at

both September 30, 2022 and December 31, 2021.

(6) CRE whole loans had $193.7 million and $157.6 million in unfunded loan

commitments at September 30, 2022 and December 31, 2021, respectively. These

unfunded loan commitments are advanced as the borrowers formally request

additional funding and meet certain benchmarks, as permitted under the loan

agreement, and any necessary approvals have been obtained.

At September 30, 2022, 23.9%, 22.8% and 15.5% of our CRE loan portfolio was
concentrated in the Southwest, Southeast and Mountain regions, respectively,
based on carrying value, as defined by the NCREIF. At December 31, 2021, 28.4%,
18.4% and 15.2% of our CRE loan portfolio was concentrated in the Southeast,
Southwest and Mid-Atlantic regions respectively, based on carrying value. At
September 30, 2022 and December 31, 2021, no single loan or investment
represented more than 10% of our total assets and no single investment group
generated over 10% of our revenue.

Investments in unconsolidated entities. Our investments in unconsolidated
entities at September 30, 2022 and December 31, 2021 comprised a 100% interest
in the common shares of Resource Capital Trust I ("RCT I") and RCC Trust II
("RCT II"), with a value of $1.5 million in the aggregate, or 3.0% of each
trust. We record our investments in RCT I's and RCT II's common shares as
investments in unconsolidated entities using the cost method, recording dividend
income when declared by RCT I and RCT II. We recorded dividends from our
investments in RCT I's and RCT II's common shares, reported in other revenue on
the consolidated statement of operations, of $25,000 and $60,000 during the
three and nine months ended September 30, 2022. During the three and nine months
ended September 30, 2021, we recorded dividends of $16,000 and $49,000,
respectively.

Investments in real estate and property held for sale. During the nine months
ended September 30, 2022, we acquired two new real estate properties through
direct equity investments. We determined that the acquisition of the two
properties should be accounted for as asset acquisitions. The combined
acquisition-date fair value of $51.6 million was determined using third-party
valuations.

In July 2022, we received the deed-in-lieu of foreclosure on a hotel property in
the Northeast region. We determined that the acquisition of the property should
be accounted for as an asset acquisition, and the acquisition-date fair value of
$14.3 million was determined using a third-party valuation. The carrying value
of the property was $13.4 million at September 30, 2022 and was reported as
property held for sale in the consolidated balance sheet. There was no gain or
loss recognized on conversion of the loan to property held for sale.

In September 2022, we sold an office property in the Midwest region that we
previously designated as a property held for sale. The office property sold for
$19.3 million with selling costs of approximately $532,000, resulting in a gain
on sale of $1.9 million

In September 2022, we reclassified one hotel property in the Northeast region
with a carrying value of $36.9 million to property held for sale.

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The following table summarizes the book value of our investments in real estate
and related intangible assets during the nine months ended September 30, 2022
(in thousands, except amounts in the footnotes):
                                                   September 30, 2022                                     December 31, 2021
                                                       Accumulated                                            Accumulated
                                                      Depreciation &        Carrying                         Depreciation &       Carrying
                                    Cost Basis         Amortization          Value         Cost Basis         Amortization          Value
Assets acquired:
Investments in real estate,
equity:
Investments in real estate (1)     $    116,781     $           (1,620 )   $  115,161     $     27,065     $             (191 )   $  26,874
Right of use assets (2)(3)               19,664                   (137 )       19,527                -                      -             -
Intangible assets (4)                    11,474                 (2,343 )        9,131            1,726                   (806 )         920
Subtotal                                147,919                 (4,100 )      143,819           28,791                   (997 )      27,794

Investments in real estate from
lending activities:
Investment in real estate (5)                 -                      -              -           34,124                 (1,689 )      32,435
Properties held for sale (6)             53,257                      -         53,257           17,846                      -        17,846
Right of use assets (3)(7)                    -                      -              -            5,603                    (95 )       5,508
Intangible assets (8)                         -                      -              -            3,337                   (380 )       2,957
Subtotal                                 53,257                      -         53,257           60,910                 (2,164 )      58,746
Total                                   201,176                 (4,100 )      197,076           89,701                 (3,161 )      86,540

Liabilities assumed:
Investments in real estate,
equity:
Mortgage payable                        (18,089 )                 (104 )      (18,193 )              -                      -             -
Other liabilities                          (247 )                  174            (73 )           (247 )                   78          (169 )
Lease liabilities (3)(9)                (43,260 )                  262        (42,998 )              -                      -             -
Subtotal                                (61,596 )                  332        (61,264 )           (247 )                   78          (169 )

Investments in real estate from
lending activities:
Liabilities held for sale                (3,025 )                    -         (3,025 )         (3,113 )                   53        (3,060 )
Total                                   (64,621 )                  332        (64,289 )         (3,360 )                  131        (3,229 )

Total net assets (10)              $    136,555                            $  132,787     $     86,341                            $  83,311

(1) Includes $38.7 million and $22.4 million of land, which is not depreciable,

at September 30, 2022 and December 31, 2021, respectively.

(2) Right of use assets, investments in real estate, equity include a right of

use associated with an acquired ground lease of $42.5 million accounted for

as an operating lease, an above-market lease intangible asset of $19.0

million and a customer list intangible of $446,000 at September 30, 2022.

Amortization of the below-market and above-market lease intangible is booked

to real estate expenses on the consolidated statements of operations.

(3) Refer to Note 8 for additional information on our remaining operating leases.

(4) Carrying value includes $47,000 and $819,000 of an acquired in-place lease

intangible asset and $44,000 and $101,000 of an acquired leasing commission

intangible asset at September 30, 2022 and December 31, 2021, respectively.

(5) Includes $129,000 of building renovation assets at carrying value at

December 31, 2021, respectively, made subsequent to the date of acquisition.

At September 30, 2022, these investments in real estate were reclassified to

properties held for sale on the consolidated balance sheet.

(6) At September 30, 2022, property held for sale includes two properties

originally acquired in November 2020 and July 2022. At December 31, 2021,

there was one property held for sale that was acquired in October 2021 and

that was subsequently sold in September 2022.

(7) Right of use assets, investments in real estate from lending activities

include a right of use asset associated with an acquired ground lease of $3.1

million accounted for as an operating lease and a below-market lease

intangible asset of $2.4 million at December 31, 2021. At September 30, 2022,

these right of use assets were reclassified to properties held for sale on

the consolidated balance sheet.

(8) Carrying value includes franchise agreement intangible assets of $2.6 million

and a customer list intangible asset of $311,000 at December 31, 2021. At

September 30, 2022, these intangible assets were reclassified to properties

held for sale on the consolidated balance sheet.

(9) Lease liabilities include one ground lease at a hotel property with a

remaining term of 93 years. Lease expenses for this liability for the three

and nine months ended September 30 2022 were $426,000 and $839,000,

respectively.

(10) Excludes items of working capital, either acquired or assumed.

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Financing Receivables

The following tables show the activity in the allowance for credit losses for
the nine months ended September 30, 2022 and year ended December 31, 2021 (in
thousands):

                                                                                   Year Ended
                                                         Nine Months Ended        December 31,
                                                        September 30, 2022            2021
Allowance for credit losses at beginning of period      $             8,805     $         34,310
Provision for (reversal of) credit losses, net                        1,342              (21,262 )
Charge offs                                                          (2,297 )             (4,243 )
Allowance for credit losses at end of period            $             7,850 

$ 8,805

During the three and nine months ended September 30, 2022, we recorded
provisions for expected credit losses of $2.6 million and $1.3 million,
respectively, primarily attributable to the negative impact of macroeconomic
factors focused on increases in inflation, energy costs and interest rates, and
to a lesser extent, by an increase in portfolio credit risk indicated in
property-level cash flows that collateralize our loans.

During the three months ended September 30, 2021, we recorded a provision for
expected credit losses of $537,000 in connection with an increase in the size of
the CRE loan portfolio, offset by an improvement in macroeconomic conditions.
During the nine months ended September 30, 2021, we recorded a reversal of
expected credit losses of $15.4 million in connection with declines in expected
unemployment and continued improvement in macroeconomic factors, loan paydowns
and improved collateral operating performance.

At September 30, 2022, we individually evaluated one retail loan in the
Northeast region with a principal balance of $8.0 million and one office loan in
the Southwest region with a principal balance of $21.8 million for which
foreclosure was determined to be probable. Each loan had an as-is appraised
value in excess of its principal balance, and, as such, had no CECL allowance at
September 30, 2022.

At December 31, 2021, two loans in addition to the previously discussed retail
loan in the Northeast region were individually evaluated for impairment: a
retail loan in the Pacific region and a hotel loan in East North Central region.
Both loans were repaid in January 2022. The repayment of the retail loan in the
Pacific region resulted in a charge off of $2.3 million against the allowance
for credit losses. An individual CECL allowance was established for this loan
during the fourth quarter of 2021.

Credit quality indicators

Commercial Real Estate Loans

CRE loans are collateralized by a diversified mix of real estate properties and
are assessed for credit quality based on the collective evaluation of several
factors, including but not limited to: collateral performance relative to
underwritten plan, time since origination, current implied and/or
re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit
plan. Depending on the loan's performance against these various factors, loans
are rated on a scale from 1 to 5, with loans rated 1 representing loans with the
highest credit quality and loans rated 5 representing loans with the lowest
credit quality. Loans are rated a 2 at origination. The factors evaluated
provide general criteria to monitor credit migration in our loan portfolio; as
such, a loan's rating may improve or worsen, depending on new information
received.

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The criteria set forth below should be used as general guidelines and,
therefore, not every loan will have all of the characteristics described in each
category below.

Risk Rating                           Risk Characteristics

1 • Property performance has surpassed underwritten expectations.

              • Occupancy is stabilized, the property has had a history of
              consistently high occupancy, and the property has a diverse and high
              quality tenant mix.

2 • Property performance is consistent with underwritten expectations

              and covenants and performance criteria are being met or exceeded.
              • Occupancy is stabilized, near stabilized or is on track with
              underwriting.

3 • Property performance lags behind underwritten expectations.

              • Occupancy is not stabilized and the property has some tenancy
              rollover.

4 • Property performance significantly lags behind underwritten

              expectations. Performance criteria and loan covenants have required
              occasional waivers.
              • Occupancy is not stabilized and the property has a large amount of
              tenancy rollover.

5 • Property performance is significantly worse than underwritten

              expectations. The loan is not in compliance with loan

covenants and

              performance criteria and may be in default. Expected sale proceeds
              would not be sufficient to pay off the loan at maturity.
              • The property has a material vacancy rate and significant rollover
              of remaining tenants.
              • An updated appraisal is required upon designation and

updated on an

              as-needed basis.

All CRE loans are evaluated for any credit deterioration by debt asset
management and certain finance personnel on at least a quarterly basis.
Mezzanine loans and preferred equity investments may experience greater credit
risks due to their nature as subordinated investments.

For the purpose of calculating the quarterly provision for credit losses under
CECL, we pool CRE loans based on the underlying collateral property type and
utilize a probability of default and loss given default methodology for
approximately one year after which we immediately revert to a historical mean
loss ratio. In order to calculate the historical mean loss ratio, we utilize our
full, 16-year underwriting history in the determination of historical losses,
along with the market loss history from a selected population of loans from an
engaged third-party provider's database that were similar to our loan types,
loan sizes, durations, interest rate structures and general LTV profiles.

Credit risk profiles of CRE loans at amortized cost were as follows (in
thousands, except amounts in the footnotes):

                                Rating 1        Rating 2       Rating 3      Rating 4      Rating 5       Total (1)
At September 30, 2022:
Whole loans, floating-rate     $         -     $ 1,823,014     $ 187,195     $  92,953     $  22,783     $ 2,125,945
Mezzanine loan                           -               -             -         4,700             -           4,700
Total                          $         -     $ 1,823,014     $ 187,195     $  97,653     $  22,783     $ 2,130,645

At December 31, 2021:
Whole loans, floating-rate     $         -     $ 1,456,330     $ 273,078     $ 123,762     $  24,681     $ 1,877,851
Mezzanine loan                           -               -             -         4,700             -           4,700
Total                          $         -     $ 1,456,330     $ 273,078     $ 128,462     $  24,681     $ 1,882,551

(1) The total amortized cost of CRE loans excluded accrued interest receivable of

    $9.6 million and $6.1 million at September 30, 2022 and December 31, 2021,
    respectively.


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Credit risk profiles of CRE loans by origination year at amortized cost were as
follows (in thousands, except amounts in footnotes):

                                      2022            2021           2020          2019          2018         Prior        Total (1)
At September 30, 2022:
Whole loans, floating-rate: (2)
Rating 2                           $   504,092     $ 1,142,664     $ 135,432     $  27,011     $  13,815     $      -     $ 1,823,014
Rating 3                                     -         110,043        10,275        22,234        44,643                      187,195
Rating 4                                     -               -             -        28,460        64,493            -          92,953
Rating 5                                     -               -             -        22,783             -            -          22,783

Total whole loans, floating-rate 504,092 1,252,707 145,707 100,488 122,951

            -       2,125,945
Mezzanine loan (rating 4)                    -               -             -             -         4,700            -           4,700
Total                              $   504,092     $ 1,252,707     $ 145,707     $ 100,488     $ 127,651     $      -     $ 2,130,645

                                      2021            2020           2019          2018          2017         Prior        Total (1)
At December 31, 2021:
Whole loans, floating-rate: (2)
Rating 2                           $ 1,230,810     $   150,513     $  55,510     $  19,497     $       -     $      -     $ 1,456,330
Rating 3                                33,781          24,604       136,305        60,888             -       17,500         273,078
Rating 4                                     -               -        28,446        86,096             -        9,220         123,762
Rating 5                                     -               -        22,385             -             -        2,296          24,681
Total whole loans, floating-rate     1,264,591         175,117       242,646       166,481             -       29,016       1,877,851
Mezzanine loan (rating 4)                    -               -             -         4,700             -            -           4,700
Total                              $ 1,264,591     $   175,117     $ 242,646     $ 171,181     $       -     $ 29,016     $ 1,882,551

(1) The total amortized cost of CRE loans excluded accrued interest receivable of

$9.6 million and $6.1 million at September 30, 2022 and December 31, 2021,

respectively.

(2) Acquired CRE whole loans are grouped within each loan’s year of origination.

At both September 30, 2022 and December 31, 2021, we had one mezzanine loan
included in other assets that had no carrying value.

Loan Portfolio Aging Analysis

The following table presents the CRE loan portfolio aging analysis as of the
dates indicated for CRE loans at amortized cost (in thousands, except amounts in
footnotes):

                                                               Greater                                       Total Loans      Total Loans
                                                               than 90         Total                         Receivable        > 90 Days
                             30-59 Days      60-89 Days       Days (1)       Past Due      Current (2)           (3)          and Accruing
At September 30, 2022:
Whole loans, floating-rate   $         -     $         -     $    29,775     $  29,775     $  2,096,170     $   2,125,945     $          -
Mezzanine loan                         -               -               -             -            4,700             4,700                -
Total                        $         -     $         -     $    29,775     $  29,775     $  2,100,870     $   2,130,645     $          -

At December 31, 2021:
Whole loans, floating-rate   $         -     $         -     $    19,916     $  19,916     $  1,857,935     $   1,877,851     $     19,916
Mezzanine loan                         -               -               -             -            4,700             4,700                -
Total                        $         -     $         -     $    19,916     $  19,916     $  1,862,635     $   1,882,551     $     19,916

(1) During the three and nine months ended September 30, 2022, we recognized

interest income of $409,000 and $985,000, respectively on one loan with a

principal payment past due greater than 90 days at September 30, 2022. During

the three and nine months ended September 30, 2021, we recognized interest

income of $480,000 and $1.7 million on three loans with principal payments

past due greater than 90 days at September 30, 2021.

(2) Includes one whole loan with an amortized cost of $8.0 million in maturity

default at December 31, 2021.

(3) The total amortized cost of CRE loans excluded accrued interest receivable of

$9.6 million and $6.1 million at September 30, 2022 and December 31, 2021,

respectively.

At September 30, 2022 and December 31, 2021, we had two and three CRE loans in
maturity default, with total amortized costs of $29.8 million and $27.9 million,
respectively. In July 2022, we received the deed-in-lieu of foreclosure on a
hotel property in the Northeast region that collateralized a whole loan with an
amortized cost of $14.0 million and that was in maturity default at June 30,
2022.

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During the nine months ended September 30, 2022, two whole loans in maturity
default at December 31, 2021 paid off principal of $17.6 million. The payoff on
one loan was the result of a discounted payoff and resulted in a realized loss
of $2.3 million for which a CECL allowance was established at December 31, 2021.

At September 30, 2022, two whole loans in maturity default, with a total
amortized cost of $29.8 million, were past due on interest payments. Subsequent
to September 30, 2022, one loan was brought current on interest payments but
remains in maturity default.

At December 31, 2021, three whole loans, including two loans in maturity
default, with total amortized cost of $30.4 million were past due on interest
payments.

Troubled Debt Restructurings (“TDRs”)

During the nine months ended September 30, 2022, we entered into nine agreements
that extended six loans by a weighted average period of two months and, in
certain cases, modified certain other loan terms. One formerly forborne loan was
in maturity default at September 30, 2022.

No loan modifications during the nine months ended September 30, 2022 and 2021
resulted in TDRs.

Restricted Cash

At September 30, 2022, we had restricted cash of $16.0 million, which consisted
of $15.4 million of restricted cash held within our five consolidated
securitization entities and $595,000 held in escrow for deposits or tax payments
at our real estate properties. At December 31, 2021, we had restricted cash of
$248.4 million, which consisted of $248.1 million held within our seven
consolidated securitization entities and $360,000 held in various reserve
accounts. The decrease of $232.4 million was primarily attributable to loan
purchase activity within two of our consolidated securitization entities.

Accrued Interest Receivable

The following table summarizes our accrued interest receivable at September 30,
2022 and December 31, 2021 (in thousands):

                                                 September 30, 2022       December 31, 2021       Net Change
Accrued interest receivable from loans           $             9,570     $             6,106     $      3,464
Accrued interest receivable from promissory
note, escrow, sweep and reserve accounts                          55                       6               49
Total                                            $             9,625     $             6,112     $      3,513

The increase of $3.5 million in accrued interest receivable was primarily
attributable to rising coupon rates and an increased loan portfolio balance.

Other Assets

The following table summarizes our other assets at September 30, 2022 and
December 31, 2021 (in thousands):

                                                 September 30, 2022       December 31, 2021       Net Change
Tax receivables and prepaid taxes                                210                   2,120           (1,910 )
Other prepaid expenses                                         2,970                   1,367            1,603
Other receivables                                              2,581                   1,573            1,008
Other assets, miscellaneous                                      532                      21              511
Fixed assets - non-real estate                                   342                     401              (59 )
Total                                            $             6,635     $             5,482     $      1,153



The increase of $1.2 million in other assets was primarily attributable to
incremental prepaid expenses and miscellaneous receivables from our real estate
properties acquired in 2022 offset by the receipt of a $1.9 million tax refund
that was previously receivable.

Deferred Tax Assets

At September 30, 2022 and December 31, 2021, our net deferred tax asset was
zero, resulting from a full valuation allowance of $21.6 million and $21.4
million, respectively, on our deferred tax asset as we believed it was more
likely than not that some or all of the deferred tax assets would not be
realized. We will continue to evaluate our ability to realize the tax benefits
associated with deferred

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tax assets by analyzing forecasted taxable income using both historical and
projected future operating results, the reversal of existing temporary
differences, taxable income in prior carry back years (if permitted) and the
availability of tax planning strategies.

Core Asset Classes

Our investment strategy targets the following core asset class:

Core Asset Class           Principal Investments
Commercial real            • First mortgage loans, which we refer to as whole
estate-related assets      loans;
                           • First priority interests in first mortgage loans,
                           which we refer to as A notes;
                           • Subordinated interests in first mortgage loans,
                           which we refer to as B notes;
                           • Mezzanine debt related to CRE that is senior to the
                           borrower's equity position but subordinated to other
                           third-party debt;
                           • Preferred equity investments related to CRE that
                           are subordinate to first mortgage loans and are not
                           collateralized by the property underlying the
                           investment; and
                           • CRE equity investments.




Derivative Instruments

Historically, we sought to mitigate the potential impact on net income (loss) of
adverse fluctuations in interest rates incurred on our borrowings by entering
into hedging agreements. We classified our interest rate hedges as cash flow
hedges, which are hedges that eliminate the risk of changes in the cash flows of
a financial asset or liability.

We terminated interest rate swap positions associated with our prior financed
CMBS portfolio in April 2020. At termination, we realized a loss of $11.8
million. At September 30, 2022 and December 31, 2021, we had a loss of $7.1
million and $8.5 million, respectively, recorded in accumulated other
comprehensive loss, which will be amortized into earnings over the remaining
life of the debt. During the three and nine months ended September 30, 2022, we
recorded amortization expense of $438,000 and $1.4 million, respectively,
reported in interest expense on the consolidated statements of operations.
During the three and nine months ended September 30, 2021, we recorded
amortization expense of $489,000 and $1.5 million, respectively, on the
consolidated statement of operations.

At September 30, 2022 and December 31, 2021, we had unrealized gains of $279,000
and $347,000, respectively, attributable to two terminated interest rate swaps,
in accumulated other comprehensive loss on the consolidated balance sheets, to
be accreted into earnings over the remaining life of the debt. During the three
and nine months ended September 30, 2022, we recorded accretion income, reported
in interest expense on the consolidated statements of operations, of $23,000 and
$68,000, to accrete the accumulated other comprehensive income on the terminated
swap agreements. During the three and nine months ended September 30, 2021, we
recorded accretion income of $23,000, and $68,000, respectively.

The following tables present the effect of derivative instruments on our
consolidated statements of operations for the nine months ended September 30,
2022 and 2021 (in thousands):

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