Notes and Interest Receivable

6 Months Ended

Jun. 30, 2022

Note 6 – Notes and Interest Receivable

Following is a summary of the notes and accrued interest receivable due from loan investments as of June 30, 2022 and December 31, 2021 (amounts in thousands):


	June 30,		December 31,
Property	2022		2021
Avondale Hills	$	13,583	$	12,874
Domain at The One Forty		—		25,309
Motif		—		85,375
Reunion Apartments		—		11,382
The Hartley at Blue Hill		—		38,942
Weatherford 185		9,540		—
Total	$	23,123	$	173,882
Provision for credit losses		(5)		(393)
Total, net	$	23,118	$	173,489

Provision for Credit Losses

As of June 30, 2022, the Company’s provision for credit losses on its loan investments was immaterial on a carrying amount of $23.1 million of these investments. The provision for credit losses of the Company’s loan investments at June 30, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):


	June 30,		December 31,
	2022		2021
Beginning balances as of January 1, 2022 and 2021, respectively	$	393	$	174
Provision for credit loss on pool of assets, net ⁽¹⁾		(388)		219
Provision for credit losses, end of period	$	5	$	393

⁽¹⁾

Under Current Expected Credit Losses (CECL), a provision for credit losses for similar assets is calculated based on a historical default rate applied to the remaining life of the assets. The decrease in the provision during the six months ended June 30, 2022 was a result of the removal of four investments from the pool of assets and a decrease in the trailing twelve-month historical default rate.

Following is a summary of the interest income from loan and ground lease investments for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
Property	2022		2021		2022		2021
Avondale Hills	$	356	$	286	$	709	$	403
Domain at The One Forty		83		244		270		483
Motif ⁽¹⁾⁽²⁾		—		1,488		4,849		3,862
Reunion Apartments ⁽¹⁾		—		303		187		593
The Hartley at Blue Hill ⁽¹⁾		40		1,035		784		2,058
Vickers Historic Roswell ⁽³⁾		—		463		—		903
Weatherford 185		291		—		432		—
Zoey ⁽⁴⁾		303		295		594		533
Total	$	1,073	$	4,114	$	7,825	$	8,835

⁽¹⁾	In the first quarter 2022, the Motif, Reunion Apartments and The Hartley at Blue Hill properties were sold. Each mezzanine loan provided by the Company was paid off in full. The Hartley at Blue Hill senior loan provided by the Company was paid off in full in the second quarter 2022.

⁽²⁾	The Motif interest income for the six months ended June 30, 2022 includes $3.0 million of income recognized upon the sale of the property that was deferred in 2021 due to adjustments for straight line income recognition.

⁽³⁾	In the second quarter 2021, the Vickers Historic Roswell property was sold. The mezzanine loan provided by the Company was paid off in full upon the sale.

⁽⁴⁾	The ground lease investment is in lease-up and the full leasehold improvement allowance of $20.4 million has been fully funded and is included within accounts receivable, prepaids and other assets in the Company’s consolidated balance sheets.

The occupancy percentages of the Company’s loan and ground lease investment properties at June 30, 2022 and December 31, 2021 are as follows:


	June 30,		December 31,
Property	2022		2021
Avondale Hills	⁽¹⁾		⁽²⁾
Weatherford 185	⁽¹⁾		—
Zoey	74.6	%	15.6	%

⁽¹⁾	The development had not commenced lease-up as of June 30, 2022.

⁽²⁾	The development had not commenced lease-up as of December 31, 2021.

Domain at The One Forty Mezzanine Loan Financing

On May 5, 2022, Domain at The One Forty, a property located in Garland, Texas, was sold. The mezzanine loan provided by the Company was paid off for $25.4 million, which included principal repayment and accrued interest. The Company recorded a $2.8 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also recorded a $0.5 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.

Motif Mezzanine Loan Financing

The Motif property was sold on March 24, 2022. The mezzanine loan provided by the Company was paid off for $87.2 million, which included principal repayment of $84.4 million and accrued interest of $2.8 million. The Company recorded a $3.9 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also has a $1.0 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.

Reunion Apartments Mezzanine Loan Financing

The Reunion Apartments property was sold on February 25, 2022. Upon the sale, the mezzanine loan provided by the Company was paid off for $12.5 million, which included principal repayment of $10.0 million, accrued interest of $1.5 million and an incremental payment of $1.0 million to achieve the minimum interest per the terms of the loan agreement.

The Hartley at Blue Hill Loan Financing

The Hartley at Blue Hill property was sold on February 28, 2022. The mezzanine loan provided by the Company was paid off for $34.4 million, which included principal repayment of $31.0 million and accrued interest of $3.4 million. On April 29, 2022, the senior loan provided by the Company, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $5.0 million.

Weatherford 185 Mezzanine Loan Financing

On February 15, 2022, the Company provided a $9.6 million mezzanine loan to an unaffiliated third party to purchase land in Weatherford, Texas for the development of approximately 185- build for rent, single-family residential units. The loan bears interest at a fixed rate of 12% per annum with interest-only payments during the term of the loan, unless subject to conditions upon extension. The loan was to initially mature on May 16, 2022, though during the second quarter 2022, the borrower exercised two of the loan’s three available thirty-day extension options, extending the maturity date to July 15, 2022. At the time of each such extension, the borrower was required to make a payment to the Company of $0.1 million toward the unpaid principal amount of the loan. At June 30, 2022, the outstanding loan balance was $9.4 million. The loan may be prepaid without penalty.

Bluerock Residential Growth REIT, Inc. 10-Q