What changed in this filing

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Item 1A. Risk Factors

2024-02-26 compared with 2023-03-16 · 119 added, 134 removed, 348 unchanged (42% of the section changed)

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• hindering our ability to adjust to changing market, industry or economic conditions;

• limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions or emerging businesses;

• limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions;

• limiting the amount of cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;

• making us more vulnerable to economic or industry downturns, including interest rate increases;

• making us more vulnerable to economic or industry downturns, including interest rate increases or sustained high interest rate environments;

• placing us at a competitive disadvantage compared to less leveraged competitors.

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If we are unable to obtain additional financing, our credit ratings could be further adversely affected, which could further raise our borrowing costs and further limit our future access to capital and our ability to satisfy our obligations under our indebtedness.

Our business strategy depends on us being able to earn returns on loans we make in excess of the interest we pay on our borrowings.

We may not be able to earn returns on loans we make in excess of the interest we pay on our borrowings.

We try to generate financial returns by making and investing in loans and debt securities that generate returns in excess of our cost of capital.

Our ability to execute this strategy depends on various conditions in the financing markets that are beyond our control, including liquidity, fluctuations in prevailing interest rates and credit spreads.

Interest rate and credit spread fluctuations resulting in our interest and related expense exceeding interest and related income would result in operating losses for us.

Changes in the level of interest rates and credit spreads also may affect our ability to make loans or investments, the value of our loans and investments and our ability to realize gains from the disposition of assets.

Interest rate and credit spread fluctuations resulting in our interest and related expense exceeding interest and related income would result in operating losses

Changes in the level of interest rates and credit spreads also may affect our ability to make new loans or investments and may decrease the value of our existing loans and investments.

Increases in interest rates and credit spreads may also negatively affect demand for loans and could result in higher borrower default rates.

We may be unable to obtain additional financing on favorable terms or, with respect to our debt and other investments, on terms that parallel the maturities of the debt originated or other investments acquired, if we are able to obtain additional financing at all.

We utilize short-term borrowings to finance many of our investments and subsequently rely on the availability of collateralized debt and loan obligation securitization markets to provide long-term financing.

We may be unable to obtain additional financing on favorable terms or, with respect to our debt and other investments, on terms that match the maturities of the debt originated or other investments acquired, if we are able to obtain additional financing at all.

We rely on the availability of collateralized debt and loan obligation securitization markets to provide long-term financing for our loans and investments.

We rely on short-term borrowings, such as repurchase agreements and our secured revolving credit facilities, to initially fund our investments.

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If our current financing strategy became no longer viable, we would have to find alternative forms of long-term financing for our assets.

This could subject us to more restrictive recourse borrowings and subject us to a cost of capital that could significantly reduce or eliminate the spread between our cost of capital and the returns on our investments.

This could subject us to more restrictive recourse borrowings and subject us to capital costs that significantly reduce or eliminate the spread between our cost of capital and the returns on our investments.

If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off our short-term borrowings or pay significant fees to extend these financing arrangements.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions.

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies, and our ability to incur additional borrowings.

Financing agreements that we may enter into may contain covenants that limit our ability to further incur borrowings, restrict distributions or that prohibit us from discontinuing insurance coverage or replacing our Advisor.

Certain limitations would decrease our operating flexibility and our ability to achieve our operating objectives, including making distributions.

In a period of rising interest rates, our interest expense could increase while the interest we earn on our fixed-rate assets would not change, which would adversely affect our profitability.

Our operating results depend in large part on differences between the income from our assets, reduced by any credit losses and financing costs.

Lenders often require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions.

Financing agreements that we enter into often contain covenants that limit our ability to further incur borrowings, restrict distributions or restrict our operations, such as prohibiting us from discontinuing insurance coverage or replacing our Advisor.

These limitations decrease our operating flexibility and may impact our ability to achieve our operating objectives, including making distributions.

During periods of rising interest rates, our interest expense increases may outpace any increases in interest we earn on our assets, and the value of our assets may decrease.

Our operating results depend in large part on the income from our assets, reduced by any credit losses and financing costs.

Income from our assets may respond more slowly to interest rate fluctuations than the cost of our borrowings.

In a period of rising interest rates, our interest expense on floating-rate debt would increase, while any additional interest income we earn on our floating-rate investments may not compensate for such increase in interest expense.

Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income.

Increases in these rates will tend to decrease our net income and the market value of our assets.

Similarly, in a period of declining interest rates, our interest income on floating-rate investments would generally decrease, and interest rate floors on our floating-rate investments may not align with the interest rate floors on our floating-rate debt to compensate for such a decrease in interest income.

Interest rate fluctuations resulting in our interest expense exceeding the income from our assets would result in operating losses for us and may limit our ability to make distributions to our stockholders.

In addition, if we need to repay existing borrowings during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on those investments, which would adversely affect our profitability.

We may not be able to access financing sources on attractive terms, if at all, which could dilute our existing stockholders and adversely affect our ability to grow our business.

We may not be able to access financing sources on attractive terms, if at all, which could adversely affect our ability to fund and grow our business, or result in dilution to our existing stockholders.

Our ability to fund our loans and investments may be impacted by our ability to secure bank credit facilities (including term loans and revolving facilities), warehouse facilities and structured financing arrangements, public and private debt issuances (including through securitizations) and derivative instruments, in addition to transaction or asset specific funding arrangements and additional repurchase agreements on acceptable terms.

We may also rely on short-term financing that would be especially exposed to changes in availability.

We also rely on short-term financing that would be especially exposed to changes in availability.

Our access to sources of financing will depend upon a number of factors, over which we have little or no control, including:

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We may need to periodically access the capital markets to, among other things, raise cash to fund new loans and investments.

Unfavorable economic conditions or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by our potential lenders not to extend credit.

Unfavorable economic conditions or capital market conditions may increase our funding costs, limit our access to the capital markets or result in a decision by our potential lenders not to extend credit.

An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings and liquidity.

Additional equity issuances in the capital markets on unfavorable terms could also be dilutive to our

existing stockholders.

In addition, any dislocation or weakness in the capital and credit markets could adversely affect our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.

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We cannot make assurances that we will be able to obtain any additional financing on favorable terms or at all.

We use short-term borrowings, such as credit facilities and repurchase agreements to finance our investments, which require us to provide additional collateral in the event the lender determines there is a decrease in the fair value of our collateral, and these calls for collateral could significantly impact our liquidity position.

Our short-term borrowings often require us to provide additional collateral when the fair market value of our collateral decreases, and these calls for collateral could significantly impact our liquidity position.

We use short-term borrowing through repurchase agreements, credit facilities and other arrangements that put our assets and financial condition at risk.

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If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio.

If we are unable to provide such collateral or cash repayments, the lender may accelerate the loan or we would be required to liquidate the collateral.

If we are unable to provide such collateral or cash repayments, the lender may accelerate the loan and we may be required to liquidate the collateral.

In a weakening economic environment, or in an environment of widening credit spreads, we would generally expect the value of the commercial real estate debt or securities that serve as collateral for our short-term borrowings to decline, and in such a scenario, it is likely that the terms of our short-term borrowings would require us to provide additional collateral or to make partial repayment, which amounts could be substantial.

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Risks Related to Our Investments

Our commercial real estate debt investments are subject to the risks typically associated with commercial real estate.

Our commercial real estate debt investments are subject to the risks typically associated with ownership of commercial real estate.

Our commercial real estate debt and real estate securities generally are directly or indirectly secured by a lien on real property.

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We do not know whether the values of the properties ultimately securing our commercial real estate debt and loans underlying our securities will remain at the levels existing on the dates of origination of these loans and the dates of origination of the loans ultimately securing our securities, as applicable.

In addition, our borrowers could engage in fraudulent efforts to inflate the values of the underlying properties.

If the values of the properties drop or are fraudulently inflated, our risk will increase because of the lower value of the security and reduction in borrower equity associated with such loans.

In this manner, real estate values could impact the values of our debt and security investments.

Therefore, our commercial real estate debt and securities investments are subject to the risks typically associated with real estate.

In addition, our borrowers could fraudulently inflate the values of the underlying properties.

If the values of the properties drop or are discovered to have been fraudulently inflated, the lower value of the security and reduction in borrower equity associated with such loans will increase our risk.

In this manner, reduced real estate values could impact the values of our debt and security investments, making them subject to the risks typically associated with real estate ownership.

Our operating results may be adversely affected by a number of risks generally incident to holding real estate debt, including, without limitation:

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• costs of remediation and liabilities associated with environmental conditions affecting properties;

• reduced demand for office space, including as a result of changes in work habits, including remote or hybrid work schedules which allow work from remote locations other than the employer’s office premises;

• the potential for uninsured or underinsured property losses;

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These factors may have a material adverse effect on the ability of our borrowers to pay their loans and the ability of the borrowers on the underlying loans securing our securities to pay their loans, as well as on the value and the return that we can realize from assets we acquire and originate.

Our success depends on the availability of attractive investment opportunities and the Advisor’s ability to identify, structure, consummate, leverage, manage and realize returns on our investments.

Our operating results are dependent upon the availability of, as well as the Advisor’s ability to identify, structure, consummate, leverage, manage and realize returns on, our loans and other investments.

Our success depends on the availability of attractive investment opportunities.

Our loans typically have a term of about three to five years.

As a result, a significant amount of our invested capital is repaid at loan maturity each year.

Our operating results are dependent upon our ability to identify, structure, consummate, leverage, manage and realize attractive returns on, new loans and other investments.

In general, the availability of attractive investment opportunities and, consequently, our operating results, will be affected by the level and volatility of interest rates, conditions in the financial markets, general economic conditions, the demand for investment opportunities in our target assets and the supply of capital for such investment opportunities.

We cannot assure you that the Advisor will be successful in identifying and consummating attractive investments or that such investments, once made, will perform as anticipated.

There can be no assurances that the U.S.

or global financial systems will remain stable, and the occurrence of another significant credit market disruption may negatively impact our ability to execute our investment strategy, which would materially and adversely affect us.

and global financial markets experienced significant disruptions in the past, during which times global credit markets collapsed, borrowers defaulted on their loans at historically high levels, banks and other lending institutions suffered heavy losses and the value of real estate declined.

During such periods, such as the 2008 Global Financial Crisis, the financing available for real estate finance companies was significantly adversely effected.

Instability in the U.S.

and global financial markets in the future could be caused by any number of factors beyond our control, including, without limitation, terrorist attacks or other acts of war and adverse changes in national or international economic, market and political conditions or another health pandemic.

Any future sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to originate and acquire loans, which would materially and adversely affect us.

Difficulty in redeploying the proceeds from repayments of our existing loans and other investments could materially and adversely affect us.

As our loans and other investments are repaid, we attempt to redeploy the proceeds we receive into new loans and investments and repay borrowings under our repurchase facilities and other financing arrangements.

It is possible that we will fail to identify reinvestment options that would provide a yield and/or a risk profile that is comparable to the asset that was repaid.

If we fail to redeploy the proceeds we receive from repayment of a loan or other investment in equivalent or better alternatives, we could be materially and adversely affected.

If we cannot redeploy the proceeds we receive from repayments into funding loans in property types or geographic markets that the Advisor has identified as priorities for us, such repayments may cause the composition of our loan portfolio to skew towards less favored property types or geographies and prevent us from achieving our portfolio construction objectives.

We cannot assure you that we will be successful in identifying and consummating attractive investments or that such investments, once made, will perform as anticipated.

Delays in liquidating defaulted commercial real estate debt investments could reduce our investment returns.

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At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure process.

The resulting time delay could reduce the value of our assets in the defaulted loans.

The resulting time delay could reduce the value of the assets under the defaulted loans.

Furthermore, an action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to the delays and expenses associated with lawsuits if the borrower raises defenses or counterclaims.

In the event of default by a borrower, these restrictions, among other things, may impede our ability to foreclose on or sell the property securing the loan or to obtain proceeds sufficient to repay all amounts due to us on the loan.

In addition, we have in the past and we may in the future be forced to operate any foreclosed properties for a substantial period of time, which could be a distraction for our management team and may require us to pay significant costs associated with such property.

Operating and disposing of properties acquired through foreclosure subject us to additional risks that could harm our results of operations.

The size of our real estate owned portfolio acquired through foreclosure has increased in recent years.

We have in the past and we may in the future be forced to operate any foreclosed properties for a substantial period of time, which can be a distraction for our management team and may require us to pay significant costs associated with such property.

Owning and operating real property involves risks that are different (and in many ways more significant) than the risks faced in owning a loan secured by that property.

The costs associated with operating and redeveloping the property, including any operating shortfalls and significant capital expenditures, could materially and adversely affect our results of operations, financial condition and liquidity.

We may also be subject to environmental liabilities arising from such properties acquired in the foreclosure process.

In addition, at such time that we elect to sell such property, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis, resulting in a loss to us.

Furthermore, any costs or delays involved in the maintenance or liquidation of the underlying property will further reduce the net proceeds and, thus, increase the loss.

Subordinate commercial real estate debt that we originate or acquire could expose us to greater losses.

We acquire and originate subordinate commercial real estate debt, including subordinate mortgage and mezzanine loans and participations in such loans.

These types of investments could constitute a significant portion of our portfolio and may involve a higher degree of risk than the type of assets that will constitute the majority of our commercial real estate debt investments, namely first mortgage loans secured by real property.

In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower or the assets of the borrower may not be sufficient to satisfy the first mortgage loan and our subordinate debt investment.

These types of investments may involve a higher degree of risk than the type of assets that will constitute the majority of our commercial real estate debt investments, namely first mortgage loans secured by real property.

In the event a borrower declares bankruptcy, we may not be able to fully realize on the assets of the borrower, or the assets of the borrower may not be sufficient to fully satisfy both the first mortgage loan and our subordinate debt investment.

If a borrower defaults on our subordinate debt or on debt senior to ours, or in the event of a borrower bankruptcy, our subordinate debt will be satisfied only after the senior debt is paid in full.

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These statutes may limit the right to foreclose on the property or to realize the obligation secured by the property.

Investments in non-conforming or non-investment grade rated loans or securities involve greater risk of loss.

Some of our investments may not conform to conventional loan standards applied by traditional lenders and either will not be rated or will be rated as non-investment grade by the rating agencies.

The non-investment grade ratings for these assets typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow or other factors.

As a result, these investments may have a higher risk of default and loss than investment grade rated assets.

Any loss we incur may be significant and may reduce distributions and adversely affect the value of our common stock.

Insurance may not cover all potential losses on the properties underlying our investments, which may harm the value of our assets.

We generally require that each of the borrowers under our commercial real estate debt investments obtain comprehensive insurance covering the mortgaged property, including liability, fire and extended coverage.

We generally require that the borrowers under our commercial real estate debt investments obtain comprehensive insurance covering the mortgaged property, including liability, fire and extended coverage.

However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods and hurricanes that may be uninsurable or not economically insurable.

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We may not require borrowers to obtain certain types of insurance if it is deemed commercially unreasonable.

Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property if it is damaged or destroyed.

Inflation, changes in building codes and ordinances, environmental considerations and other factors also might result in insurance proceeds being inadequate to replace a property if it is damaged or destroyed.

Under such circumstances, the insurance proceeds, if any, might not be adequate to restore the economic value of the property, which might impair our security and decrease the value of the property.

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CMBS and CRE CLO Bonds entitle the holders thereof to receive payments that depend primarily on the cash flow from a specified pool of commercial or multifamily mortgage loans.

Consequently, CMBS and CRE CLO Bonds will be adversely affected by payment defaults, delinquencies and losses on the underlying commercial real estate loans.

Consequently, CMBS and CRE CLO Bonds may be adversely affected by payment defaults, delinquencies and losses on the underlying commercial real estate loans.

Furthermore, if the rental and leasing markets deteriorate, it could reduce cash flow from the loan pools underlying our CMBS and CRE CLO Bonds investments.

The CMBS and CRE CLO Bonds market is dependent upon liquidity for refinancing and will be negatively impacted by a slowdown in the new issue CMBS and CRE CLO Bonds market.

Additionally, CMBS and CRE CLO Bonds is subject to particular risks, including lack of standardized terms and payment of all or substantially all of the principal only at maturity rather than regular amortization of principal.

The CMBS and CRE CLO Bonds market is dependent upon liquidity for refinancing and could be negatively impacted by a slowdown in the new issue CMBS and CRE CLO Bonds market.

In addition, the value of CMBS and CRE CLO Bonds may change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole.

Additionally, CMBS and CRE CLO Bonds are subject to particular risks, including lack of standardized terms and payment of all or substantially all of the principal only at maturity rather than regular amortization of principal.

Additional risks may be presented by the type and use of a particular commercial property.

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Consequently, in the event of a default or loss on one or more commercial real estate loans contained in a securitization, we may not recover a portion or all of our investment.

The CMBS and CRE CLO Bonds in which we may invest are subject to the risks of the mortgage securities market as a whole and risks of the securitization process.

The value of CMBS and CRE CLO Bonds may change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole.

Due to our investment in subordinate CMBS, we are also subject to several risks created through the securitization process.

Our subordinate CMBS and CRE CLO Bonds are paid interest only to the extent that there are funds available to make payments.

To the extent the collateral pool includes delinquent loans, there is a risk that the interest payment on subordinate CMBS and CRE CLO Bonds will not be fully paid.

Subordinate CMBS and CRE CLO Bonds are also subject to greater credit risk than those CMBS and CRE CLO Bonds that are senior and generally more highly rated.

We may not control the special servicing of the mortgage loans underlying the CMBS and CRE CLO Bonds in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests.

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In addition, the equity securities of CDOs are generally illiquid and often must be held by a REIT and because they represent a leveraged investment in the CDO’s assets, the value of the equity securities will generally have greater fluctuations than the values of the underlying collateral.

Changes in interest rates could negatively affect the value of our investments, which could result in reduced income or losses and negatively affect the cash available for distribution.

Interest rates increased significantly during 2022 and may continue to increase.

We may invest in fixed-rate CMBS and other fixed-rate investments.

Under a normal yield curve, an investment in these instruments will decline in value if long-term interest rates increase.

We will also invest in floating-rate investments, for which decreases in interest rates will have a negative effect on interest income.

Declines in fair value may ultimately reduce income or result in losses to us, which may negatively affect cash available for distribution.

Hedging against interest rate exposure may adversely affect our income, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.

We may enter into interest rate swap agreements or pursue other interest rate hedging strategies.

Our hedging activity will vary in scope based on interest rate levels, the type of investments held, and other changing market conditions.

Interest rate hedging may fail to protect or could adversely affect us because, among other things:

• interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;

• available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

• the duration of the hedge may not match the duration of the related liability or asset;

• our hedging opportunities may be limited by the treatment of income from hedging transactions under the rules determining REIT qualification;

• the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

• the party owing money in the hedging transaction may default on its obligation to pay;

• we may purchase a hedge that turns out not to be necessary.

Any hedging activity we engage in may adversely affect our income, which could adversely affect cash available for distribution.

Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions.

In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially.

Moreover, for a variety of reasons, we may not be able to establish a perfect correlation between hedging instruments and the investment being hedged.

Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

Most of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us.

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Competition with third parties for originating and acquiring investments may reduce our profitability.

We have significant competition with respect to our origination and acquisition of assets with many other companies, including other REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies and other investors, many of which have greater resources than us.

We may not be able to compete successfully for investments.

In addition, the number of entities and the amount of funds competing for suitable investments may increase.

If we pay higher prices for investments or originate loans on more generous terms than our competitors, our returns will be lower and the value of our assets may not increase or may decrease significantly below the amount we paid for such assets.

If such events occur, our investors may experience a lower return on their investment.

Many of our competitors are not subject to the operating constraints associated with REIT rule compliance or maintenance of an exclusion from registration under the Investment Company Act.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments, offer more attractive pricing or other terms and establish more relationships than us.

Furthermore, competition for originations of and investments in our target assets may lead to the yields of such assets decreasing, which may further limit our ability to generate satisfactory returns.

This competition may cause us to pay higher prices for investments or originate loans with more generous terms than we would otherwise agree to.

If this occurs, our investors may experience a lower return on their investment.

Our due diligence may not reveal all material issues relating to our origination or acquisition of a particular investment.

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In making the assessment and otherwise conducting customary due diligence, we rely on the resources available to us and, in some cases, an investigation by third parties.

This process is particularly important and subjective with respect to newly organized or private entities because there may be little or no information publicly available about the entity.

Even if we conduct extensive due diligence on a particular investment, there can be no assurance that this diligence will uncover all material issues relating to such investment, that the information provided by the borrower is truthful or accurate, or that factors outside of our control will not later arise.

If our due diligence fails to identify material issues, we may have to write-down or write-off assets, restructure our investment or incur impairment or other charges that could result in our reporting losses.

Charges of this nature could contribute to negative market perceptions about us or our shares of common stock.

Refer to "Part I, Item 3.

Legal Proceedings" for additional for a summary of the Company’s legal proceedings.

This process is particularly important with respect to newly organized or private entities because there may be

little or no information publicly available about the entity.

However, even if we conduct extensive due diligence on a particular investment, there can be no assurance that this diligence will uncover all material issues relating to such investment, that the information provided by the borrower is truthful or accurate, or that factors outside of our control will not later arise.

If our due diligence fails to identify material issues, we have in the past and may in the future have to write-down or write-off assets, restructure our investment or incur impairment or other charges that could result in our reporting losses.

Charges of this nature could contribute to negative market perceptions about us or our shares of common stock (refer to “Part I, Item 3.

Legal Proceedings” for a summary of the Company’s legal proceedings).

We may be unable to restructure loans in a manner that we believe maximizes value, particularly if we are one of multiple creditors in large capital structures.

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Future funding obligations subject us to significant risks that the property may have declined in value, projects to be completed with the additional funds may have cost overruns and the borrower may be unable to generate enough cash flow, or sell or refinance the property, in order to repay our commercial real estate loan due.

We could determine that we need to fund more money than we originally anticipated in order to maximize the value of our investment even though there is no assurance additional funding would be the best course of action.

While we attempt to align the maturities of our liabilities with the maturities on our assets, we may not be successful in that regard which could harm our operating results and financial condition.

We could determine that we need to fund more money than we originally anticipated in order to maximize the value of our investment even though there is no assurance that such determination would, in fact, be the best course of action.

We may not be successful in our attempts to align the maturities of our liabilities with the maturities on our assets, which could harm our operating results and financial condition.

Our general financing strategy will include the use of “match-funded” structures.

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Provision for credit losses is difficult to estimate.

O ur provision for credit losses is evaluated on a quarterly basis.

Our determination of provision for credit losses requires us to make certain estimates and judgments.

Our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our commercial real estate debt, debt structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at the maturity of a loan, loan-to-value ("LTV"), potential for refinancing and expected market discount rates for varying property types.

Our provision for credit losses is evaluated on a quarterly basis.

Our determination of provision for credit losses requires us to make certain estimates and judgments, which may be difficult to determine.

Our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our commercial real estate debt, debt structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at the maturity of a loan, potential for refinancing and expected market discount rates for varying property types, loan-to-value ("LTV"), and reasonable and supportable forecasts that affect the collectability of the reported amount.

Our estimates and judgments may not be correct and, therefore, our results of operations and financial condition could be severely impacted.

In addition, our methodology for determining credit losses may differ from the methodologies employed by other companies, and may not be comparable with the credit loss allowances reported by other companies.

Accounting Standards Update 2016-13, "Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments (Topic 326)," which replaced the "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the Current Expected Credit Loss model ("CECL") became effective for us on January 1, 2020.

Under the CECL model, we are required to provide allowances for credit losses on certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debt securities, including related future funding commitments and accrued interest receivable.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and forward looking information through the use of projected macroeconomic scenarios over the reasonable and supportable forecasts.

This measurement takes place at the time the financial asset is first added to the balance sheet and updated quarterly thereafter.

This differs significantly from the "incurred loss" model previously required under GAAP, which delayed recognition until it was probable a loss had been incurred.

Accordingly, the adoption of the CECL model has materially affected how we determine our credit loss provision and required us to significantly increase our allowance and recognize provisions for credit losses earlier in the lending cycle.

Moreover, the CECL model created more volatility in the

level of our credit loss provisions.

If we are required to materially increase our future level of credit loss allowances for any reason, such increase could adversely affect our business, results of operations, liquidity and financial conditions.

Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.

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Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be downgraded or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.

If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of FBRT’s investments in the future, the value and liquidity of our investments could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.

If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of FBRT’s investments in the future, the value and liquidity of those investments could significantly decline, which would adversely affect the value of our investment portfolio.

Risks Related to the Conduit Segment of the Business

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The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges.

These economic losses will be reflected in our results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

These economic

losses will be reflected in our results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

Hedging against interest rate exposure may adversely affect our income, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.

We enter into interest rate swap agreements and pursue other interest rate hedging strategies.

Our hedging activity will vary in scope based on interest rate levels, the type of investments held, and other changing market conditions.

Interest rate hedging may fail to protect or could adversely affect us because, among other things:

• interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;

• available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

• the duration of the hedge may not match the duration of the related liability or asset;

• our hedging opportunities may be limited by the treatment of income from hedging transactions under the rules determining REIT qualification;

• the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transactions;

• the party owing money in the hedging transaction may default on its obligation to pay;

• we may purchase a hedge that turns out not to be necessary.

Any hedging activity we engage in may adversely affect our income, which could adversely affect cash available for distribution.

Moreover, for a variety of reasons, we may not be able to establish a perfect correlation between hedging instruments and the investment being hedged.

Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

Risks Related to Conflicts of Interest

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We are required to provide our Advisor with 180 days prior notice of any such termination.

Additionally, upon such a termination, or if we materially breach the Advisory Agreement and our Advisor terminates our Advisory Agreement, the Advisory Agreement provides that we will pay our Advisory a termination fee equal to three times the sum of the average annual base management fee and the average annual incentive fee paid or payable to the Advisor during the 24-month period immediately preceding the most recently completed calendar quarter prior to the termination.

Additionally, upon such a termination, or if we materially breach the Advisory Agreement and our Advisor terminates our Advisory Agreement, the Advisory Agreement provides that we will pay our Advisor a termination fee equal to three times the sum of the average annual base management fee and the average annual incentive fee paid or payable to the Advisor during the 24-month period immediately preceding the most recently completed calendar quarter prior to the termination.

These provisions increase the cost to us of terminating the Advisory Agreement and adversely affect our ability to terminate our Advisor without cause.

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Such takeover defenses may have the effect of inhibiting a third-party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-current market price.

The value of our common stock may be reduced if we are required to register as an investment company under the Investment Company Act.

We are not registered, and do not intend to register ourselves, our operating partnership or any of our subsidiaries, as an investment company under the Investment Company Act.

If we become obligated to register ourselves, our operating partnership or any of our subsidiaries as an investment company, the registered entity would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things, limitations on capital structure and restrictions on specified investments.

Although we monitor the portfolio of the Company, the operating partnership and its subsidiaries periodically and prior to each acquisition and disposition, any of these entities may not be able to maintain an exclusion from the definition of investment company.

If the Company, the operating partnership or any subsidiary is required to register as an investment company but fails to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity.

In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

Risks Related to Taxation

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If we were to fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to U.S federal and applicable state and local income tax on our taxable income at regular corporate rates.

In addition, for tax years beginning after December 31, 2022, we would possibly also be subject to certain taxes enacted by the Inflation Reduction Act of 2022 that are applicable to non-REIT corporations, including the nondeductible one-percent excise tax on certain stock repurchases.

In addition, we would possibly also be subject to certain taxes that are applicable to non-REIT corporations, including the nondeductible 1% excise tax on certain stock repurchases.

Losing our REIT status would reduce our net income available for investment or distribution to stockholders because of the additional tax liability.

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federal corporate income tax on our undistributed income.

• We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets, and it is possible that we might be required to borrow funds or sell assets to fund these distributions.

• We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of (i) 85% of our ordinary income, (ii) 95% of our capital gain net income and (iii) 100% of our undistributed income from prior years.

• If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.

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federal income tax purposes that is subject to the prohibited transaction tax.

• Any TRS of ours will be subject to U.S.

• Any taxable REIT subsidiary (“TRS”) of ours will be subject to U.S.

federal corporate income tax on its taxable income, and non-arm’s length transactions between us and any TRS could be subject to a 100% tax.

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In order to better control, and to attempt to avoid, the distribution of “excess inclusions” to our stockholders, as of January 1, 2022, our TMPs are wholly-owned by a Subsidiary REIT.

Our Subsidiary REIT is required to satisfy, on a stand-alone basis, the REIT asset, income, organizational, distribution, stockholder ownership and other requirements described above, and if it were to fail to qualify as a REIT, then (i) our Subsidiary REIT would face adverse tax consequences similar to those described above with respect to our qualification as a REIT and (ii) such failure could have an adverse effect on our ability to comply with the REIT income and asset tests and thus could impair our ability to qualify as a REIT unless we could avail ourselves of certain relief provisions.

Because our TMPs must at all times be owned by a REIT, we are restricted from selling equity interests in them, or selling any notes or bonds issued by them that might be considered to be equity for tax purposes, to other investors if doing so would subject them to taxation.

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Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations.

Under these provisions, any income that we generate from hedging transactions will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges:

The REIT provisions of the Internal Revenue Code may limit our ability to effectively hedge our assets and operations.

Under the REIT provisions, any income that we generate from hedging transactions will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges:

(i) interest rate risk on liabilities incurred to carry or acquire real estate assets;

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Under the Internal Revenue Code, if the terms of a loan are modified in a manner constituting a "significant modification," such modification triggers a deemed exchange of the original loan for the modified loan.

In general, under applicable Treasury Regulations if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan determined as of the date we agreed to acquire the loan or the date we significantly modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the REIT 75% gross income test, but will be qualifying income for purposes of the REIT 95% gross income test.

In general, under applicable Treasury Regulations if a loan is secured by real property and other property and the highest principal amount

of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan determined as of the date we agreed to acquire the loan or the date we significantly modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the REIT 75% gross income test, but will be qualifying income for purposes of the REIT 95% gross income test.

Although the law is not entirely clear, a portion of the loan will likely be a non-qualifying asset for purposes of the REIT 75% asset test.

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Risks Related to an Investment in Franklin BSP Realty Trust, Inc.

Public health crises, such as the COVID-19 pandemic have, and may in the future, adversely impact our business and the business of many of our borrowers.

Public health crises, such as the COVID-19 pandemic could have repercussions across domestic and global economies and financial markets.

For example, the COVID-19 pandemic resulted in many governmental authorities imposing significant restrictions on businesses and individuals that triggered economic consequences, including high unemployment, later, then high inflation, that resulted in challenging operating conditions for many businesses, particularly in the retail (including restaurants) and hospitality sectors.

Public health crises have, and may in the future, adversely impact our business and the business of many of our borrowers.

Public health crises could have repercussions across domestic and global economies and financial markets.

These actions directly and indirectly adversely effected the financing markets as well and resulted in margin calls from our lenders, which we satisfied.

The extent to which the COVID-19 pandemic and similar health crises impact our or our borrowers’ operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the events, treatment developments and government responses to the events.

The extent to which pandemics and similar health crises impact our or our borrowers’ operations will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the events, treatment developments and government responses to the events.

The inability of our borrowers to meet their loan obligations and/or borrowers filing for bankruptcy protection as a result of these events would reduce our cash flows, which would impact our ability to pay dividends to our stockholders.

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There is no assurance that the Company will be able to pay or maintain the current level of distributions or that distributions will increase over time.

In certain prior periods, including in 2022, distributions have been in excess of our earnings.

In certain prior periods, quarterly distributions have been in excess of our quarterly earnings.

Distributions in excess of earnings will decrease the book value per share of common stock.

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Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.

A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources.

More specifically, a cyber-incident is an intentional attack or an unintentional event that can result in third parties gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information.

As reliance on technology in our industry has increased, so have the risks posed to the systems of our Advisor and other parties that provide us with services essential to our operations, both internal and outsourced.

In addition, the risk of a cyber-incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

In addition, the risk of a cyber-

incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.

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Although the Advisor and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by the Advisor and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.

If we fail to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

This is the first year we have been subject to the requirement that our independent registered public accounting firm formally attest to the effectiveness of our internal control over financial reporting.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.

The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly and complicated.

If, in the future, we identify material weaknesses in our internal controls over financial reporting or our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, or cause us to fail to meet our reporting obligations.

We could also become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.

We are subject to risks related to corporate social responsibility.

Our business faces public scrutiny related to ESG activities.

We risk damage to our reputation if we or affiliates of our Advisor fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our investment processes.

Adverse incidents with respect to ESG activities or the reporting thereof could impact the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations.

Additionally, new legislative or regulatory initiatives related to ESG could adversely affect our business.

Unresolved Staff Comments.

Further information relating to cybersecurity risk management is discussed in Item 1C.

"Cybersecurity" in this report.

We are subject to risks from natural disasters such as earthquakes and severe weather, including as the result of global climate changes, which may result in damage to the properties securing our loans.

Natural disasters and severe weather such as earthquakes, tornadoes, hurricanes or floods may result in significant damage to the properties securing our loans or in which we invest.

In addition, our investments may be exposed to new or increased risks and liabilities associated with global climate change, such as increased frequency or intensity of adverse weather and natural disasters, which could negatively impact our and our borrowers’ businesses and the value of the properties securing our loans or in which we invest.

The extent of our or our borrowers' casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area.

While the geographic distribution of our portfolio somewhat limits our physical climate risk, some physical risk is inherent in the properties of our borrowers, particularly in certain borrowers’ locations and in the unknown potential for extreme weather or other events that could occur related to climate change.

We may be materially and adversely affected by our exposure to losses arising from natural disasters or severe weather, including those associated with global climate change.

In addition, global climate change concerns could result in additional legislation and regulatory requirements, including those associated with the transition to a low-carbon economy, which could increase expenses or otherwise adversely impact our business, results of operations and financial condition, or the business, results of operations and financial condition of our borrowers.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors