Real Estate Owned

9 Months Ended

Sep. 30, 2025

Real Estate Owned, Disclosure of Detailed Components [Abstract]

Note 5. Real Estate Owned

The following table presents additional detail related to our real estate owned held-for-investment, net, as of September 30, 2025 and December 31, 2024 ($ in thousands):


	September 30, 2025			December 31, 2024
Land	$	223,343		$	112,898
Building, building improvements, and site improvements		432,978			11,251
Tenant improvements		2,312			4,414
Furniture, fixtures and equipment		5,947			-
Real estate owned		664,580			128,563
Less: accumulated depreciation		(2,972	)		(1,423	)
Real estate owned, net	$	661,608		$	127,140

Depreciation expense related to our real estate owned held-for-investment assets for the three months ended September 30, 2025 and 2024 was $2.0 million and $2.4 million, respectively. Depreciation expense related to our real estate owned held-for-investment assets for the nine months ended September 30, 2025 and 2024 was $2.6 million and $7.2 million, respectively. At each reporting period, we assess whether there are any indicators of impairment of our real estate owned held-for-investment assets. There were no impairments of our real estate owned held-for-investment assets through September 30, 2025.

The following table presents additional detail related to the revenues and operating expenses of our real estate owned assets ($ in thousands):


	Three Months Ended						Nine Months Ended
	September 30, 2025			September 30, 2024			September 30, 2025			September 30, 2024
Revenue
Hotel portfolio	$	22,193		$	21,250		$	57,808		$	53,995
Mixed-use property fixed rents		1,569			1,985			5,664			6,157
Mixed-use property variable rents		115			190			323			410
Mixed-use property amortization of above and below market leases, net		(295	)		(354	)		(983	)		(1,062	)
Mixed-use property straight-line rent adjustment		252			32			434			95
Multifamily properties fixed rents		4,267			-			4,803			-
Multifamily properties variable rents		871			-			976			-
Multifamily property amortization of below market leases, net		37			-			37			-
Total revenue from real estate owned	$	29,009		$	23,103		$	69,062		$	59,595

Operating expenses
Hotel portfolio	$	13,941		$	13,189		$	39,251		$	37,458
Mixed-use property		934			1,538			3,776			4,008
Multifamily properties		3,614			-			4,073			-
Total operating expenses from real estate owned	$	18,489		$	14,727		$	47,100		$	41,466

Interest expense
Hotel portfolio	$	5,203		$	6,900		$	19,388		$	20,098
Mixed-use property		-			-			-			-
Multifamily properties (1)		4,213			-			4,746			-
Total interest expense from real estate owned	$	9,416		$	6,900		$	24,134		$	20,098

(1)

Such assets are pledged to certain of our repurchase agreements and, accordingly, excludes any allocation of amortization of deferred financing costs related to such repurchase agreement.

Hotel Portfolio

On February 8, 2021, we acquired legal title to a portfolio of seven limited service hotels located in New York, NY through a foreclosure and assumed the securitized senior mortgage. As of December 31, 2024, we determined that our hotel portfolio had met the held-for-sale criteria and, accordingly, we reflected this asset as real estate owned held-for-sale on our consolidated balance sheet. We determined the anticipated sale did not reflect a strategic shift and therefore did not qualify for presentation as a discontinued operation. Concurrent with this classification, we recognized an $80.5 million loss based upon the anticipated sales price, less estimated costs to sell. During the nine months ended September 30, 2025, we continued to pursue the sale of this asset. During such period, we incurred $362,000 of capital expenditures at our hotel portfolio, which is included within valuation adjustment for real estate owned held-for-sale on our consolidated statement of operations. As of September 30, 2025, we determined that a sale was no longer advisable given current market conditions. Accordingly, we ceased the sale process, determined the hotel portfolio no longer met the held-for-sale criteria, and reclassified the hotel portfolio to real estate owned, held-for-investment on our consolidated balance sheet. As we determined the fair value of the hotel portfolio to be $320.0 million as of September 30, 2025, we did not recognize depreciation expense during the nine months ended September 30, 2025. Concurrent with the reclassification to held-for-investment, we recognized a $13.0 million reversal of a previously recognized valuation adjustment for real estate owned held-for-sale, representing previously estimated costs to sell.

Mixed-Use Property

On June 30, 2023, we acquired legal title to a mixed-use property located in New York, NY and the equity interests in the borrower through an assignment-in-lieu of foreclosure and is comprised of office, retail, and signage components. As of September 30, 2025, the mixed-use property appears as part of real estate owned, net and related lease intangibles appear within other assets and other liabilities on our consolidated balance sheet. During the three months ended September 30, 2025, we sold two floors of office space to unaffiliated purchasers for an aggregate gross sales price $13.8 million, resulting in (i) an aggregate gain on partial sales of $2.0 million and (ii) proceeds, net of transaction costs and prorations, of $12.1 million. During the nine months ended September 30, 2025, we sold seven

floors of primarily office space to unaffiliated purchasers for an aggregate gross sales price of $42.6 million, resulting in (i) an aggregate gain on partial sales, net of $0.4 million and (ii) proceeds, net of transaction costs and prorations, of $38.7 million. In October 2025, we (i) sold the signage component to an unaffiliated purchaser for a gross sales price of $12.2 million and (ii) entered into a binding agreement to sell one additional floor of office space to an unaffiliated purchaser for a gross sales price of $5.9 million.

Multifamily Properties

On May 28, 2025, we acquired legal title to a multifamily property located in Phoenix, AZ through a mortgage foreclosure. Prior to such date, the multifamily property represented the underlying collateral for a senior loan with an unpaid principal balance of $50.2 million. During the year ended December 31, 2024, the borrower defaulted on the loan and, in anticipation of the mortgage foreclosure, we recognized a specific CECL reserve of $7.2 million, resulting in a carrying value of $42.8 million. Upon the mortgage foreclosure, we recognized a reversal of the specific CECL reserve of $0.3 million prior to recognizing a principal charge-off of $6.9 million based upon the multifamily property’s $42.8 million estimated fair value as determined by a third-party appraisal and assumption of $0.3 million of net working capital. In connection with the mortgage foreclosure, we incurred $0.1 million of transaction costs. As of September 30, 2025, the multifamily property appears as part of real estate owned, net and related lease intangibles appear within other assets on our consolidated balance sheet.

On June 12, 2025, we acquired legal title to a multifamily property located in Henderson, NV through a mortgage foreclosure. Prior to such date, the multifamily property represented the underlying collateral for a senior loan with an unpaid principal balance of $96.5 million. During the year ended December 31, 2024, the borrower defaulted on the loan and, in anticipation of the mortgage foreclosure, we recognized a specific CECL reserve of $16.7 million, resulting in a carrying value of $79.4 million. Upon the mortgage foreclosure, we recognized a reversal of the specific CECL reserve of $0.1 million prior to recognizing a principal charge-off of $16.5 million based upon the multifamily property’s $79.4 million estimated fair value as determined by a third-party appraisal and assumption of $0.1 million of net working capital. In connection with the mortgage foreclosure, we incurred $0.4 million of transaction costs. As of September 30, 2025, the multifamily property appears as part of real estate owned, net and related lease intangibles appear within other assets on our consolidated balance sheet.

On July 1, 2025, we acquired legal title to a multifamily property located in Dallas, TX through a mortgage foreclosure. Prior to such date, the multifamily property represented the underlying collateral for a senior loan with an unpaid principal balance of $39.3 million prior to principal charge-offs. During the year ended December 31, 2024, the borrower defaulted on the loan and, in anticipation of the mortgage foreclosure, we recognized a specific CECL reserve of $10.9 million, resulting in a carrying value of $28.2 million, and a CECL reserve of $0.3 million on accrued interest receivable recognized prior to placing the loan on non-accrual status. Subsequently, we recognized an additional $2.9 million specific CECL reserve prior to recognizing principal and accrued interest receivable charge-offs of $13.8 million and $0.3 million, respectively, based upon the multifamily property’s $25.3 million estimated fair value as determined by a third-party appraisal. During the three months ended September 30, 2025, we recognized a $0.5 million reversal of the previously recognized principal charge-off, representing assumed net working capital. In connection with the mortgage foreclosure, we incurred $0.3 million of transaction costs. As of September 30, 2025, the multifamily property appears as part of real estate owned, net and related lease intangibles appear within other assets on our consolidated balance sheet.

On July 1, 2025, we acquired legal title to two multifamily properties located in Dallas, TX through a mortgage foreclosure. Prior to such date, the multifamily properties represented the underlying collateral for a senior loan with an unpaid principal balance of $119.1 million prior to principal charge-offs. During the year ended December 31, 2024, the borrower defaulted on the loan and, in anticipation of the mortgage foreclosure, we recognized a specific CECL reserve of $0.6 million, resulting in a carrying value of $118.1 million, and a CECL reserve of $2.6 million on accrued interest receivable recognized prior to placing the loan on non-accrual status. Subsequently, we recognized an additional $8.6 million specific CECL reserve prior to recognizing principal and accrued interest receivable charge-offs of $7.9 million and $2.6 million, respectively, based upon the multifamily properties’ aggregate $110.2 million estimated fair value as determined by a third-party appraisal. During the three months ended September 30, 2025, we recognized an additional principal charge-off of $0.9 million, representing $0.7 million of assumed net working capital and $0.2 million of an additional protective advance made prior to foreclosure. In connection with the mortgage foreclosure, we incurred $0.5 million of transaction costs. As of September 30, 2025, the multifamily property appears as part of real estate owned, net, related lease intangibles appear within other assets, and below-market lease values related to a nominal retail component appear within other liabilities on our consolidated balance sheet.

Fair values of multifamily assets we acquired legal title to during the nine months ended September 30, 2025 as determined by third-party appraisers utilized market capitalization rates ranging from 4.75% to 5.50%. Such assumptions are based upon the nature of the properties and recent sales comparables.

In accordance with ASC 805, we allocated the fair value of assets acquired and liabilities assumed in connection with the above mortgage foreclosures on the above mentioned multifamily properties as follows ($ in thousands):


	Phoenix, AZ		Henderson, NV		Dallas, TX		Dallas, TX			Total
Land	$	6,400	$	9,000	$	2,087	$	22,736		$	40,223
Building		34,592		64,600		19,273		84,388			202,853
Site improvements		-		2,100		2,445		559			5,104
Furniture, fixtures and equipment		206		400		815		1,069			2,490
In-place lease values (1)		1,602		3,300		680		1,851			7,433
Below market lease values (2)		-		-		-		(403	)		(403	)
Total	$	42,800	$	79,400	$	25,300	$	110,200		$	257,700

(1)

Included within other assets on our consolidated balance sheets.

(2)

Included within other liabilities on our consolidated balance sheets.

The following table presents additional detail of the assets acquired and liabilities assumed in connection with the mortgage foreclosures on the above mentioned multifamily properties ($ in thousands):


	Phoenix, AZ			Henderson, NV			Dallas, TX			Dallas, TX			Total
Assets
Cash	$	188		$	65		$	185		$	-		$	438
Restricted cash		312			672			821			1,905			3,710
Real estate owned		41,198			76,100			24,620			108,752			250,670
In-place lease values (1)		1,602			3,300			680			1,851			7,433
Other assets		26			54			20			36			136
Total assets		43,326			80,191			26,326			112,544			262,387

Liabilities
Below market lease values (2)	$	-		$	-		$	-		$	403		$	403
Other liabilities		227			653			558			2,560			3,998
Total liabilities		227			653			558			2,963			4,401

Equity		43,099			79,538			25,768			109,581			257,986
Carrying value of loan prior to charge-offs (3)		(49,957	)		(96,082	)		(39,085	)		(118,959	)		(304,083	)
Accrued interest receivable		-			-			(320	)		(2,594	)		(2,914	)
Principal Charge-off	$	(6,858	)	$	(16,544	)	$	(13,637	)	$	(11,972	)	$	(49,011	)

(1)

Included within other assets on our consolidated balance sheets.

(2)

Included within other liabilities on our consolidated balance sheets.

(3)

Carrying values are net of a total $1.2 million of unamortized fees.

Leases

We have non-cancelable operating leases for space in our mixed-use and multifamily properties. These leases provide for fixed rent payments, which we recognize on a straight-line basis, and variable rent payments, including reimbursement of certain operating expenses and miscellaneous fees, which we recognize when earned. As of September 30, 2025, the future minimum fixed rents under our non-cancellable leases for each of the next five years and thereafter are as follows ($ in thousands):


Year	Amount
2025 (1)	$	1,582
2026		6,489
2027		6,529
2028		6,645
2029		7,384
Thereafter		35,248
Total	$	63,877

(1)

Contractual lease payments due for the remaining three months of 2025.

Lease Intangibles

As of September 30, 2025 and December 31, 2024, our lease intangibles are comprised of the following ($ in thousands):


Intangible	September 30, 2025			December 31, 2024
In-place, above market, and other lease values	$	28,383		$	24,289
Less: accumulated amortization		(6,420	)		(3,888	)
In-place, above market, and other lease values, net (1)	$	21,963		$	20,401

Below market lease values	$	(4,612	)	$	(4,209	)
Less: accumulated amortization		886			565
Below market lease values, net (2)	$	(3,726	)	$	(3,644	)

(1)

Included within other assets on our consolidated balance sheets.

(2)

Included within other liabilities on our consolidated balance sheets.

Amortization of our lease intangibles for the three and nine months ended September 30, 2025 and 2024 is as follows ($ in thousands):


	Three Months Ended						Nine Months Ended
Intangible	September 30, 2025			September 30, 2024			September 30, 2025			September 30, 2024
In-place and other lease values (1)	$	1,822		$	200		$	2,462		$	601
Above market lease values (2)		(391	)		(448	)		(1,267	)		(1,343	)
Below market lease values (2)		133			94			321			282

(1)

Amortization of in-place and other lease values is recognized in depreciation and amortization expense on our consolidated statements of operations.

(2)

Amortization of above and below market lease values, net is recognized in revenue from real estate owned on our consolidated statements of operations.

As of September 30, 2025, the estimated amortization of our lease intangibles is approximately as follows ($ in thousands):


	In-place and Other Lease Values (1)		Above Market Lease Values (2)			Below Market Lease Values (2)
2025 (3)	$	1,822	$	(390	)	$	132
2026		3,713		(1,559	)		528
2027		684		(1,559	)		528
2028		593		(1,559	)		402
2029		410		(1,559	)		377
Thereafter		1,616		(6,499	)		1,759
Total	$	8,838	$	(13,125	)	$	3,726

(1)

Amortization of in-place and other lease values is recognized in depreciation and amortization expense on our consolidated statements of operations.

(2)

Amortization of above and below market lease values, net is recognized in revenue from real estate owned on our consolidated statements of operations.

(3)

Represents amortization for the remaining three months of 2025.

The weighted average amortization period for in-place lease values and below market lease values acquired during the nine months ended September 30, 2025 was 1.3 years and 2.6 years, respectively.

Claros Mortgage Trust, Inc. 10-Q