Company: ADAMM
Filing Date: 2025-08-01
Form Type: 10-Q
Source: 0001273685-25-000072
Chunk: 251

Company: ADAMAS TRUST, INC.
Filing Date: 2025-08-01
Form: 10-Q
Item: Part I, Item 2
Chunk 251
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 A preferred equity investment is an equity investment in the entity that owns the underlying property and mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property.  We evaluate our Mezzanine Lending investments for accounting treatment as loans versus equity investments.  Mezzanine Lending investments for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate are included in multi-family loans on our condensed consolidated balance sheets.  

Mezzanine Lending investments where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting and are included in equity investments on our condensed consolidated balance sheets.  The Company records its equity in earnings or losses from these Mezzanine Lending investments under the hypothetical liquidation of book value method of accounting due to the structures and the preferences it receives on the distributions from these entities pursuant to the respective agreements. Under this method, the Company recognizes income or loss in each period based on the change in liquidation proceeds it would receive from a hypothetical liquidation of its investment.

The Company is also the primary beneficiary of a VIE that owns a multi-family apartment community and in which the Company holds a preferred equity investment.  The Company determined that it has the power to direct the activities of the VIE and consolidates this VIE into its condensed consolidated financial statements. 

During the six months ended June 30, 2025, the Company negotiated a short-term maturity extension on one preferred equity investment for which the underlying property was subject to a purchase and sale agreement with a closing date subsequent to the scheduled maturity of the preferred equity investment. This investment was redeemed during the three months ended June 30, 2025. During the six months ended June 30, 2024, the Company reduced the fair value of one defaulted preferred equity investment to zero as a result of developments with respect to the property, its financing and market conditions. This investment represents 2.2% of the total investment amount of the Mezzanine Lending portfolio. The Company has also ceased accruals of preferred return on one preferred equity investment and its preferred equity investment in a Consolidated VIE as a result of its evaluation of the hypothetical liquidation value for the respective investments. These investments represent 21.0% of the total investment amount of the Mezzanine Lending portfolio.  

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The following tables summarize our Mezzanine Lending portfolio as of June 30, 2025 and December 31, 2024, respectively (d