Claros Mortgage Trust, Inc. Fair Value Disclosure
Note 8. Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value as well as disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use when pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair
value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Financial Instruments Reported at Fair Value
The fair value of our interest rate caps are determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate caps. The variable interest rates used in the calculation of projected receipts on the interest rate caps are based on a third-party expert’s expectation of future interest rates derived from observable market interest rate curves and volatilities. Our interest rate caps are classified as Level 2 in the fair value hierarchy. As of December 31, 2025 and 2024, the fair values of our interest rate caps were de minimis.
Financial Instruments Not Reported at Fair Value
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value were as follows ($ in thousands):
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December 31, 2025 |
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Carrying |
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Unpaid Principal |
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Fair Value Hierarchy Level |
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Value |
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Balance |
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Fair Value |
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Level 1 |
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Level 2 |
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Level 3 |
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Loans receivable held-for-investment, net |
|
$ |
3,615,401 |
|
|
$ |
4,057,357 |
|
|
$ |
3,636,499 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,636,499 |
|
Repurchase agreements |
|
|
1,857,614 |
|
|
|
1,857,614 |
|
|
|
1,857,614 |
|
|
|
- |
|
|
|
- |
|
|
|
1,857,614 |
|
Term participation facility |
|
|
329,452 |
|
|
|
329,452 |
|
|
|
325,837 |
|
|
|
- |
|
|
|
- |
|
|
|
325,837 |
|
Notes payable, net |
|
|
177,522 |
|
|
|
178,000 |
|
|
|
177,861 |
|
|
|
- |
|
|
|
- |
|
|
|
177,861 |
|
Secured term loan, net |
|
|
549,447 |
|
|
|
556,188 |
|
|
|
538,112 |
|
|
|
- |
|
|
|
- |
|
|
|
538,112 |
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Debt related to real estate owned hotel |
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|
230,992 |
|
|
|
235,000 |
|
|
|
235,216 |
|
|
|
- |
|
|
|
- |
|
|
|
235,216 |
|
|
|
December 31, 2024 |
|
|||||||||||||||||||||
|
|
Carrying |
|
|
Unpaid Principal |
|
|
|
|
|
Fair Value Hierarchy Level |
|
||||||||||||
|
|
Value |
|
|
Balance |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
Loans receivable held-for-investment, net |
|
$ |
5,947,262 |
|
|
$ |
6,200,290 |
|
|
$ |
5,934,590 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,934,590 |
|
Loans receivable held-for-sale |
|
|
277,062 |
|
|
|
312,471 |
|
|
|
277,062 |
|
|
|
- |
|
|
|
- |
|
|
|
277,062 |
|
Repurchase agreements |
|
|
3,190,339 |
|
|
|
3,190,339 |
|
|
|
3,190,339 |
|
|
|
- |
|
|
|
- |
|
|
|
3,190,339 |
|
Term participation facility |
|
|
477,584 |
|
|
|
477,584 |
|
|
|
476,099 |
|
|
|
- |
|
|
|
- |
|
|
|
476,099 |
|
Notes payable, net |
|
|
236,845 |
|
|
|
238,938 |
|
|
|
236,939 |
|
|
|
- |
|
|
|
- |
|
|
|
236,939 |
|
Secured term loan, net |
|
|
709,777 |
|
|
|
717,825 |
|
|
|
685,522 |
|
|
|
- |
|
|
|
- |
|
|
|
685,522 |
|
Debt related to real estate owned hotel |
|
|
274,604 |
|
|
|
275,000 |
|
|
|
274,680 |
|
|
|
- |
|
|
|
- |
|
|
|
274,680 |
|
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.