Chicago Atlantic Real Estate Finance, Inc. Fair Value Disclosure
14. FAIR VALUE MEASUREMENTS
GAAP requires disclosure of fair value information about financial and non-financial assets and liabilities, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows using market yields, or other valuation methodologies. Any changes to the valuation methodology will be reviewed by the Company’s management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the Company anticipates that the valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial and non-financial assets and liabilities could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced.
Recurring Fair Value Measurements
The table presented below summarizes the Company’s financial assets and liabilities measured at fair value as of December 31, 2025 and 2024. There were no financial assets and liabilities measured at fair value as of December 31, 2025.
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As of December 31, 2024 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Financial assets: |
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Loans, at fair value - related party |
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$ |
- |
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$ |
- |
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$ |
5,335,000 |
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$ |
5,335,000 |
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The following table presents changes in loans at fair value that use Level 3 inputs for the year ended December 31, 2025:
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For the year |
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Loans, at fair value - related party |
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Balance at December 31, 2024 |
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$ |
5,500,000 |
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Transfers out of Level 3 |
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(5,500,000 |
) |
Balance at December 31, 2025 |
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$ |
- |
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The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of December 31, 2024. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.
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As of December 31, 2024 |
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Unobservable Input |
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Fair Value |
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Primary Valuation Technique |
Input |
Value |
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Loans, at fair value - related party |
$ |
5,335,000 |
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Yield Analysis |
Discount rate |
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13.65 |
% |
Total loans, at fair value |
$ |
5,335,000 |
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For the year ended December 31, 2024, our loan held at fair value using the fair value option included an insignificant amount of unrealized losses in net income before income taxes, that are attributable to changes in instrument-specific credit risk. The portion of the fair value adjustments related to credit risk was determined based on a discounted cash flow analysis and discount rate applied to the subject loan. Interest income on the loan measured at fair value is calculated based on the interest rate of the loan and is recorded in the interest income on the consolidated statement of operations.
Financial Assets and Liabilities Not Measured at Fair Value
As of December 31, 2025 and 2024, the carrying values and fair values of the Company’s financial assets and liabilities recorded at amortized cost are as follows:
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As of |
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As of |
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2025 |
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2024 |
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Level |
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Carrying |
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Fair Value |
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Carrying |
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Fair Value |
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Financial assets: |
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Loans held for investment |
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3 |
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$ |
408,955,567 |
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$ |
407,364,639 |
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$ |
402,477,046 |
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$ |
399,771,293 |
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Cash and cash equivalents |
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1 |
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14,948,884 |
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14,948,884 |
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26,400,448 |
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26,400,448 |
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Interest receivable |
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2 |
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4,009,800 |
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4,009,800 |
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1,453,823 |
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1,453,823 |
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Other receivables and assets, net |
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2 |
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874,245 |
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874,245 |
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459,187 |
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459,187 |
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Related party receivables |
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2 |
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1,189,937 |
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1,189,937 |
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3,370,339 |
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3,370,339 |
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Financial liabilities: |
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Revolving loan |
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2 |
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49,100,000 |
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48,853,380 |
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55,000,000 |
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54,694,925 |
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Notes payable, net |
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2 |
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49,334,459 |
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49,383,677 |
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49,096,250 |
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49,306,996 |
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Dividend payable |
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2 |
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11,157,220 |
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11,157,220 |
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13,605,153 |
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13,605,153 |
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Related party payables |
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2 |
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2,214,920 |
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2,214,920 |
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2,043,403 |
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2,043,403 |
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Management and incentive fees payable |
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2 |
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3,098,576 |
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3,098,576 |
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2,863,158 |
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2,863,158 |
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Interest payable |
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2 |
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1,348,334 |
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1,348,334 |
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1,149,021 |
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1,149,021 |
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Accounts payable and other liabilities |
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2 |
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834,977 |
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834,977 |
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1,136,014 |
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1,136,014 |
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Interest reserve |
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2 |
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12,686 |
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12,686 |
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1,297,878 |
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1,297,878 |
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Our loans are generally held for investment and are substantially secured by real estate, equipment, licenses and other assets of the borrowers to the extent permitted by the applicable laws and the regulations governing such borrowers. The aggregate fair value of the Company’s loans held for investment was $407,364,639 and $399,771,293, with gross unrecognized holding losses of $1.6 million and $2.7 million as of December 31, 2025 and 2024, respectively. The fair values, which are classified as Level 3 in the fair value hierarchy, are estimated using discounted cash flow models based on current market inputs for similar types of arrangements. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 12, 2024 | |
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.