Q1 2020 Earnings Call
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First name David last name Brown.
And your company.
IRA.
I suppose.
A I.E.R.A.
Okay and this is for Starwood properties.
Yes right.
Thank you that and good morning, everyone.
Despite a clearly volatile market backdrop, resulting from the impact of covert 19, our liquidity core earnings and portfolio performance was strong this quarter once again, demonstrating the benefit of our diverse platform with multiple business lines.
Our earnings for the quarter was $162 million or 55 cents per share.
However, as I will discuss later, our GAAP results were impacted by the current economic environment and our implementation of the new credit loss accounting standard known as diesel.
We do not believe the GAAP charges, we took against our assets. This quarter are reflective of the credit characteristics of these assets.
I will divide my comments this morning into three main part.
First I will discuss our quarterly results across each segment.
Well, then highlight several items that impacted our GAAP results, including Cecil and Mark to market.
And finally, I will conclude with comments on our capitalization financing facilities and liquidity.
Our performance this quarter was led by our largest segment commercial and residential lending, which contributed core earnings of $148 million to the quarter.
On the commercial lending side, despite the increase in our loan loss allowance, resulting from the implementation of Cecil we experienced no losses or impairment and the credit quality of our portfolio remained strong with a weighted average LTV of 61% in fact, one of the loans, we risk rated a five last quarter.
Which carried a $3 million loan loss allowance paid off this quarter at par.
During the quarter, we originated seven loans totaling $853 million with an average loan size of $120 million, we funded $1.1 billion of loans in the quarter, including 350 million under pre existing loan commitments.
We also received 703 million in loan repayments, bringing our commercial lending portfolio to a record $9.5 billion.
Also this quarter over 90% of our domestic floating rate loans had LIBOR floors.
For the month of April we received over 99% of total interest due on our alone with all but one borrower making their required payments.
On the residential lending side, we continued our expansion of this business by purchasing $386 million of non QM loans, and completing our fixed securitization totaling $381 million.
Residential loan portfolio ended the quarter with a balance of $1.2 billion, an average LTV of 69% and an average FICO Accseven 30.
Our retained RMBS portfolio grew to $150 million this quarter, consisting entirely of retained securities on our six securitization.
Next I will discuss our property segment, which contributed $23 million a core earnings to the quarter.
The assets in this segment continued to perform very well with blended cash on cash yield a 14.6% and weighted average occupancy of 97%.
For the month of April 95% of the total rent due from the tenants in this portfolio was received.
The performance of our Florida Affordable housing portfolio continues to vastly exceed our expectations area median income levels, which govern rents for the over 15000 units in this portfolio were recently released.
Hi, or median income for northern and Central Florida, where this portfolio was concentrated resulted in a blended rent increase of just under 5%.
These rents create a new floor, which cannot decreased going forward.
Well the increases were released on April 1st we will likely to for them until the impacts of cobot 19 to our tenants can be assessed.
As of quarter end the properties, we own carried accumulated depreciation of $334 million or one dollar an 18 cents per share as we've said in the past we continue to believe that these assets have appreciated meaningfully since we acquired them and the appreciation is not reflected in our GAAP book value.
At a minimum adding back $334 million or $1.18 per share or GAAP book value would arrive at her purchase price for these assets.
The gains that we believe exist in this portfolio would be an incremental increase to undepreciated book value.
Next is our investing in servicing segment, which contributed core earnings of $35 million to the quarter.
And our CMBS portfolio, we continue to Opportunistically sell assets during the quarter, we sold $21 million the securities for a net GAAP gain of 9 million any net core gain of 11 million.
And our conduit, we securitized $336 million of loans in two transactions this quarter at profitability levels consistent with our historical performance.
And then our special servicing business, we obtained five new special servicing assignments with a total unpaid principal balance of 4.2 billion, bringing our name servicing portfolio to 94.7 billion.
Our fees this quarter do not reflect any impact from coded related modifications, but we have seen a meaningful increase in activity after quarter end, which Jeff will discuss.
Including my segment discussion is our infrastructure lending segment, which contributed core earnings of $6 million to the quarter.
We acquired long, a $15 million and funded $48 million under pre existing loan commitments.
We also received $78 million from sales and repayments.
Our total portfolio stands at 1.6 billion at the end of the quarter with the loans, we acquired from GE, representing 687 million of this amount is 64% decrease since acquisition.
We also increased our borrowing capacity by upsizing, one of our financing facilities from 500 million to 750 million, bringing our total financing capacity in this segment to $2.5 billion of which 1.2 billion was drawn.
For the month of April we collected all interest due on the loans in this segment.
Next I would like to walk you through two of the larger items that impacted our GAAP results this quarter.
Salt and Mark to market adjustments, both of which are noncash and unrealized combined these resulted in a 70 cents decreased to our GAAP earnings 17 cents for Cecil and 53 cents for Mark to market and an 87 cents decrease to book value per share 29 cents first diesel and 50.
Eight cents from Mark to market.
As we discussed last quarter, we were required to adopt the new Cecil accounting standard on January Onest for assets within our commercial real estate and infrastructure portfolios I've ever recorded at amortized cost.
Because they still requires you to estimate a life of loan loss the forecasted macroeconomic environment is a critical component of the resulting reserve estimates.
The environment, which existed when we adopted diesel on January 1st with very different than the one which existed at March 31st and not change drove an increase to the reserve.
Our adoption on January Onest resulted in a general Cecil reserve of $36 million. The net impact of this new reserve and reversal of our prior year General Reserve, a 4 million was recorded directly against equity.
On March 31st while the credit characteristics of our assets had not changed the macroeconomic environment had changed drastically.
That change resulted in an increase to the reserve by $49 million of which $40 million related to commercial lending.
Unlike the establishment of the reserve the January 1st these changes went through our GAAP piano.
Next on the topic of Mark to market.
Our CMBS and residential lending businesses, where most impacted by the significant spread widening that occurred at the end of the quarter.
There are few important items to consider when looking at the mark to market effect on these assets.
As we've said before ours is not a short term business model to the contrary, we intend to hold the vast majority of these investments long term and unrealized spread marks are not an indicator of value recovery overtime.
Second we were not forced sellers of any of these instruments during the quarter and did not realize any losses from the spread widening which occurred in March.
Consistent with past practice due to the noncash unrealized nature of both the sea salt and Mark to market charges. We took this quarter. They were not included in core earnings.
I will conclude this morning with a few comments about our liquidity financing facilities and capitalization.
We continue to have ample credit capacity across our business line. We ended the quarter with undrawn debt capacity of $8.6 billion and an adjusted debt to underappreciated equity ratio of 2.1 time.
As of Friday, we had $870 million of cash and approved undrawn debt capacity.
This amount is after payment of our first quarter dividend and after $253 million of de leveraging across our facilities.
The de leveraging includes voluntary paydown on our warehouse facilities, which contain hotel collateral, where we have secured modifications with 94% of these warehouse lenders.
The modifications cover 1.4 billion of the total 1.5 billion in hotel assets that we have financed on warehouse lines and relate to $1 billion of warehouse debt on our balance sheet.
In exchange for these voluntary pay down we have been provided with a margin caught moratorium for a minimum of six month after any hotel loan modification.
In addition, we've been afforded a suite of pre approved modification, but we can make to the underlying hotel loans without going back to our warehouse lender for approval.
This provides us with maximum flexibility to enter into constructive discussions with our borrowers going forward.
And finally I wanted to comment about the alignment and commitment of our manager to our shareholders.
During the quarter, our board approved a 400 million dollar repurchase program pursuant to this program in March we purchased 1.9 million shares of common stock with a weighted average repurchase price a $14.95 per share for a total cost of $29 billion.
Also with regards to our first quarter base management fee, which totaled $19 million or manager has agreed to take this amount in stock.
With that I'll turn the call over to Jeff for his comments.
Thank you Rena and good morning, everyone.
It feels like much more than 10 weeks ago that we lost smoke and we hope you and your families are healthy and safe.
We closed our offices on March 15th and since then I've been working alongside other Starwood executives out of Bearitos in Miami.
Despite the circumstances the senior management team has never been more connected and I'm proud of the hours and work the entire organization is put in to optimize our liquidity position protecting our balance sheet and importantly, ensure we come out I'm just curious in a position of strength.
We are confident enough in our excess liquidity position that we haven't talked recently gone on the offensive and began investing capital selectively at extremely attractive levels.
We moved our earnings call up three days this week to provide more information to the market earlier.
And heard that people think we did so to allow us to come to market quickly to raise capital.
That is not our plan.
We have no need for plan, given our excess liquidity to raise debt or equity capital in the near future I believe an unforeseen opportunity.
We've been saying for over seven years that our diversified investment strategy was built to perform well with normal market and outperform in periods of direct.
Q1 gave us both.
The strength and quality of our multi cylinder portfolio has never been more apparent.
We have $3.3 billion, an unencumbered assets on our balance sheet, which include Unlevered loans and securities and various other sources of liquidity.
As Rina said after paying down our financing lines by over $250 million since Kogut 19, and paying our dividend, we up $870 million with Josh and Undrawn capacity.
We are in the unique position of having substantial unlevered out that.
Equity in property assets and other liberal levers, we can pull to create well over $1 billion swap potential liquidity if needed adding straight to our already strong balance sheet.
Our unlevered loans in property out that can be borrowed against sold for pledged to de lever our warehouse line.
Watching out that's would lower our bank lenders Ltvs and returned Josh we have previously paid down lines with.
Simply put well every sub sector of mortgage riet face the liquidity crisis and many of our peers were hours or days away from defaulting on bank wide or selling any assets that they could there was never a point, where our small BD within question.
Although our stock went down with our sector. We believe there are very few of our peers you can say about.
Regardless of the paper credit market improvement, we are prepared to be in position to going off there.
We did not make any district sales during this crisis and we did not take any losses, which will leave us in position to recover more quickly given our liquidity, we have begun to going off to invest in loans that are mispriced due to the liquidity crisis in the capital market.
With credit spreads wider in capital more expensive, we do expect loan repayment to slow perhaps significantly.
Fortunately our balance sheet is not solely reliant on loan repayments to create liquidity.
In our stress testing, we conservatively moved $2 billion the repayment out of our 2020 workout, leaving only 718 million or 130 million of net equity being returned to us from our lending portfolio over the next three quarters, which is less than 10% of the $1.5 billion.
Equity returns what in the last three quarters.
Even with these conservative assumptions, we're comfortable looking for opportunities to deploy a portion of this excess cash today.
We're pleased that the third party appraisal methodology, we adopted with seasonal confirmed credit of our 61% LPD lending book.
That's 61% LTV and after recent pay down our bank lenders attachment point are significantly below 50% LTB today.
Lessening the likelihood of margin goal.
Pro forma for Q2 construction loans are less than 15% of our lending segment the opposite the lowest they have been in our book in over six years.
Since quarter end, we executed on $640 million off balance sheet senior mortgage note sales, helping reduce our future funding needs by almost 40% from their third quarter 2019 peak.
We have talked over recent quarters about how we reduced our warehouse line exposure through you know sales and our COO.
Less than half of our CRT loan or finance on warehouse lines, leaving us less exposure to credit marks.
Hotel loans are only 12% of our total assets today and retail was less than 2%.
Given our strong cash position, we proactively address the uncertainty around our hotel loan exposure by being the first to proactively pay down our warehouse lines in exchange for six to nine month moratorium on incremental paydown.
Allowing us to work with select forwards on forbearance plan, while giving us confidence in our future liquidity D.
To date, we have reached agreement with 94% of all lenders.
End up those agreements, 93% of the voluntary pay downs have already been made.
We have some good news to share with you if you'll recall about 18 months ago, we took back to loans secured by industrial properties located in Montgomery, Alabama, and Orlando, Florida. After Winn Dixie rejected their leases coming out of bankruptcy.
At the time, we told you we were confident that despite taking an impairment that we would ultimately break even or make money on those assets.
We're happy to report that a high quality tenants signed a long term lease and moved into the Montgomery facility.
And we have executed a long term lease on 100% Orlando facility to another very high quality tenants.
We will decide soon whether to so our whole both properties and are in very high cash yield, but expect approximately $80 million 40 million of which would be a gain on those properties, if we choose to sell them.
We believe this example highlights the value of the alignment with our manager Starwood Capital group, one of the largest real estate managers in the country working together with our large special servicer, who together made this outcome possible.
We have approximately $90 million and gains in the LIBOR floors embedded in our loans today and as the U.S. dollar is appreciated we have over $50 million again on our foreign exchange hedging on our international loan book.
We could take those gains to increase liquidity today, but with no liquidity needs we have not.
Selling your floors or Florida foreign exchange gains is making a call on future direction of rate or currencies, which is not what we do.
Taking those games today for liquidity would likely lower future returns on those assets by more than the cash they would raise.
And create more uncertainty around future earnings.
We spoke on our November earnings call about the cash management strategy somewhere employing in our sector the by senior yellow or CMBS out that with massive amounts of leverage to earn higher yields on their cash.
We said, we would not do that.
The assets were near the lowest historic spreads over treasury bonds and that the bid offer spreads can widen significantly as liquidity dries up.
In our February earnings call, we talked about being prepared for capital markets event.
Secondly, reducing our CMBS book and significantly reducing the warehouse line exposure in our C.R.E. loan book.
He said that we manage the left and right size of the balance sheet for a potential credit event, if we were to get one.
We finished by saying we thought the company up to outperform if and when the credit markets due to deteriorate.
They clearly have.
And we believe we have.
Onto our property book.
Our property book continues to perform well.
With fair market value gains over $700 million in mid teens, and increasing cash returns on invested capital.
We are in the process of refinancing our first Florida multifamily portfolio, which will raise $85 million of additional liquidity, while lowering our loan rate by 100 basis points today.
In <unk>, we told you last quarter that we have sold retail heavy CMBS securities to reduce our Noninvestment grade CMBS portfolio from 10.5% of our assets under 5% of our assets.
While increasing our named special servicing mandates.
Our special Servicer has not been busier in the seven plus years, we've owned Delon are.
Weve on boarded over 500 loan cobot 19, representing over $14 billion an asset.
Having doubled the amount of assets. We're working on we have re purpose multiple professionals to help with service or worked through this backlog and expect revenues to increase in the coming years.
And our residential lending business, we completed our six securitization in Q1 and expect to execute multiple securitizations in Q2 with expected return similar to pre cobot return.
Looking back to the great financial crisis of 2008 loans similar to the 735 go 66% LPV portfolio, we have created had losses of less than 1%.
Originator residential read and banks aggressively sold whole loans in March and April, creating a potential market opportunity for us to add loans with term financing an exceptionally attractive returns.
Finally, I want to talk about our energy infrastructure lending segment, given the drop in commodity prices.
The bulk of our loan book is on power plants that have contracted cash flows that contribute to the repayment of our debt and the plants profitability is based on the difference between where they can buy gout and selling electricity, commonly referred to as the spark spreads.
With natural gas prices lower spark spreads remain significantly above our debt breakeven.
All of our loan benefit from strong structural protection and or financial maintenance covenants to ensure our debt is being serviced adequately.
We do not have market price based margin calls on these loans.
Margin calls would require a specific credit event at the project level typically leading to an acceleration of alone.
We have for financing facilities with roughly $2.5 billion of capacity and $1.2 billion a current utilization.
Only $162 million of our facilities are subject to rating based margin calls requiring a two notch downgrade in the credit rating or a commensurate nonmarket driven deterioration in price of our loan investments.
To date, we have not had any of those experience even a one notch downgrade.
The rest of alone require and events of default payment forgiveness that is unanimously agreed to by the lender group or a debt service coverage ratio breach.
We feel very good about the quality of our book the return profile of the loans, we originated since acquisition and the stability of our financing.
That I will turn the call to Barry.
Thanks, Jeff. Thanks, Rina, Thanks, Zack and thank you all for dialing in this morning. This is a strange process on I know you're all having.
[laughter] enjoying the strangest time.
It is the odds of you're doing a earnings call from your home and with your colleagues home and they're in their own locations I'd like to start my comments first of all I know you just heard somewhat exhausted detail about the plumbing of the company.
From the start we said we'd be transparent we try to be consistent predictable and we've built the company to do that we've built a company with multiple business lines with different credit characteristics that would react differently the different times and it was really when the tide goes out that you see the strength of the platform.
And there you can simply looked at the cash on the balance sheet.
The property book from some of the other incredibly valuable assets in this company owns I wanted to back up and compared this time, because I saw which youre all saw which was the.
Harrison of their seven away traces to today in the Soc the commercial mortgage most of them blew up in 2007 2008, one of them, which I actually started storage financial that became I start actually survives.
But many of them disappeared. If you go back to that time periods for those who weren't.
Analysts or even alive.
It was negative leverage people, who are lending at six 7% property yields which reform fives. You also had enough disciplined lending market you had typically loans, 95%, 80% 85, 100% hundred 5% of LTV. It was a totally different time period in them and the mortgage read throughs constructed totally different.
Only I want to make sure that we separate the commercial mortgage rates, which were primarily a commercial mortgage rates from the residential mortgage rates today, because they have told you can balance sheets. It look totally different they're totally different risk profiles, Saudi the boats, including the same EG ops and so when money swings in and out of the GRC mortgage treats all the stocks.
Go up and down to some extent I'm beginning to feel like the Rodney Dangerfield of commercial mortgage rates you get no respect.
Going back to what world. The World was like before today, you should start with our LTV, our LTV actually spill when the Cecil rankings came in it was the first time you had a third party appraiser come in and looked at our loans are if you lived go back to our marketing left third quarter of last years like 64%.
And she so mark them around 59, and this month. They went back to 61, there's still as low as they've ever been since the company was started in the last 10 years of the company and that is a third party mark and what happened there was the shift as Rina said two recession scenario and that created these paper losses on the books similar what you saw the commercial banks.
Like general, though a much sooner, but I think best in class and the industry.
That's a tribute to the quality of the book we have.
So what we did in Oh, and I should say, one more thing the banks, which lends us money against the 61% March well there may be 70%, 75% in average they're less than 50% exposure something like 48, 45% exposure LTV. So the banks are super safe. So there's nothing.
Taking their need for them to break down.
Their loans or call us on any facilities that they could and they really haven't we work with them proactively to restructure our hotel loans, which were.
Obviously, you're going to have interrupted cash flow and it's been a very.
Good conversation the banks have been Super supportive, we really appreciate their partnership.
And we're not they know we're not there issues. So the company remains strong and one of our quandaries is showing the strength of this company might might actually entice the banks to ask for some of our [laughter], which were not interested in sharing with them and don't need to so the first thing you do in a situation like this which is obviously an unprecedented.
You run multiple scenarios on what the future. The Comping you might look like we pushed back all of our repayments. There were a lot of management had estimated early repayment on so many loans and now we have almost nothing maturing this year in our Fortunately in the year extremely strong.
We halted all of our investments per se, although obviously, we had to fund some of our future commitments, our underlying lending partners funded theirs.
And after paying down $260 million of.
UBS debt facilities, mostly on our securities we still have over $800 million on liquidity in the company that's not necessarily good news cash does not or anything in this environment, but that is what we're facing the tug of war between investing as capital and making sure. We have liquidity on hand should something I think.
I will happen or there'll be another downturn in the market going forwards. So so extremely excited to see all the loans performing and the underlying conditions in the property market in the most of the sectors are okay. The multifamily market, particularly at the exposure. This company has to this where the housing sector.
It is fantastic everybody you paid.
And where you see the unpaid is actually the medical office portfolio, where doctors simply went out of business temporarily, but we think there'll be no impairments of the future of those cashless streams going forward. So you batten down the hatches test to everything you can today run all these scenarios.
And you look then what you're going to earn sitting with a nearly a billion in cash is not in the model, we had and I've never run. This company. This way so that creates a earning scenario that we have to be careful about it's not just creating liquidity. We can do that easily with $3 billion of unencumbered assets issue is what are we giving up enough.
Future the company and we're here for the long haul we're not here, we're not builds for quarter to impress use your to produce earnings that are consistent.
And excellent risk reward for our shareholders going forward I want to stress our business lines are incredibly solid as Jeff said, the infrastructure business had a great quarter.
It has almost no has no credit Mark Downs no rating a decreases in the portfolio our property portfolio led by our multi is exemplary it's been the rocket Gibraltar, earning a 15% return and they cannot go down the rents cannot go down in the multifamily market, though we're going to suspend the rent increases that were entitled to.
As we work through the covert situation with our tenants our conduit business is a solid business, but it's no big deal to the company Securitizes 11 times year, we have always run around 150 $200 million of loan balances, we got a bunch done well we have some these loans on our books, they're small loans.
The CMBS businesses Vince shrunk.
And it provides its extraordinary insight into the capital markets, we've always been in the business. It comes with the servicer.
Servicer businesses reverse we always mentioned this would be a hedge against the downturn will we have the downturn and interesting enough as Jeff pointed out in Reno, we shifted a bunch of the athletes overages outside tourism Servicers now overwhelmed with requests for forbearance, particularly the hotel space.
The residential lending business.
As a very solid business, we've held up one securitization hope to get it done.
Later in the year, but the holding both the conduit loans and the securitization the resi loans is actually earnings accretive.
We have in place facilities, we can hold these loans, we don't have to rush to market, we don't need to liquidity.
We would like to complete you Securitizations and then the large loan lending book speaks for itself I mean, that's a business that is the core of the company and it has performed exceedingly well [noise].
Surprisingly well.
So I think now you see a situation with our industry, it's been split between the halves and the wish they have.
The people who are can go on all sense and those they're trying to protect the limited liquidity they have or in fact I have to reach out to do dilutive deals we put up our book value every quarter, including our share value of our assets. Because we want you know we've always been dedicated to not issuing equity below book value.
And we're not going to do that unless we have an extraordinary opportunity to deploy the capital immediately into something that's massively accretive for the company.
So our job right now is to figure out what does in fact excess capital and figure out how much of that we want to invest as Jeff mentioned, we are looking at an opportunity in several opportunities and investment Committee call. Following this oh in this afternoon situation the opportunities to put capital out it spreads wider than we have historically is.
Obviously evident right now there aren't that many transactions. So there's not a whole lot of situations, but there are several in because were in multiple businesses. Many of these these business lines are finding their compelling opportunities to put out so weve turned our conduit back on for example, those giving them some capital to go ahead and make additional loans.
Switzerland ties the yields or improve the portfolio on the eventual securitization of those assets. We're also looking at a few whole loans and our lending book or also quite excited about the residential opportunities given our.
Expertise in the general distress in the area. Despite obviously the.
Situation on for parents of mortgage payments that is rolling through the country.
Home mortgage payments.
So I think we're we're we're feeling the book is very safe.
And I should talk for a second about the dividends.
Our dividend policy will solve the philosophy of safety for the company.
Can we earned our dividend yes.
Should we paid out we're going to decide as the future unfolds. So we will wait until June to see.
How the year looks what's happened to the return of the economy, how our borrowers are faring.
Its going to be a little bit we don't know I mean, nobody can really no signs are good and we send all this cash so we're going to the prudent thing and make sure that obviously is a major shareholder myself I would like us to take the maximum dividend we can.
But we are here for the long run and that will be a board decision. So I want to thank all the people up the company who have worked incredibly hard I mean, you have to batten down the hatches and look through every loan and in every corner of the company.
Doing this remotely isnt a fascinating challenge even producing your financials for every company in the country remotely has been fascinating and I want to also thank our board because the board has worked really hard with weekly calls as we gave them updates of the situation and giving us advice on how to navigate this has been exceptional so with that I think I'm going to stop.
It was good quarter, I think you'll see a less earnings from us I will but obviously, we can produce earnings anytime you want we harvest the games in our books and we've always done that.
Oh, It was really pleased with the hopes I almost at the name at this major tenant tech tenant signed lease on the.
The warehouse and that again that goes to the strength is just out of the platform because the where we can also playing the equity size. So this was alone we didn't want to take it back on two distribution centers.
And one was just signs this week with.
When largest companies in United States in the World and the should produce a 40 million dollar gain reversing an $8 million reserve, we took against the asset so a $50 million swing plus basis in the asset you're talking 70 $580 million in cash and it hasn't really doesn't have anything to do with our core business, but does not lease for the long term at very attractive.
Great. So.
We think it's exciting for us we'd love to get back on often put everyone back to work finding great investment opportunities kind of tricky when your stock trades like Rogen Dangerfield, but.
We we're we're excited and we hope.
You will see the power of the platform as we go forward.
We'll take questions operator.
Thank you if you like to ask a question today. Please press star one on your telephone keypad and the confirmation don't indicate your line is in the question Q.
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One moment, please only poll for questions.
Thank you know first question is from the line of Doug Harter with Credit Suisse. Please proceed with your question.
Thanks can you talk about how you're viewing a buyback in the context of of those opportunities that you mentioned you know over and above what you put your did in March.
Obviously in the then the in the World is it the falling apart it really is March and we suspended the buyback and.
Again, it all fits together, it's a puzzle for keeping liquidity of 800 million it seems like a.
Not the smartest thing to buy back stock.
And to hopefully wait for the start to recover to levels on it. So we can't fight Ddgs and and would simply just.
Waste of energy and capital.
No I think where the immune we may be the only commercial mortgage riet, that's bought back stock that I'm up maybe I'm not sure of any others that have done so.
That's because we come from protecting book value of the company and.
I think we're going to do we're going to sit for now on that what I've done a repurchase stock right now somebody's enticing, but there's we also have some bonds outstanding that are trading.
Cheap or and so are we would we we'd rather if we could do so repurchase the data the company, which was close to investment grade and now doesn't trade like such so you know that's that's probably something that we focus on first we are focusing on first I should say.
[laughter] [noise].
Okay.
Great and then I guess as the opportunities that you talked about I guess is on the loan side, but that's solely be kind of newly originated loans or other kind of loans in the secondary market that you'd be looking at you know kind of given dislocations I'm just kind of the thoughts.
Around that.
Yes security is one of the things are we're looking at there's been some whole loans, but there are no security securitization pretty securitization.
And we are looking at some there will be some people that need to re five state and maturities and they'll probably take fairly significant.
Red widening if you will I mean, the markets are better, but they're not great and we have urge Congress to do it they didnt know seven away just by the.
The their investment grade all of the investment grade securities of CMBS that so far they put in high yield debt for some reason, but they did not put investment grade.
Non government CMBS it put the triple A.'s.
You know that I don't believe that repurchase facilities or even actually activated yet.
But I think it would help the property markets. If they did include which they didn't those seven await oh nine whatever that TALF was the rated classes of of commercial mortgage backs. So you know I think you'd see a lot more stability and the problem in the in the market is you saw in March.
Was.
The repo banks are and the repo facilities are quite different than the the guys who are individually approving loans that go on a credit lines. You know they are there more mechanical and what they do.
And we were looking at situations.
I mentioned, one of them, where our security was 50% of what were the largest PE firms in the United States paid for the is it not six months ago.
And if you like I wouldn't when they told us what they were marking the bonds at a simple that deliver this all the bonds at that price because we would love to buy them all and of course, you can find $5 million worse, there just artificial marks.
And they were driven off of some computer and anyone any property guide nation would love to buy the assets that price, including us and so.
It's it's tricky time and as you know as we said we have less like up just over $100 million dead on almost 400 million other positions left in the security sleeves, and and we don't believe we have any real issues there going forward. So.
Yeah. We believe that these are decent money good paper, albeit we have to financial strength. So just waited up we had the same situation a couple of years ago, where the CMBS book was marked down at recover slowly and actually what went to a gain again so I.
I look this is going to be different as maybe slower, but but we do think that the country will open in cash flows will be restored to quality assets in good locations and the hotel space. The resorts, we will do better than the big urban boxes, and the Big Convention hotels.
Either flat or New Orleans, or Vegas, and so in Manhattan. So I think our exposure, there's very little exposure to Manhattan frankly.
In the aggregate no very little.
Doug Jeff I would say that Barry the board has certainly.
Help guide us towards what our future will look like it look a little bit different will avoid spread mercury both to the extent that we can there are opportunities journeys unlevered CMBS Triple B is for example, probably trade 11 perceptive as you know with 300 people Oh and all are we can underwrite every low end every deal that we've been very successful doing that so there are opportunities and security so taking leverage.
We as an industry will take more spread less spread more leverage than we have in the past Barry said, we have very little left against a decent size book there so not a place where we're particularly worried I think when we look to get aggressive on a theory lending side, you'll see us selling moreno than using less warehouse as an industry for last two earnings calls we've told you that our company is.
He doesn't that we had brought our whereas exposure down significantly below 50% of our book I think before others did I think you'll see others joined not where we where we all try to sell morning notes at west potential credit marks.
In an unknown world. So, let's say book will change a little bit, but we obviously the resources to do it in these are things that we've been doing for a longer.
Thank you. Our next question is from Atlanta, Rick Shane with JP Morgan. Please proceed with your question.
Hi, guys. Thanks for taking my questions. This morning.
No I think well right now in a situation where you've got long lived assets that are facing somewhere between three and six to nine months of.
Revenue compression I'm curious given your multi pronged approach does it make sense.
Too in that environment move more towards ownership as opposed to being a lender and will there be opportunities there for you.
Oh, Thanks for the question Starwood in the read on so I think you know at 15000, or so apartment units and overall 80000 apartments. So.
Our collections have been in I think 97% in our portfolio. So I'm going to first object to the 10 or that that our revenues are compressed because what we own the geography easily on we don't own or anything in New York City, We don't have anything in the West coast of California, where populism infected the.
I'm, just not hurting the pay their rents so and in our portfolio in the read is not in its in Florida, almost exclusively so northern Florida side.
On the office side, I think 94 or 5% of our tenants have paid 96, it's the real weakness in the office side is not.
It's from the shared office guys as you would think and ER in art in our experience one of the largest that's why.
What's the word talked about a lot that's not the word but I couldn't take it in other words no no no maturities [laughter] authority, there I want it they paid and every every location, but one.
And when negotiating that one so.
The office has held up pretty well again. It obviously depends your tenants are we don't have any the airlines companies tenants and in our portfolio. We're not seeing any issue Rina mentioned that and again when your 60% LTV guys, you're going to try to pay you if they can and if they don't we would we probably would like to take the property back, but that's not our core business.
I don't think given the uncertainty in the in the markets you know hotels zero cash flow and they're all shot actually it's not quite true the Larry low end of the market is actually between fine.
We have we have a chain of hotels is running 80% occupancy it took the low end to the market called it intown suites.
That's caused the apartments, that's why it kinda trade clip, but for the most part of <unk> hotels of our close our portfolio I think I'm pretty sure most of the hotels are closed.
And you know that that ramp will be interesting all the borrowers are working collaboratively collaborative collaboratively with us and the underlying line lenders are working with us to the business Nobody's fault, we'd like to own. These hotels that they give us the keys I supposed to be okay, taking them, but that's not really what we're trying to do.
We're not trying to be bolger's on to our own borrowers.
Oh industrial we don't have much exposure to the it'll be an interesting asset class it'll be a bit of a mine feel they think it's always it's headed as hell of a run but as companies like crew file or pennies file you can imagine their distribution centers might if nothing else will renegotiate the rents down just like they will in the ball or high Street retail.
I think a industrial with the with the explosion that Amazon pretty sure Amazon doesn't lease every single square foot of industrial in United States. So.
I I wonder what looks future might look like there.
And then the resin markets you know I think we're we're proving pretty careful about where we're buying or wherever we're taking on.
Loans, and obviously trying to avoid right now the oil patch from a single family homes.
And trying to make sure we're in a part of the of the price points or.
More stable and you saw this huge drop.
And home purchasing bone healing and the resin markets are fairly solid.
We all want to know what's going to happen then comes across the country going forward and will they how much will they fall in how fast will they come back.
We're we're we're not really investing at that that the very low end of the market but.
More in the middle market non QM loans tend to be larger than.
On the sidelines, obviously, it's not that's not the only reason why they're non QM, but the average loan balances usually higher often hire them.
What Fannie and Freddie will take so.
I think the long way of answering I I was just I did it because I thought was skewed or perspective on the markets.
We're really focused on the equity side, when we buy assets on on replacement costs, and making sure a relevant replacement cost for the assay has real value and we can buy it really cheaply we've been through I've been through.
Sadly I'm old and I've been through four cycles. So I started the company RTC days.
And.
The best returns ever back then 76, I ours I think at our first funds.
And we made a fortune coming out of the Oh seven away cycle. We made a lot of money I was running started hotel through the dotcom Boston than 911, So I've been to this movie before there's no question. The U.S. will cover its just a question when and how fast and it's a linear line between now and the vaccine.
And decided to hear about the Roche anybody tests. This morning, we can all go back to work if we know that half the countries or did exposed they won't get it so I'm optimistic I.
I think.
And as you've seen the I've been on TV as the World War three for 90 days March 13th on CNBC and we're about halfway so its really ugly, but obviously when it's really obviously good times and best So they don't ring, a bell and we're going to we're we've got board approved.
For the making investment.
I guess two days ago. So its we will put money to work and I'd say the returns on the deal or probably two times, what we would have seen.
And I are significantly higher 1.8 times, what would've gotten same credits a while back so.
There, we do want to make you know it's interesting we can or twice as much on our capital we can put a half as much money have as much of our liquidity and still preserve liquidity.
How we're thinking about it so it'll be very choice very choosy and what you invest in make sure you. There's no downside to the money you put out is the only money you could put out you won't have a capital call.
Of any nature ever so and you're in a very attractive rate of return on your equity investment so.
We're not in the business are doing equity deals in the read I don't think you've seen right now in the chance the transaction markets frozen buyers are not selling assets and prices you and I would want to buy them. You go back forgets that rates are zero to her bank would let you cover I mean, even even in retail even in the most distressed markets like malls.
Most of these assets uncovered that's or as they just can't mature they nobody will lend you. The proceeds that that the original alone was out but you can produce you know 2%.
All in costs in two and a happy you can cover a lot of Sens and that's what happened no seven await the blend and extend.
Became them Entre OVO seven away never saw the kinds of fire sales really.
But you saw in prior crashes.
Right now you can have the same outcome, we can cover debt service or bars forever, but we would like to redeploy capital into new opportunities a better spreads so and we think it's a it's interesting time, we're actually you've really got to you got a really like where we're sitting at this time. We are one of the house went up one of the.
I wish we had and though we're not restructuring the company, we don't need outside capital even heard a rumo accelerated earnings that.
We were gonna go raise money. Neither is money we were accelerate our earnings release, because we're really wanted to tell you how good we sat and that was entirely reason we've.
Never done it before or we just want to sit on the good news so and that that was a rationale Rick I think you asked specifically in very partially answered about properties and whether we would be adding here I think that with low to mid teen available at 70 LTV lending.
And very little transparency on cap rate and high quality assets that we would buy effort that property vector plus the fact, the cap rates are relatively low still financing costs would go up on though I. Just don't think you can return double digit yolk today and furstenberg dividend yield at the property, but probably got your heart place for us to add in energy.
Sure.
Thank you.
No interest in respect to everyone's time. Please ask one question and one follow up question.
The next question comes from the line of Don Fandetti with Wells Fargo.
Hi, good morning.
Definitely good to see you guys are having made the right moves to get to the other side wanted to see Jeff. If you could talk a little bit about the hotel loan portfolio or the majority of the owners just prepared to sort of dig into their pockets for a few months as a kind of playing out like you thought and can you give us a sense on.
How many years of loans hosts.
Then modified obviously, that's a proprietary to some degree but can you just give us a sense okay.
Great.
I think I have Marczak, we'll move on line Who's our Chief Credit Officer, I would say that we one of the main things that we look at is the sponsor capability in their financial condition. When we go into a lower than we have some very well heeled sponsors on the hotel type book other side for our business, we expect them to pay at a much higher rate into avoid special servicing.
Oh Boy Forbearance and other thing and then you asked on properties, where are you certainly need to work with people and we've been fairly open about that we were very quick to call our repo lender and cut deal where we got ourselves six to nine month to be able to allow us to put hotel borrowers we needed to help into forbearance come up at the plant.
Together as their partner and try to figure out a way that we could all come up on the other side. So we did that we repaid a lot of a decent amount of money to do that but it gave us the ability to sleep very well at night by the fact that we have nine months to up to work. This out any of our borrowers opportunity to to get into along the way that they want it to you know you look too.
Our our downgrades this quarter in its or speaks to what happened in hotel. We are fairly significant amount of loan downgraded, we moved $940 million worth of loan downgraded bye bye.
Area, but on on a one through five rating scale, where we start alone at a three in a big generally tend to stay there we have very little in in the fortify buckets. We moved up is there and we moved them there because we have it very quantitative way of thinking about it between sponsor capability in loan structure, that's about 40% of that.
Risk rating, we internally give ourselves, but the other two piece the loan and collateral performance relative to underwriting and the and the quality instability a projected a project cash flows those were about 60% and clearly on hotel those two pieces of the ratings had to change because the because of what's going on with Covidien.
The fact that they just don't have revenue, they're not open. So we used as an opportunity to to move a few rating worse. We think these are rating that we will move back the other way. When these hotels opened up again are being consistent with the guidelines that we set up for ourselves. We wanted to make sure that we did that and that's the vast majority of what we lose was was on the hotels.
I'm going to turn it to Mark can you talk yeah, well before Mark does it you can't say a hotel long got better [laughter]. So I couldn't say they were [laughter]. They had to be moves. So we moved on to doesn't mean, we think as Rina started in her comments, we had a five won't pay off so it doesn't really mean budget just for our own management.
Mark do you want to just speak specifically about how we're dealing with hotel borrowers and talk about some of the things that we've gone in and percentages of loans that were talking about him [laughter] Kirk wed love to Hello, everybody that the smart Cagley, Yes, we you know in our loan hotel portfolio about half of the loan portfolio in terms of now.
Members of borrowers have asked for some sort of payment relief, but sort of speaking glass half full you know that means that half of them ahead have not asked for that in or are planning to and continuing to make full interest payments on alone. So we have no borrowers whatsoever that we plan to completely wave all into.
Payments on so.
So we're working out plans with those borrowers to bank partial payments and potentially the for partial payments, but then notably on cash flow sweep until its repaid during the late as things rebounded that the market. So our borrowers have been universally committed to in it.
To support their properties and to put equity in and to use resources and we'll use ppps funds to support the assets as we try to figure out what's going to happen for the next three to six months to.
Through the with these assets.
Okay. Thanks.
Note that all but one of our 120 or so loans theory lending book pay their debt service payments in April and most in that.
Okay.
Our next question isn't line of Jade Rahmani with KBW. Please state your question.
Thanks, very much good to hear from all of you and I hope, they're all doing well.
I've gotten a lot of questions about the company's liquidity position over the last month as you can imagine.
And just going through the details of for example, the unencumbered assets I was wondering if you can provide color on the billion of additional liquidity that you cited what does that consist of and on the unencumbered assets, how does that let's break out between senior unlevered positions and subordinate positions how much of the unencumbered.
Assets can actually be tapped if necessary.
So so thank you Jay thanks to the question appreciate it.
We used the number a little bit over of over a billion because we felt like we have a decent amount more than that our property portfolio alone at our current marks if we were to liquid at our property portfolio would create over a billion dollars odd dawn.
In addition to that I talked in my script about our ability to sell LIBOR floors to unwind FX hedges those could create well north of $100 million. We have other unencumbered assets that could create north of another 100 million dollar we have some assets we could though we talked about the two industrial properties, we have another another industrial property.
We could sell so all in you would get the over the billion with just the property portfolio and everything else is above that over and above $870 million of of cash cash equivalents or or constant approved but undrawn. That's on the balance sheet. Today. So we felt really comfortable that if we had do we could make the moves.
Those are not move that work that were jumping into making we certainly have looked at levering. Some unencumbered assets over the course of over the course of the last month and happened we've done that in a few instances, but we haven't made any panic moves in a three that we haven't sold any assets at a loss.
To to try to create liquidity in an emergency because we haven't felt like where there.
And every every sale how has the earnings impact right. So somebody else. We're not just trying to pilot cash is having a liquidation so here.
[laughter], Okay, Great and then secondly can you touch on.
Just a broader expectations in terms of commercial real estate prices, maybe specific to the hotel space do you have a view on how much values have declined or would you say, it's too early to tell.
Well I think it's way too early to tell Jared it's like.
Again, it depends where you are in the cycle, what's the casino worsen in Las Vegas that could be the hardest a call that's likely to be though slowest to recover part really big groups aren't going to book Vegas for a while I just can't see that happening right now on.
The other hand, I think your resort hotel probably comes back pretty quickly, particularly if its smaller and higher end.
So its asset by asset if you if you run the math you are probably down 10% to 15% in value.
One of the things is a property investor that you're sort of.
Scratching your head about as rates are going to be lower longer than you had pre pre cobot like you're you're going to you see a curve in LIBOR curve and you go out three years and I think it's like never gets above 50 or 60 basis points.
That supports property and just as the equity markets are being held up by there's no no place else to put cash the property market should be held up even in a slow growth scenario by the fact that they produce yield which is incredibly rare in precious in this world. Today. So then for the underwriter of the equity it's a question.
Of course, Directionally the rents going in hotels, they will recover I I personally don't think Americans are going to change their habits forever. You know I think this is the flu it started out as the flu, it's a bad flu even the data today at all over the place about mid year zero to 30 or death rate is not measurable.
You'll get the flu and bill recover from the flu presuming you don't have some of these more serious preconditions, but.
Obviously this is an awful disease. It is really affecting the agent and and they have to stay at home and state take care of themselves.
And I think everyone else can can kind of go back at it and and recognize will have them moderate and change our policies and procedures.
As this thing unfold. So you know I I can't tell you told me when they're gonna have a cure and I'll tell you what the decline in the hotel is value, but nobody selling hotels at the higher sell nobody and believe me. We look we try to buy here in the air but.
Their values of that going to sell at 11 cap on trailing 2019 earnings Nobody's doing that so not yet and I don't I don't that's why some of these markdowns frankly or are these pricing in some of these securities or embarrassing like you know it's sort of silly.
And in the hotel borrowers that have the cares that to help them weather. The storm. They have interest reserve some of them, they're not they're not public ones [laughter] there.
They had the opportunity to come up with the help whether this but well that's yeah, but let's be candidate if the country doesn't open you know these companies assets will run out of a ability to support themselves sadly the real estate taxes in the insurance costs, having dropped even though the properties drop in value the municipal.
These are not exactly giving waivers on real estate taxes, and then you have to actually keep the box operating so if we don't get I think hotels, all hotels will figure out how how to operate.
With lower breakeven with fewer less profitable parts, there won't be restaurants, there may not be room service, but they will try to fill heads in beds and staff to demand adult work with the unions I know, they're trying to its the union reviewing the union structure in cities like New York will will not allow hotel.
All to make money at 30 or 40% occupancy to either the union will change its structure or these hotels will never opened although all go bankrupt in the major Union cities. So I'm looking to the unions to actually help the owners open these assets and get their workers back on payroll.
But in the breast of the country in the non Union markets have you will be surprised how deaf. These management teams will be to make.
Money at low at much lower Breakevens and you think full service hotels.
Have the same margins is limited service hotels in the rooms. They just don't have that and then the other part of their box like the bank, which which probably will not happen or the be weddings outside.
And other parts of the hotel TNL, which are lower margin will simply cease to exist for a while until these hotels get open stabilized.
Thank you the next questions from the line of Stephen loss with Raymond James. Please proceed with your question.
Hi, good morning.
You know morning onto this morning, the dislocation that's out there and everything that that's where all saying you know can you talk about any opportunities that may.
Proves that too.
In the past, you've obviously acquired Eleanor you've moved into single family rental.
Non QM ready a number of things you've you've tried to acquire crexus or is there anything out there.
That either due to the higher relative stock multiple or just simply attractive business lines, you think said.
That your revisiting now that maybe more attractive given what's going on and cheaper to add that to the starwood platform.
Yeah, I'll take that sure. We're looking all the time, we have to do a relative value trade. So were <unk> 0.7 times book, we can't pay more than 0.7 times book for them. So that has to be that kind of combination we can't issue stock down here unless unless it was like you know a 35 IR or something so we make up the discount to book.
I made that up I don't know that number is but there's a number that you might be willing to do something like that and it's actually looked at a bunch of situations, but to use up you know, let's say, we have 400 million of four or 500 of what I would call excess liquidity.
We always ran the company like 250 million preserve cash so the rest of it is sort of excess we'd love to put it to work, but it would be imprudent to put it all its work given nobody really knows that there'll be a second downturn. How this opening will work so at the balance of two and yes. I mean, we there are there there are.
Companies in our business and companies or product lines, we would love to look at and but simply like I said before I think transaction volumes are down like 90% in property not not many people are willing to give up yet.
And Ah.
There are situations that we're looking at but that that are attractive but.
Again, we have to we have to preserve our ability we're not we're not we're not going to put on red here, where we want to preserve our ability to continue to grow and prosper and be the dominant player in this business for the next 20 years, so perhaps our goal.
Yeah, and then as a quick follow up I think in the prepared remarks, you guys mentioned you.
In the discussions on the hotel financing had gotten I think a list of from pre approved modifications that they're okay with.
Can you give some examples of what those modification bar that you're able to offer that it really already been addressed on the buy your counterparties and just kind of any.
Examples of those.
Sure Mark capital you spoke earlier, you got to get to be on swipe today to get the benefit frontline as our chief credit officer dealing with each one of the bond individually and and maybe I'll have to Mark to go through the types of things that he's been dealing with a competition.
Sure.
Hi level, you know as we've talked about you know the there's the the forbearance or the or the modification of the payment stream has obviously been.
The near and Dear to our heart, the most but but in general people or are.
You know, we're talking to them about the F. any reserves if the flag is allowing them to defer future contributions for a period of time, where we have approval to do that we have approval to use some of the up at the knee reserves you know as long as.
We are making the decision it's a property is newly renovated or a newer property in doesn't need those reserves in the near term then do you know, we're we have approval to do those kinds of things as well, we're not eliminating any LIBOR floors were not forgiving interest. So it really is.
Approval to close hotels as Barry said.
I would say probably half our hotels are close most of them or are closed or operating at 10% kind of occupancy levels for.
Transit workers that need to be there or for others. So closure hotels the use of FF any how how we're dealing with that payment forgiveness.
How long were doing the accruals for we're trying to keep them shorter you know rather than longer Barry asked us to to keep them shorter so that we can stay within the window within our lines and also just see what door looks like you know 90 to 120 days out. So those are the you know we're modifying some of their.
Extension tests.
That give them room to qualify for additional time within the <unk> blown period those little there is really the basics.
And let's say back to your first question you know, we do think we'll be going into a period of less competition, whether it's our direct here or investment banks to lose money every 18 months and pull back when they do move up money in this quarter and will be less aggressive in our space or is that being able to find loan that stand on their own on an unlevered.
Basis, which I think we'll be able to do and we spent liquidity. There we can always get liquidity backed by levering. Those later, if we needed it but I think we will be a decent amount of opportunities coming to the mechanics baked into in the next few months as Barry said.
Our next question is coming from the line as Steve Delaney with JMP Securities. Please proceed with your question.
Good morning, and congrats on a strong report given this environment I'm a bit surprised by your remarks about the on the opportunity in residential the feds not put AAA RMBS Intel's, yet and we've seen a lot of.
Problems and warehouse financing so I'm just curious Jeff you know.
You could comment on what's working for you and do you think that you can see a securitization <unk> getting done in the next three to four months. Thank you.
Thanks, Steve appreciate it Yeah, you know I do you going to have a CMBS deal later this week, you'll probably have a couple more in a week and a half. So we think that markets coming back and talking to our bankers, who we're talking directly to the bond buyers. We think that there is a very good chance that we could get a non QM securitization done in the next month or so we don't need to we have terrific.
Financing line that we can we actually earn as much or more leaving them ups. Our goal has always been to reduce those and we think we're a month away from being able to be in the markets out a pretty accretive in a pretty accretive way I think the only way like we were talking about earlier, we're going to avoid we're gonna do less things with potential threat marks were going to do less than warehouse.
You know, it's we're going to go to a pretty plain vanilla playbook here. So as we look to add in Barry mentioned that I sort of mentioned that I think if we can get term financing nonrecourse non mark to market until a securitization that's super interesting and depending who the holder is if it's a bank who owns the long the whole loans.
Hey wants to get out of the whole loans and is willing to offer that that's something that's super interesting to us. So I don't think you'll see us increasing our potential spread mark risk in any way in the book given what we've seen in the last couple of a couple of months here, but I think there will be some terrific opportunities and there have been some terrific opportunity to do things, where you get non recourse on mark.
The market term financing.
Assets that are frankly trading at 90 cents on the dollar a low ninetys dense on a dollar that going through the great financial crisis took less than 1% of losses on assets like this so it's an example of places that I think are dislocated in specifically if you just have more direct from the mortgage Reits and banks and originators.
That space probably than on the commercial side. So we brought that up so yes, no. No question. Thanks to the comments that's it for me.
Thanks.
The next question comes from the line of Tim Hayes with B. Riley FBR. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question, but maybe just a quick follow up on Steve's question. There I know you were under contract to acquire an originator I can you just remind us where you're out in the process there and that's what type of capital equipment that can Intel and that's kind of still on track to close.
Sure. Thanks for question for capital perspective, it's really not going to change anything it's a relatively small one and we've been working with though now for a good amount of time, we're going to continue to work with them through this quarter and and and we'll see how it plays out but there's a there's no great rush to get over the finish line, we have some things that we need to work through but.
When we do.
It will not be a major capital difference in any way for us. So we're looking forward to getting that to getting that over the line, but we've been.
Taking their time with it.
Given the market condition okay.
Got it that's helpful. And then just one quick one more for me you noted Jefferies, adding resources and Allen our given how busy that platform as right now just wondering if in the near term maybe in the next quarter. Two we should see kind of increased staffing their way on earnings power and then what level delinquencies were willing to see for those fees to.
Yes.
Yeah, you know I think the use of the increased Happing decreased earnings sorry, what we will actually increase earning power over the next few years, you know I mentioned 14 billion of loans over 500 to spoke loans that a large number them, we'll get we will get be done over the next 18 to 24 months those don't happen in a quarter the revenue side won't pick up next quarter.
Now you're setting yourself up for the long run its why we've gone into so many partnerships on our special servicing to have to own less CMBS, particularly on less retail oriented CMBS, but have more servicing significantly more servicing today than we did two years ago. It's something that we thought was really important for affirmed we're now into this into it to start harvesting that.
Unfortunately, with 350 employees have a lot of people who have had done you had some slack there are areas that we're doing less are doing less investing on the CMBS side. We're doing we're writing less conduit loan. So we've been able to re purpose a significant amount of people to to help to service or bridge. This but short period of time were onboarding somebody new loans, but that's the beauty of having a very.
The large company with real estate.
Executive to kind of grown up through different areas of the company. So when we needed 12 or 15 people, we grab them and they mostly been grew rotated through understand the business are they work their full time in the Servicers that we're able to re purpose people within the company to make sure that everybody in your optimal so one thing I'd not just the service you just think about how services that paid it.
Most you bought.
Anyone asked her forbearance has to be approved by the special So the loan comes in and these are forbearance. We don't we don't get paid a ton of money for approving a forbearance transaction, where the service or begins to make a lot of money is one of the loans default that worked amount when they'll websites vault resolved alone and sell it or take back the asset. So it's early in the.
The lifecycle of the servicer.
Company once made hundreds of millions of dollars.
Well one of the exciting it probably would mean that we face more issues on on some of the hotel rooms on the other side of the house. So we're happy here, where we are and it's nice to see what will you know that that revenue stream increase but don't think of it is a massive a windfall yet it's just a hedge against.
Everything else, we do and I'll throw out that there's been a lot of discussion over the last few months about servicing advances we're not responsible it special servicer on CMBS deal can make any servicing advances theres no potential liquidity impact of that we know that that gets confusing for people, it's confusing topic, but that does not fall to the special servicer in a CMBS.
Deal.
I appreciate the comments.
Thank you our final questions from the line of George for home and this with Deutsche Bank. Please proceed with your question.
Hi, Good morning, I, just to follow up for Mark or anyone I'm team I'm are you guys able to disclose the number of.
Borrowers and the portfolio, who have asked for interest deferral for parents or other loan modifications.
Are we going to disclose it I don't think we probably will Mark do you want to just be briefly in person that serves percentages weightings between interest deferrals border Barents in modification, where are you seeing most of it I think you partially answered this earlier.
Sure the hotel in English.
[noise] yeah, it's it's it isn't the hotel, but it's very points out.
There's a couple you know I'm in the other category that where they've asked for interest accruals, but did quite frankly, we're not inclined to do that in our approach with this is the borrower has the ability to pay in the resources to pay if they have a significant levels of equity in the in the transaction.
Which most of our borrowers due to protect you know we expect them to stand up for their property and so as Jeff said it in that said it in the earlier comments that I would say that you know round numbers that.
We have had probably 60% of the book asked for accruals were not giving it the in all cases in or partial accruals were not getting full accruals to anybody.
At this point, so I would say half half of the you know of the ones that have asked for and I would say, 25% round numbers of the total loan book have asked for some sort of modification. So you're doing the math there, it's 25% of the total book and half of those cuts.
5% of those you know, we're getting some sort of interest rate deferral. So it's in when you look in the total that portfolio. It's it's 12 and a half 13, 14% would would get some sort of monetary deferral for a period of time.
Great. Thanks for closing remark.
That's.
Thank you.
This is just a as experiment that is mostly the hotel book of the loan book I Remember our loan books nine rough billion and the total asset base of the company's 78, something like that something that so it is 25.
Guessing 80% of that is hotels so.
Of the nine out of this 17.
Thank you.
At this time will turn to flip back to Mr. Sterling's for closing remarks.
Well. Thank you everyone I'm glad you could join US today, hopefully provide some clarity to you and we appreciate your support and interest in the company and again I want to thank all the people at Starwood property Trust's, we've done virtual cocktail hours and a in a strange way, we're better together where.
Very good through this and I look forward to.
$25 stock price again, thank you very much or anything with us.
[noise], how many guys.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.