Q1 2021 Arbor Realty Trust Inc Earnings Call

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Yeah.

Good morning, ladies and gentlemen, and welcome to the first quarter 2021 and our Board Realty Trust earnings Conference call.

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And I would now like to turn the call over to your Speaker today, Paul O'neill Chief Financial Officer. Please go ahead.

Okay. Thank you, Chris and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust.

Morning, we will discuss the results for the quarter ended March 31, 2021 with me on the call today is Ivan Kaufman, our President and Chief Executive Officer before we begin I need to inform you that statements made in this earnings call maybe deemed forward looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business.

Condition liquidity results of operations plans and objectives. These statements are based on our beliefs assumptions and expectations of our future performance taking into account. The information currently available to us and factors that could cause actual results to differ materially from arbor's expectations and these forward looking statements are detailed in our SEC reports.

Listen the listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today.

Undertakes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today, where the occurrences of unanticipated events I'll now turn the call over the <unk>, President and CEO Ivan Kaufman.

Thank you Paul and thanks to everyone for joining us on today's call. We're very excited today to discuss our outstanding first quarter results and a significant success, we've had and continue to build on a tremendous momentum we created in 2020.

As we mentioned on the last call we have been the top performing REIT and the space for almost five years in the ROE and we're extremely confident that we would be able to continue that success and 2021.

Our exceptional first quarter results continue to demonstrate our unique ability to consistently deliver outsized returns and every market cycle through our diverse operating platform.

One of our primary goals for 2021 with the join the dividend Elite club of 10 straight years of dividend growth. We're very pleased to have accomplished our goal by increasing our dividend to <unk> 34 of.

Share this quarter.

This is our fourth consecutive quarterly dividend increase and the 20th increase and the last 10 years, all while continuing to maintain the lowest dividend payout ratio and the industry.

And we built the viable operating platform for us and on the right asset classes with very stable liability structures and active balance sheet GSE agency business private label program and of single family rental platform and many diversified income streams that generate strong earnings and dividends and every market cycle.

I can't stress enough the importance of having multiple products with diverse income streams and that is why we believe we should consistently trade at a substantial premium for our peer group.

The further highlight our incredible success I would like to talk about the significant growth we experienced in the first quarter and all areas of our business and how well positioned we are to continue the success going forward.

And as Paul will discuss in more detail, our first quarter financial results for once again very remarkable we produced distributable earnings of 52 per share, which is an incredible accomplishment and well in excess of our current dividend representing a payout ratio of just around 65% of.

<unk> consistently generate exceptional results and increase our dividend is a true testament to the value of our franchise and and many of the diversified income streams, we have created.

We continue to realize significant benefits of its from many areas of our diverse platform, including continued growth and our GSE agency platform that produced the strong margins and increased servicing fees.

Oil and contributions from our private label program record growth and significant benefits from the size and scale of our balance sheet business as well of superior execution and our liability structures.

The performance of our multifamily focused portfolios with very few delinquencies and extremely low for balances and substantial income from our residential business.

And these reoccurring benefits combined with our versatile originations platform strong pipeline and credit quality of our portfolio puts us and the unique position to be able to continue to produce significant distributable earnings going forward as we are extremely well positioned for future growth and success.

A little over a year ago, we made a commitment to build out a premier of single family rental platform. We believe the single family rental space is as big of the multifamily lending market and is a phenomenal business one of the enormous opportunities and the bridge permanent lending and build to rent products, we made considerable progress and growing out this platform.

And are committed to being a leader in the space. We're very pleased with the significant growth, we are seeing and our pipeline of opportunities by leveraging off of our existing originations capacity and capabilities and the first quarter, we closed $162 million of single family rental product and currently have well over $1 billion of additional deals now.

Pipeline, making us very optimistic about the growth and this segment of our business. We also believe we are the leader and the single family build to rent space, which provides us with opportunities to originate construction bridge and permanent loans on the same transactions again, we're very excited about the growth and this platform and are confident.

This business will be a significant driver of yet another income stream further diversifying our lending platform.

And also continue to experience significant growth net of GSE agency platform and are seeing increased momentum and our private label product as well.

The originated one and of course $1 billion and agency loans, and the first quarter and $1 4 billion, including our private label business, which is up from $800 million and the agency originations of $1 1 billion, including private label for the first quarter of last year.

Equally as important we are of very robust pipeline, giving us confidence and our ability to produce significant agency volumes for the balance of the year. Our GSE agency platform continues to offer a premium value as it requires limited capital and generate significant long dated predictable income streams and produces significant annual.

Cash flow and.

Additionally, our $25 5 billion GSE agency servicing portfolio, which has grown 26% and the last year is mostly prepayment protected and generates 117 million of year and growing and reoccurring cash flow, which is up 33% from $88 million annually.

Last year. This is in addition to the strong gain on sale margins, we continue to generate for our origination platform, which combined with new and increased servicing revenues will continue to.

Contribute greatly to our earnings and dividends.

We're seeing tremendous growth and a balance sheet business.

And.

And as our deal flow has greatly exceeded our expectations, we have already grown our balance sheet loan book, 14% and the first quarter to $6 3 billion on $1 billion of new originations and we are of very robust pipeline, which will allow us to meaningfully grow our loan book for the balance of the year.

This unprecedented growth will significantly increase our run rate of net interest income going forward and very importantly, these balance sheet loans also create a substantial pipeline of future GSE agency origination volumes and long dated servicing revenues further increasing our future earnings and dividends.

Additionally, we are very successful and raising of $150 million of common equity and the first quarter and issuing of $175 million of five year, 5% unsecured debt last week, which will allow us to fund our growing pipeline of loans and investments to be extremely accretive to our future earnings and dividends and fact once the capital is fully deploy.

And we estimate it will be six months to 8% eight tenths of accretive type of annual earnings right.

And for every $100 million of capital, we raised and the future at these prices. We estimate we will draw of annual earnings and dividend by an additional two to three of share but.

But not the area of emphasis emphasis and one of key key business strategies of the financing of of high quality balance sheet portfolio with the appropriate liability structures. We've consistently been the leader in the CLO securitization market and we were once again very successful and closing of our 14th CLO and the first quarter totaling seven.

$185 million with very favorable terms, including higher leverage reduced pricing enhanced flexibility and of two and a half year replenishment feature. The continued utilization of these vehicles have contributed greatly to our success by allowing us to appropriately match fund our assets with non recourse.

Non mark to market long term dated and generate very attractive levered returns on our capital and provide us with the rock solid balance sheet.

It is also very important the stress that over 90% of our book of senior bridge loans and more importantly, 83 per cent of our portfolio as of multifamily assets, which has been the most resilient and asset class and all cycles and continues to significantly outperform all other asset classes and this cycle as well.

In summary, we had an exceptional quarter and we are well positioned to have another outstanding year in 2021 of them.

First the tile operating platform that is multifamily centric with a strong pipeline significant servicing income sizable balance sheet portfolio single family of rental platform and residential mortgage business, providing us with many diverse and growing business lines that positions us exceptionally well for continued future success.

And as a result, we are confident that we will continue to outperform our peers and preserve our long term stream of being the best performing company and a space I will now turn the call over to Paul to take you through the financial results.

Okay. Thanks, Ivan as Ivan mentioned, we had another exceptional quarter producing distributable earnings of $75 million of 52 per share for the first quarter. These results once again translated into industry high ROE of approximately 20% for the first quarter, which was up 50% from the first quarter last year and of allowed us to.

Increase our dividend run rate to $1 36 of share.

Our financial results continue to benefit greatly from many aspects of our diverse business model, including significant growth and our agency and balance sheet business platforms that produce substantial gain on sales margins and long dated servicing income and strong levered returns and our capital. The substantial income we continue to generate from our residential banking joint venture and the credit quality of.

Our portfolio.

As we mentioned earlier, we had another phenomenal quarter from our residential banking business recorded approximately $22 million of income from this investment and the first quarter, which contributed approximately 13 of share on a tax effected basis to our distributable earnings and the income from this investment was higher than we expected and the first quarter, mainly due to entering into an agreement with one of our key.

Principles the purchase a portion of our future ownership interest at a premium which accounted for approximately $11 million of additional income allocated to us and the first quarter.

As a result of this transaction, we will receive approximately 9% of all income from this business.

Go forward basis. The income from this investment continues to emphasize the diversity of our income streams and access of natural hedge against declining interest rates, specifically earnings on our escrow balances and while this investment will continue to contribute to our distributable earnings going forward as expected, we are seeing some normalization and volumes and margins and the business, which started in March and we.

Believed this trend could continue for the balance of the year.

Our adjusted book value of March 31 was approximately $10 86 of share, adding back roughly $62 million of noncash general seasonal reserves and of tax effected basis.

This is up 5% from approximately $10 35 of share last quarter, largely due to our first quarter capital raise as well as the significant earnings we generated and the first quarter that were well in excess of our dividend.

And as a reminder, we have very little exposure to the asset classes that have been affected the most by the recession, such as retail and hospitality. Our total exposure to these asset classes is approximately $200 million or for percent of our portfolio. We also believe we have adequately reserved for these assets and do not feel at this point and a material further and payment will be.

Necessary, which gives us confidence that our adjusted book value accurately reflects the current impact of the recession.

Looking at the results from our GSE. The agency business, we originated $1 $2 5 billion and loans and recorded $1 8 billion and loan sales and the first quarter the margins and our GSE agency loan sales was up to approximately 147% and the first quarter from one for 1% and the fourth quarter and the first quarter, we recorded $37 million of mortgage.

Servicing rights income related to $1 5 billion of committed loans, representing an average MSR rate of around 253% compared to two four of 5% last quarter and as Ivan mentioned, we have also seen an uptick and our private label business originating $150 million of new product and the first quarter.

Our servicing portfolio also grew another 3% this quarter to $25 5 billion at March 31, with a weighted average servicing fee of 46 basis points and and estimated remaining life of nine years. This portfolio will continue to generate of predictable annuity of income going forward of around $117 million growth annually.

Which is up approximately $29 million or 33% and on annual basis from the same time last year. Additionally, prepayment fees related to certain loans that have yield maintenance provision was approximately $2 $7 million for both of the both the first quarter and fourth quarters.

We also continue to see very positive trends related to our GSE agency business collections, which we believe reflects the strength of our borrowers and the quality of our GSE agency portfolio. We only had a handful of delinquent loans outstanding and extremely low forbearance numbers and our portfolio through March loans in forbearance represent less than 4% of our 19.

$1 billion of Fannie book, and around five and a quarter percentage of our $4 $8 billion of Freddie Freddie loan book, which is actually down slightly since January as we've had very few new requests for forbearance is and the last several months and as a result of these extremely low forbearance numbers. We also have no material unrecovered servicing advances outstanding.

And our balance sheet lending operation, we had substantial growth growing our portfolio of 14% the $6 3 billion and the first quarter on over $1 billion of new originations are.

And our $6 3 billion of investment portfolio had an all in yield of 564% at March 31, compared to five 8% at December 31, mainly due to higher rates on runoff as compared to new originations during the quarter. The average balance and our core investments was up to $5 9 billion and this quarter from $5 1 billion last quarter.

Mainly due to the significant growth we experienced in both the fourth and first quarters. The average yield and these investments was 572% for the first quarter compared to six 4% for the fourth quarter, mainly due to more acceleration of fees from early runoff and the fourth quarter and higher interest rates on runoff as compared to originations and the first quarter.

<unk> debt on our core assets was approximately $5 6 billion at March 31, with and oil and debt costs of approximately two 9% compared to of debt cost of around three 3% at December 31 the.

The average balance of our debt facilities was up to approximately $5 2 billion for the first quarter from $4 6 billion for the fourth quarter again, mostly due to financing the growth and our portfolio and the average cost of funds and our debt facilities decreased to $2, 99% for the first quarter from three 5% for the fourth quarter overall net interest spreads.

And our core assets decreased to $2 73, this quarter compared to $2, 99% last quarter again, mainly due to yield compression on new originations as compared to the run off and less acceleration of fees from early run off this quarter and our overall spot net interest spreads were relatively flat at 274% at March 31, and $2 77.

And 1% at December 31.

And lastly, the average leverage ratio and our core lending assets, including the trust preferreds and perpetual preferred stock as equity was down to 83% and the first quarter from 85% and the fourth quarter and of our overall debt to equity ratio on a spot basis was flat at $3 out of one for both March 31, and December 31, excluding general seasonal reserves.

That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions. You may have for this time Chris.

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And our first question comes from.

Steve Delaney from J P. JMP Securities. Please go ahead.

And good morning, Ivan and Paul and congrats on a strong report overall and especially the latest dividend hike to 34.

Back in our model this morning and from from Air of Records and I think the accurate you've now doubled your dividend since the 17 cents per.

And the fourth quarter of 2016, so just a bit over four years. So.

Quite an accomplishment.

As far as as far as Q&A Ivan.

And I could tell the enthusiasm and your <unk> and B to B to our.

Initiative could you just give us and update on that program in terms of and I understand it's carried and the structured business currently but how large are the are the outstanding loans.

On the books at March 31, and how does the returns on these compare to your traditional bridge loan product. Thank you.

So we think the build to rent spaces of phenomenal space and I'm intent on dominating the space and personally active and relationship building, what we like about the business as it has three components. The first one is the construction element, which is a little bit more complicated requires a balance sheet.

And really entrepreneurial capability and that's the initial phase we're generally.

Pricing those loans to Levered returns of.

Low to mid teens, but that's just the beginning of the story the real benefit is transitioning them to a bridge loan.

And I look very much like the multifamily loan and give us the same kind of returns and then we exit those through our private label program or sometimes through the agencies. So we get what we call of three bites of the Apple with each product and it creates long dated revenue streams.

The other aspects for just doing scattered sites floating rate loans of fixed rate loans.

That's a little bit more of a competitive market.

And we're fairly active and not as well relative.

Relative to what's on the balance sheet and what's in the pipeline, Paul I'm going to transition that to you and what we've done yet.

Sure. Thanks, and thanks, Steve for the compliments I think what we've accomplished has been extraordinary as well as.

As far as where the numbers land and the balance sheet and kind of the difference different pieces as Ivan laid out we've got several pieces of this business. We have a permanent side of the business. As you know some of that is fixed rate loans, which we did have a little bit of a sale of this quarter on some inventory, we had and our balance sheet that will go through the agency business, because it's being <unk>.

And kind of.

Into the market.

And as individual sales and we'll carry that for our agency business that hasnt been big yet, but that's where that will go the rest of the business. The permanent variable rate loans that we're swapping out and pooling for of securitization kind of like a CLO or of private label securitization that will end up on the structured side of the business and has and then you've got the build to rent and the bridge.

And so all of that being said, where we're at is we have about $190 million sitting and our balance sheet business, which is comprised of bridge funded build to rent and permanent execution net variable rate keep in mind, though we've done about $350 million of build to rent deals and only about $40 million of that is.

Been funded so there's about $300 million, that's unfunded debt, we've committed to and we disclose in our in our and our filings, but as we fund those advances it'll continue to add to the balance sheet portfolio on the structured side.

Got it and the that we saw an increase and private label of 152 million and the quarter or at least that's what in terms of originations now are some of those and <unk>.

The family rental fix straight line no no those are not fixed rate loans and that's a good lead and because of what Youll see and this is one of the benefits of the way we run the company is as you're fully aware of from some of the other people you cover the agency.

For your originations were quite soft and the first quarter.

Look at it a little bit of Holistically.

Just a matter of where we're going to originate whether it be originate and whether it be agency, whether it be private label, whether it'd be bridge and depending on the appetite of the agencies. We may do more private label and more bridge and that's what makes our franchise. So unique in the sense of just a matter of which pocket. The originations go into overall, we look at the overall.

<unk> not the particular segment.

Understood and the overall and Steve just to give some numbers for that the overall for the quarter between the agency private label and balance sheet. We did $2 5 billion of transactions. This quarter. If you go back to this time last year and the first quarter, which was largely pre pandemic. If you remember we did about 2 billion and were up 12%.

8% over last year's numbers for pre pandemic. So this growth has been pretty exceptional.

And one final thing Ivan.

We're looking at the early in the year, but we are working with.

The lower.

Caps on all of the GSE multifamily and the kind of awkward, but you know I call of <unk> 70 billion.

Lower than $80 billion.

You know, what I'm talking about but Fannie Mae totally blew through and the first quarter 'twenty, one and a half versus 17 and a half so 4 billion over I'm thinking you know as we get into the second half of the year.

You know the seem pretty firm when day when collaborate and put these in place you know that he wanted them down and he wanted more affordable.

It's going to play into I know the private label.

And that you did.

Not necessarily focused on this but could we see by the second half of this year another opportunity for you to aggregate.

Private label multifamily into a second C and B S transaction.

And without a question I mean, while the first quarter was strong it was really as a result of the strong January of the agency's backed off in February and March.

Much lighter than anticipated and.

And that's when we start of gaining a lot of momentum on our private label. So we've gained considerable momentum and I think it will it'll be a and active part of our business for all of 2021 and also we don't see that backing off we see the agencies.

Having cap issues, we see a greater level of affordability, which you know we play and very big so.

So we think of private label is going to be.

A great part of our story.

Thank you both for the comments.

Thanks, Steve.

Yeah.

Yeah.

And our next question comes from Lee Cooperman from Omega family Office.

Thanks.

I hesitate to add any compliments to the supplement the prior questioner but.

Let me just say and I've been involved with the company I actually since the IPO and very heavily for the last decade. They have to compliment you are and the movement into multiple product lines. The <unk>.

Those of you manage to issue I think you've been very masterfully and running the company.

What should I worry about what worries you at night.

What keeps you up.

Clearly.

And when Youre growing of business, there's always a lot to worry about but I wanted to.

<unk> on one thing that we're one of the only companies and in our space that didnt sell for any dilution.

And going through the financial dislocation and that just occurred you actually bought some stock back.

Nevertheless, we did we did most people were getting rescue capital. So we would keep an eye on our liquidity, we would keep an eye on our liability structures. Those are critical because we always growth through the downturn and as long as you of the right liability structures in place and good credit quality and you'll manage for those dislocations.

And we won't have as much liquidity as possible I mean looking back on it Lee I guess.

Not having at the issue equity I would've loved to have bought back more stock. So for US we focus on the liability structures and we focus on.

On our liquidity and most significantly we will focus on our ability to manage the portfolio, which is outstanding. So those are the things that we focus on and so we don't lose too much sleep well congratulations on your performance and stay well I lose sleep because of my prostate and that because of Arbor Realty.

[laughter] lately.

<unk>.

Okay.

And our next question comes from Charlie <unk> from J P. Morgan. Please go ahead.

Hey, good morning, good morning, Ivan and Paul Thanks for taking the questions today.

We've heard a lot recently about there being a lot of.

Capital chasing after multifamily and industrial properties lately, you know sort of.

A flight to quality post COVID-19 and broader on knowns around the office and hospitality and and more of the known issues with retail.

Obviously multifamily is most relevant the arbor by a wide margin, but Ivan would love to get your view on what Youre seeing out there in terms of competition for your core assets, if youre seeing that competition pick up recently.

And as more of your peers have gotten more comfortable deploying capital and then maybe a quarter or two ago.

The competition is fierce.

And I actually greater now than it was pre pandemic and.

And even a lot of the people who got her back and.

And being very aggressive.

So.

There's no question, there's a lot of there's a lot of compression on on our pricing, but I'm trying to make that up on the debt side and we do of our franchise and so we do have a lot of momentum.

The bulk up and the.

And the fourth quarter and first quarter to kind of get ahead. So we have good spreads and place we will work on our liability structures and keep an eye on credit.

And I think one of the other things we're going to focus on very very very very precisely is that for the loans. We do put on our balance sheet, we're going to try and turn them as much as we can at the agency.

And pick up the backend fees and reduce our risk on some of the couple of loans out of our books, but make no mistake about it it's an extraordinarily aggressive environment right now.

Understood and.

And I'll look we're sitting here in the first week of May Obviously agency originations came back down to earth of little bit this quarter.

Curious if you can give us a sense of.

Where volumes might shake out for the year, given what the pipeline looks like and you guys typically have pretty good visibility into that.

I think we all realize that.

On the 20th certainly an unusual year, but wondering how 'twenty one volumes might compare to your pre COVID-19 annual numbers.

So as I mentioned, a little earlier the agencies, while they had a great January they did back all of their pricing and loss of market share.

We're starting to get aggressive again.

So I think it's going to be a pretty good year I'll, let Paul comment a little bit on the numbers. We are seeing growth on our private label segment of our business, which one of the agencies widened out a little bit.

And that segment will pick up I think from a holistic basis.

We'll probably do fairly consistently what we did last year the mix may be a little different between private label and the.

Between the agency side for what you want to fill and some of the numbers yes.

Yes, sure. So Charlie good question and I'll give you some color and.

And as Ivan said and the agencies were a little light and February March and even into April, but our pipeline has gotten really really big so just some context around that we did about 300 with private label, we did about $365 million of agency and private label and April but we haven't.

Over a $2 billion.

Pipeline right now and agency and private label. So it's starting to pick up again, and our balance sheet business has grown dramatically as you've seen and.

In the month of April we did another $450 million of balance sheet product. We did of about 350 of runoff. There was a couple of deals that ran off a little larger so the growth was about $100 million, but I guess the way we look at it is exactly the way items laid this out we've got multiple pockets multiple different products and I think we will be higher than <unk>.

We were last year on total volume, but the mix will change right because we will have a little bit less maybe on the agency of little bit more private label and certainly more origination volume on the balance sheet side. So that's the kind of way we look at it and again, we have the ability to go and all different areas of our of our business line.

And the unknown is run off and as Ivan mentioned.

We're laser focused on recapturing as much of the runoff as we can we've always been a firm that's pride ourselves on portfolio retention and on the balance sheet side, we've been doing mostly multifamily bridge loans of late and and the last two quarters, we've recaptured more than 50% of the runoff on the on the balance sheet side into the agency and APL prana.

So that's the way we manage the business I think as Ivan said will probably come in right around the where last year. The mix will just be a little different and we're excited about.

Got it. Thank you bought so much for the color.

Yes.

And our next question comes from Stephen Laws from Raymond James Your line is open.

Good morning, and probably pretty.

Previous people say congrats on another strong quarter, so like ups.

And every quarter, it's great great. Ron you guys have done a lot of hard work.

And you know the.

Follow up on the the previous comments Ivan.

And the private label as you see that mix shift do you have enough track record and the private label side to know kind of your margins and gain on sale there and if you see of declined and the Fannie business, which I think has some higher margins and the other is that going to be offset or how do we think about that changing.

On a weighted basis as the mix shifts.

So.

The first private label securitization is always the hardest and.

And what we were really pleased about it was well received and we were a little nervous because with the pandemic hitting and potential credit issues, we didnt want any of them.

Miss step so we're very pleased to say that the portfolio perform perfectly and the market's really expecting us to come back to market and I think that the second execution is going to be even better than the first which which did very well. So we think it will do very well Paul can comment more on the margin side of the business.

But we feel really comfortable that that's just another product in line with similar execution for how we have it on the agency side of the business.

And Steve and I think Thats right.

It will change a little bit depending on market will aggregate as Ivan said for another securitization and obviously, we're swapping out what we can to protect our spreads and I've always guided this business from a low of $101 35 to a high of $101 50 on the margin and I think that's why we've been coming in and consistently could the.

Our private label business do a little better and some of our securitizations, yet, but I think it will blend all to around there if it surprises on the upside thats, great, but I don't think the move and mix from agency to private label will change our margins dramatically overall on a weighted basis.

Great that's helpful and and.

Two questions just kind of around the higher rate the.

The move in rates, we've seen the <unk>.

First of all on the servicing side, how sensitive is that how much duration of that and if rates moved up would that extend the life of those cash flows even further and how much so.

Or is it less sensitive and what you might see on <unk> and secondly is it is it gives you an opportunity to earn a higher return of your escrow balances you know hows that invest and if so how much incremental return can you generate there.

Okay.

Yes, so I have I don't know if you want me to take that but go ahead Paul.

I think I think thats right and the MSR that we generate is substantially different as you know Stephen to resi because most of what we're doing is 10 to 12 to 15 year paper that has yield maintenance provisions and lockouts for about six months prior to maturity.

And this stuff is very sticky and Thats, what we love about this business. There are times people pay off early you see we get prepayment fees that theyre make holes on the yield maintenance, but I think I think it's less rate sensitive as you said than resi that being said if rates move and it makes sense for somebody to to redo of deal will be there.

The recaptured at the <unk> and we'll also get it on the on the back and on the on the maintenance side.

The second part of your question was.

Escrow.

And related.

So we sit and we're sitting with about $1 billion for and escrow balances right now and clearly, they're earning far less and they were earning and the past as you know because of where rates have gone and we've had some natural hedges against that with the run up and our resi business, but yes, I mean, if rates move up substantially and we're going to see and increase and our and our escrow.

Balance of that could be offset by the fact that we've got certain loans and our portfolio with LIBOR floors that may not fully kick in but yes. That's clearly on the escrow side and you could see a real run up I think were earning about $5 million and.

And annually on our escrow balances right now that number was 15 16 and $17 million when rates were higher of couple of years ago. So there's obviously.

Tremendous room for expansion, there if rates with Iran.

Yeah, great well that's helpful color. Thanks for the comments Paul appreciate it.

Okay.

And.

And our next question comes from Jade Jade Rahmani with K B W. Your line is open.

Good morning, everyone. This is Ryan Thomas So on for Jade just in terms of the ex of our business clearly there is a nice opportunity there was curious.

And if you think that.

And there will be and and additional.

And of investment required to build out that platform I know you've already spent some of them.

Capital and that space, but curious based on the outlook if you think.

Like the spend more there and as a follow up to that are there any interesting M&A opportunities to support the build out of that of safar lending business. Thanks.

On the build out it's actually a pretty good good question because we were initially.

The initially building it out of the totally separate and dedicated unit.

And we came to the conclusion that we could actually integrated into our existing structure and have and aligned and part of our existing structure and when it comes to the build to rent and unit most of the operational structure and credit decisions are being made by the same bridge group. So we're able to create enormous efficiencies and the same efficiency.

He is on the origination side.

So it won't cost us as much we actually adjusted debt when we started.

And there won't be that much incremental overhead other than on an executive level, which were pretty much have a full complement of the executives that we need to to create debt.

And in terms of acquisition opportunities.

I don't really see that many acquisition opportunities at the moment. We saw few we passed on them. We felt building about better would be the more interesting I think it's more of commitment of our executive talent to create the relationships and the infrastructure, which we're very very pleased with our growth.

And as Paul mentioned earlier, we are of a pipeline of almost $1 billion.

And we think we can close over the next 12 months and that ramps up because of a lot of the build to rent ex.

24 months and deploy that money.

And then.

And even.

Even with the $1 billion that we put out its kind of take probably.

Two years to get that money fully deployed so we're pretty pleased with all the elements that we have in place at the moment.

Great. Thanks for that and then Ivan in terms of maybe for Paul rather in terms of the residential mortgage JV.

And just sifting through the puts and takes there with the volume normalization.

Coupled with the partial sell down of your stake what do you think is a meaningful baseline for our models over the next few quarters for that business. Just just for that were all of them. The same page here in terms of the reasonableness of expectations.

Sure. So so this is the hardest thing we talk about every quarter right. Because this business has surprised us on the upside and every single quarter, but yeah as I mentioned and my commentary we did have some excess income during the quarter from the the sell down of the piece of our interest. So if you normalize that it was probably 10 of 11 million Bucks.

There certainly has been has been some margin compression and some normalization of volumes of who all expected and we saw it and the public companies as well that you guys all follow.

April was probably one of our lower points at this point, we don't have it fully closed yet, but it's coming and obviously pretty light I think for me the way I look at this and hopefully it'll surprise us on the upside is that theyre doing anywhere from a low of 42 of high of $70 million of quarter and profit and a 9% represents anywhere from $4 million to $6 million of that.

That's a normalized level for us so it's two to three cents a share of quarter on a normalized level I think that probably starts and the second quarter, maybe it'll be a little higher and they build a little lower different quarters, but its a good business, we like and a lot. We're obviously very big on the consumer direct and retail side of that business were driven by technology greatly and.

That business. So we can gain market share and I think that's a pretty conservative number for us of $4 million to $6 million of quarter.

For our share and then hopefully growth from that.

And then just one last question if I can just.

Just to give us an update around the seven npls that were unchanged quarter over quarter can you discuss the credit outlook. There anything noticeable that has changed over the last few quarters.

And maybe just a quick reminder, on the major assets that comprise that pool.

Sure. So we haven't really seen of change at all and our credit of affect our credit felt very very strong we've seen very few cracks both on the agency side and on the balance sheet side. So that number it's quite impressive that that number has held in there and a couple of the deals that we've talked about in the past that are that are on that and pls as we can.

Got a couple of student housing deals that we think.

And we'll work out just fine and don't need reserves for.

We've got one healthcare deal and I think what's on there is also one multifamily deal again, we don't have a reserve on it but we're working through that product right now so theres nothing really changed its a few assets couple of student housing one multifamily one health care deal, we don't have many and the way of reserves against those assets may be.

Beyond that 60 million of net carrying we of about $6 million of reserves, but we havent seen the outlook materially changed on those assets and we are.

We're confident that we are adequately reserved we're going to work out these assets and get some of them to perform and maybe even have a recovery down the road, but that's our view.

Thanks for taking the questions.

And with that it appears there are no further questions over the line at this time I'd like to go ahead and turn the program back over to Ivan for any closing remarks.

Hello, and thanks, everybody for your participation it's been a great first quarter, we're really optimistic about the year and what we've put together and are operating franchise and the multiple income streams and look forward to the Mexico, and our and everybody's participation everybody have a great day.

Yeah.

This does conclude today's program. Thank you for your participation you may disconnect at any time.

Okay.

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