Q3 2021 Arbor Realty Trust Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the third quarter 2021 Arbor Realty Trust earnings Conference call.
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I would now like to turn the call over to your speaker today, Paula Lineal Chief Financial Officer. Please go ahead.
Okay. Thank you Leo and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended September 32021 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 financial 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 factors that cause actual.
<unk> to differ materially from Arbor's expectations. In these forward looking statements are detailed in our SEC reports.
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 or the occurrences of unanticipated events I'll now turn the call that Arbor's, President and CEO Ivan Kaufman.
Thank you Paul and thanks to everyone for joining us on today's call as you can see from this morning's press release.
We had another outstanding quarter with many significant accomplishments, including exceptional operating results.
It is very important for us to continue to emphasize the value of having multiple products with diverse income streams, which has allowed us to consistently grow earnings and dividends.
While maintaining a very low dividend payout ratio.
We strategically built an annuity based business model are creating multiple income streams from a single investment as.
Israel result, not only did we generate strong risk adjusted returns on our capital, which positively affect out car earnings more importantly.
We are also building a much higher quality of future earnings and dividend growth story by ensuring that all assets will provide us with multiple other products in the future.
And this is one of the major differentiator is that business platform, which is why we strongly believe we should consistently trade at a substantial premium and much lower dividend yield than anyone else in our peer group.
Our record results combined with a very positive outlook on the long term growth of our platform has allowed us to once again increase our dividend to <unk> 36 cents a share.
This is our sixth consecutive quarterly dividend increase and a 10th increase in the last 13 quarters, all while maintaining the lowest dividend payout ratio in the industry.
We built a premium operating platform, which as I mentioned in the past is focus on the right asset classes with very stable liability structures, we have a thriving balance sheet GSE agency private label and single family rental as well as an industry leading securitization platform.
This allowed us to produce a long track record of exceptional performance with consistent earnings and dividend growth.
As a result, we've been the top performing REIT in our space for five consecutive years now.
In all the major performance metrics, including earnings and dividend growth.
And total shareholder return.
Again, we are very confident in our ability to continue to produce outstanding results in the future.
Before we discuss the details of our quarterly results I want to highlight some of them are more notable recent accomplishments.
We had a very active and successful quarter in many other areas of our business, we produce tremendous transaction volumes originating in excess of 1 billion in new loans and.
And investments this quarter, including two and a half billion in balance sheet loan originations, which is another new record.
We have now closed 10 billion of loans through the first nine months of the year and just as importantly, our pipeline is currently at an all time high we were once again in the capital markets successfully raising approximately $615 million of accretive capital to fund this growth.
We issued $270 million of five year, four 5% unsecured debt and $345 million of new six in a quarter perpetual preferred equity.
Which will be extremely accretive to future earnings and dividends every time, we raise capital.
To fund our growing balance sheet loan business, which is not only accretive call current earnings can be evidenced but also allows us to build a pipeline for two to three years of new GSE agency and private label loans.
Produce additional long term data income streams and trying to growth of our platform and creating high quality earnings and dividends for the future.
Were also very successful in continuing to access the CLO securitization market in the third quarter closing, our 16th largest CLO to date totaling two one and a half billion with very favorable terms and pricing.
We have consistently been a leader in the CLO securitization market is financing a high quality balance sheet portfolio with the appropriate liability structures continuing to be one of the key business strategies. The utilization of these vehicles has contributed greatly to our success by allowing us to appropriately match fund our assets with.
The nonrecourse non mark to market long term debt and generate attractive returns on our capital.
They provide us with a rock solid balance sheet and in October.
Very pleased to have closed out third private label securitization totaling $535 million with very with a very effective execution.
Which will contribute greatly to our fourth quarter earnings and couldn't continues to demonstrate the strength and diversity of our versatile lending platform and tremendous securitization expertise.
Turning now to our third quarter performance as Paul will discuss in more detail our quarterly financial results were once again remarkable work.
We produced distributable earnings of 49 per share, which is well in excess of our current dividend representing a payout ratio of around 75%.
And our balance sheet business, we are seeing tremendous growth and efficiencies as we continue to scale our platform at a very rapid pace. We are top balance sheet lender in the industry, which has allowed us to grow our loan book another 24% in the third quarter on record quarterly volume of two and a half billion dollars, we have already grown our balance sheet, 67% this year.
The $9 2 billion at September 30th and our pipeline is also at an all time high which will allow us to can get continue to meaningfully grow our loan book going forward.
And again I want to emphasize the significant value of our balance sheet business.
It's not only generates strong levered returns on our capital, but very importantly, these investments also provide us with future agency and private label transactions with long dated income streams.
We continue to experience strong growth in our GSE agency platform.
And we are seeing significant increased momentum a private label program as well we originated approximately $1 1 billion in agency loans in the third quarter at $1 7 billion, including our private label business.
We also have a robust pipeline, giving us confidence in our ability to produce significant agency and private label label volumes for the balance of our year.
Oh, GSE and agency platform continues to offer premium value as it requires limited capital and generate significant returns long dated predictable income streams and produces significant annual cash flow.
Additionally, our 26 billion GSE agency servicing portfolio, which has grown 16% in the last year.
Mostly prepayment protected and generates approximately $120 million, a year and growing and reoccurring cash flow, which is up 19% from $101 million annually last year.
This is in addition to the strong gain on sale margins, we continue to generate from our origination platform, which combined with new and increasing servicing revenues will contribute will continue to contribute greatly to our earnings and dividends.
We're also pleased with the continued growth we experienced in our single family rental platform in the third.
Third quarter, we committed.
To another $150 million of product in our produce $500 million of volume for the first nine months of the year. We also have well over $1 billion of additional deals in our pipeline, making us optimistic about the growth opportunities in this segment of our business.
We are a leader in the built to rent space, which provides us with the opportunity to originate construction bridging permanent loans in the same transaction.
And again similar to our balance sheet business. The platform provides us yet another path to future transactions that will produce additional long dated income streams and <unk>.
Summary, we had another exceptional quarter and are well positioned to close out 2021 as another record year, we have developed a unique multi tiered annuity based operating platform.
That provides us with future annuity of high quality long dated income streams, making us confident in our ability to continue to grow our earnings and dividends.
And significantly outperform our peers I will now turn the call over to Paul to take you through the financial results.
Okay. Thank you Ivan as Ivan mentioned, we had another exceptional quarter, producing distributable earnings of $76 million or <unk> 47 per share and 49 per share excluding a onetime realized loss of $2 8 million on a non multifamily assets that we had taken a reserve on early last year as a result of the pandemic.
These quarterly results once again translated into industry high ROE of approximately 17% and have allowed us to increase our dividend to an annual run rate of $1 44, a share and this dividend increase reflects our sixth consecutive quarterly increase and our 20 <unk> increase in the last 10 years.
Our financial results continue to benefit greatly from many aspects of our diverse annuity based business model, including significant growth in our agency private label and balance sheet business platforms that produced substantial gain on sale margin long dated servicing income and strong levered returns on our capital. Additionally.
Additionally, as we mentioned in the past the credit quality of our portfolio has been outstanding as we have very little exposure to the asset classes dividend affected the most by the recession and we also believe we have adequately reserves reserves against those positions.
The height of the pandemic, we recorded approximately $35 million of reserves related to these assets as we mentioned on our last call. We successfully sold one of our positions in the second quarter completely recovering a $7 $5 million reserve, we had against this asset and collecting $3 5 million in back interest and in the third quarter. We resolved the another one of these loans.
Receiving a payoff of $2 million on a $4 $7 million asset that we had a $3 8 million reserve on resulting in a charge off of approximately $2 8 million and our reserve recovery of $1 million.
We've also seen positive developments with our nonperforming loans as trends continue to improve we received a full payoff of $24 million alone, including recovering approximately $3 million of unpaid interest during the quarter and we continue to make progress on our remaining npls as well we have always prided ourselves on investing heavily in our asset management.
<unk> and the success, we're having in working out these assets further demonstrates the value of our unique platform.
Looking at the results from our GSE Agency business, we originated $1 1 billion of loans and recorded $1 billion in loan sales in the third quarter. The margin on our GSE agency loan sales was one 6% in the third quarter compared to one 3% in the second quarter, mainly due to higher percentage of FHA loan sales in the second quarter, which carry a much.
Our profit margin. Additionally, as Ivan mentioned, we were very active in our private label program originated $625 million of new loans in the third quarter as well as completing our third private label securitization totaling $535 million in October and in the third quarter. We also recorded $33 million of mortgage servicing rights income related to <unk>.
$1 9 billion of committed loans, representing an average MSR rate of around 175% compared to $2, 12% last quarter, mainly due to a higher mix of FHA and private label loans in the third quarter that contained lower servicing fees.
Our servicing portfolio of 26 billion as a weighted average servicing fee of 46 basis points and an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $120 million gross annually, which is up approximately $19 million or 19% on an annualized basis.
The same time last year.
Additionally, prepayment fees related to certain loans that have yield maintenance provisions increased substantially to $11 million for the third quarter compared to $4 million for the second quarter, mainly due to significantly more runoff this quarter.
And the current tax provision related to our Trs operations was down for approximately $4 million this quarter from Approx approximately $11 million last quarter.
The decrease was largely related to less gain on sale income in our agency business. This quarter due to our second private label securitization closing last quarter and from a change in the mix of our taxable agency business income as a result of the significant growth we continue to experience in our balance sheet business.
This change in mix effectively lowered our overall estimated effective tax rate for the year, resulting in a catch up reduction to our third quarter current tax provision of around $3 million.
And our balance sheet lending operation, we grew our portfolio another 24% to $9 2 billion in the third quarter on record quarterly volume of $2 5 billion or $9 2 billion investment portfolio had an all in yield of 497% at September 30, compared to 533% at June 30, mainly due to higher rate.
On runoff as compared to new originations during the quarter.
The average balance in our core investments increased substantially to $8 2 billion this quarter.
From $6 6 billion last quarter, mainly due to significant growth we experienced in both the second and third quarters.
The average yield on these investments was 555% for the third quarter compared to $5, 85% for the second quarter again, mainly due to higher interest rates on runoff as compared to originations in the second and third quarters.
Total debt on our core assets was approximately $8 6 billion at September 30, with all in debt cost of approximately $2 six 4%, which was down from a debt cost of around $2, 79% at June 30, mainly due to a reduction in the cost of funds from our new CLO vehicle and reduce rates in our warehouse and repurchase agreements during the third quarter.
The average balance in our debt facilities was up to approximately $7 3 billion for the third quarter from $5 9 billion for the second quarter, mostly due to financing the growth in our portfolio and issuing $270 million of senior unsecured notes during the third quarter.
And the average cost of funds in our debt facilities increased to $2.
<unk> decreased to $2, 76% for the third quarter from $2 eight 9% for the second quarter again, mainly due to the full impact of reduced pricing in our CLO vehicles and warehouse facilities.
Our overall net interest spreads on our core assets decreased to $2 79, this quarter compared to $2 96 last quarter and our overall spot net interest spreads were also down to 233 at September 30 from 254% at June 30 from yield compression on new originations as compared to runoff that completes our prepared remarks for this.
Morning, I'll now turn it back to the operator to take any questions. You may have at this time Leah.
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We'll take our first question from Steve Delaney of JMP Securities.
Thanks, Good morning, Ivan and Paul.
Look congrats not just on these results, which would you keep putting up every quarter, but finally.
For the performance of a b our stock this year with a 41% gain that is.
Really benefited our clients and we appreciate that and I did hear your comments that.
You certainly.
To go on that but it is a nice accomplishment this year and I want to recognize that.
Sure.
When you started the private label business, we saw it as kind of a more defensive thing post COVID-19, what's where Freddie and Fannie going to be.
Yeah and.
Obviously, it's become more than that and I'm curious just from the borrower's perspective.
With the benefits are you, you're obviously able to find.
New loans from borrowers, who would like a private execution, rather than Freddie and Fannie says should help help us understand the dynamics, there and why they select your take your.
But execution versus agency.
But that's a great question and let me let me let me give you a little perspective, it's all about the math right. Okay. So.
Right now you have the two agencies that are going to do about $160 billion between the two with their caps.
It did last year, 50% of that is going to be four four.
For a mission driven business.
Only 80 billion.
That's now available for non mission business.
Keep in mind multifamily values are up around 30% over the last 15 to 18 months. So that 30 billion is only like 50 billion right of agency product available.
The marks about a 400 billion dollar market. So the private label wallet was a necessary product because the footprint of the agencies.
It might have gotten cut back on the collateral yeah.
The math I just laid out to you shows you that they are cutback relative to the size and growth of the market.
So that void has to be filled.
And when the agencies get fill that pricing backs up and then the private label actually becomes a better execution on a pricing basis for non mission business. So for me, it's just math.
It's not as though the agencies are unlimited they are limited and very limited in context to the size of the market and the growth of the market.
So we believe that that will continue to be an outstanding product.
We're unique in the sense that we are one of the few who have the capital base.
The whole product.
Wallace informs the securitization securitize it retain the b pieces at attractive yields.
And really manage that part of the market.
We are a lender when it comes to the product, but not a broker and I think clients will really respect.
The fact that we are the lender, we close our own product.
And while we buy our own he says and we serve as a product.
So I believe this is going to be an extremely competitive aspect in the market for us as we go forward.
That's really helpful. I have to tell you I hadn't I've been watching the monthly volumes for <unk>.
Freddie and Fannie this year and Theyre kind of puny in you know you see.
4 billion $3 4 billion and you're thinking Wow, you've got you've got wrong and why arent you lending more but you just told me something I hadn't focused on and that is they.
I don't have an unlimited amount of normal.
Higher.
Higher income type property, they can do because they have to first hit their 50% mission driven mandate and and that really does help put it in context going forward. So that's.
That's very helpful. So it sounds like it's a it's a business opportunity that should have legs.
Forward certainly as long as these caps.
Have that component and I can't imagine the affordable being reduced anytime soon so.
And it will become more dominant and I think because of.
The way we are structured the way, we do our business it gives us.
A unique.
Our competitive advantage.
And we're going to really work on that as well.
And you mentioned, you're not a broker mature lender.
I mean, I've got I've kind of lost having a handle on how large your production platform has become just curious if you can share with us how many producers as a percentage overall head count how many producers do you have and have you.
Found the opportunity or the need to open any regional offices around the country beyond Your New York headquarters.
So we have I believe approximately 25 originators are all cash primarily have been homegrown, we really don't hire outside.
Got it and we really can't add anybody right now we're at full capacity in terms of production and capability.
Our biggest restraint right now as people, we have kind of way business in the fourth quarter.
Significant where we were at our peak, we can't produce anymore.
And it's just it's just the way it has in the market.
Everybody is extraordinarily busy we're probably busy than most.
Our balance sheet has been.
Outperforming even our own expectations.
But underwriters analysts are there they're in short form we've been able to retain a majority of our people add in a little bit use some third parties out there, but we're full so right now we just want to handle what what what our originators to bring and I think hopefully in the first quarter.
We can add to staff, a little bit and manage the manage the demand we have.
Thanks for the comments.
We'll take our next question from Rick Shane of Jpmorgan.
Thanks, guys for taking my questions. This morning.
Look I'd like to talk a little bit about.
The.
Our agency business and how we should think about the difference between.
The <unk>.
Pipeline on the Fannie Freddie paper in the private label I'm curious if there are differences in terms of the accumulation period.
For each with the whole times look like.
And more importantly, how we should think about hedging and revenue recognition is there anything in terms of pipeline hedging with rates moving around we should be aware of.
So in terms of our pipeline Paul can get more granular than I can he has all the numbers.
But you.
Our pipeline is I think all time highs on all product types clearly the FHA pipeline that period of time to close those loans.
Probably is averaging nine months right now six to nine months Theyre extremely backed up the gestation period to go through the system as long.
Typically you know Fannie and Freddie loans are anywhere between 45 45 to 90 days some type of applications at time of close.
Things are a little backed up right now with third parties and turnaround times, both at the agencies in here, so those take a little bit longer.
Our bridge pipeline is as strong as ever and we're actually quoting right now to close bridge loans, which used to be done within 45 days were quoting 75 to 90.
Subsequent to the backup in the industry on third parties and our own process and systems.
Demand for bridge product is extremely strong.
I think what we're seeing in the market.
People are buying a lot of product today, and they're seeing that new rents for you now.
5% to 10% above old rents. So they want a breakthrough product for 12 months get full unit turns and then do a permanent takeouts. So that philosophy fits in very well with our business model. This will do the bridge loan to get great risk adjusted returns and then kind of into an agency loans.
And then once again get additional gain on sale and get long term.
Bridge loans and have proprietary deal flow.
That has worked extremely well for our business model and we see that to be very very strong.
All the way through the end of the year and we've already booked a booking most of our closings for January and February I believe it or not.
That's all for our overall outlook in terms of our floating rate book.
We in the past.
In the past six to nine months have been.
Very liberal in terms of people buying caps as of last week, we've made it mandatory for people to buy <unk>.
Cap size, a little concern that rates may rise and in fact, we have the rights under our documents to require people to buy caps.
The loans in our portfolio were all gone through our portfolio now and having people buy rate caps I have a little bit of concern that there'll be a little bit of.
A rise in rates and we want to protect ourselves against that.
Our overall philosophy, Paul you want to add anything to that sure. So Rick to some of your other questions.
We look at the.
The agency business, so the GSE agency business and the APL business from an execution perspective is as you know the GSE agency business. When we rate lock alone were immediately selling it forward in a forward commitment. So that's how we hedge our interest rate risk, we really have no interest rate risk because at the time, we rate locked alone were immediately selling it forward when it can.
<unk>, so that's our hedge and that usually gets taken out within 30 to 60 days on average 45 days from the day of closing to the day of sales through the agency. So that's how we handle that execution as far as the pipeline. We did about $1 billion 1 billion one of straight GSE agency business in the third quarter, we've already done in.
<unk> $450 million. So we're off to a good start I would say the fourth quarter is probably going to be a little hopefully a little elevated from the third but thats what were expecting on the on the APL business. As you may have seen in the balance sheet, we had about $780 million of APL on our balance sheet at the end of September we accumulate that product, it's a little bit of a longer run any.
We're from let's say three to six months more closer to three months, probably somewhere 90 to 180 days as we accumulate it and at $7 80 that we had on our balance sheet. We did execute as we mentioned in our prepared remarks, a $535 million third securitization in October. So we are left with 225 million.
Of that product on our balance sheet after that trade and as we originate in the fourth quarter will hopefully get enough product in demand to pool for another execution at some point.
As far as the hedging goes in the revenue recognition, it's really quite simple. So on the agency side, we don't have a hedge because as I mentioned, we have a forward commitment and on the APL side, because those are fixed rate loans without a forward commitment as we accumulate them on our balance sheet. We do we do enter into interest rate swap.
And we entered in those to protect ourselves from the movements up or down in interest rates. What we do for accounting is because theyre not effective swaps for accounting they have to be brought through the P&L as a hit or income depending if those swaps are in the money or out of the money.
For accounting for GAAP, but we defer those gains or losses for our distributable earnings and we bring them in when the securitization is complete really to match it up with the revenue we've created from the securitization hopefully that answered. Your question I think that's what you were gone.
Both parts both responses were incredibly helpful. Thank you guys.
You're welcome.
We will take our next question from Stephen laws of Raymond James.
Hi, Good morning, Ivan Paul Congratulations continued fantastic execution on the business.
You covered a couple of the segments already maybe wanted to touch on the prepayment fees. You mentioned were up sequentially I know your investments are prepayment protected.
Paul can you maybe talk a little bit about.
How you expect those fees to trend what are you continuing to see elevated prepayments through October.
How should we think about that as far as.
Our models here in the coming quarters.
Sure Steve It's a great question and you and I had this conversation I think last quarter as well.
Little surprising this quarter that I continue to see elevated runoff and elevated yield maintenance provisions being paid just to put it in some context back in the first quarter, we had roughly $400 million of run off what I think $2 5 million of prepayment penalties in the second quarter jumped to $800 million runoff was $4 2 million of pre.
Payment protection and then this quarter, we saw a $1 billion of runoff with $11 2 million of prepayment penalties. So what we're seeing and it's an interesting trend that I don't know if it continues I think it does but it's hard to tell I haven't I haven't seen the October numbers, yet we will get them in the next couple of days.
I haven't mentioned with the values of real estate climbing pretty much 30% over the last 15 to 18 months. What we're seeing is people writing those yield maintenance checks and paying off loans very early in their life because they are either selling them in the market are refinancing them in the market. Obviously, we are laser focused on making sure we're getting any refinance.
Opportunities and they are writing those checks because they're getting appreciated value. So does that trend continue I think can probably give you. His view it probably does for a little bit. It's just hard to quantify where this is going to go over the next couple of quarters.
I think that you know values are up considerably you have a combination of cap rate compression and growth in rents a little more than people expected.
And there were a lot of people taking gains.
Are there assets that are selling them paying yield maintenance.
Which you know we get the benefit of.
But sales activity is up.
But that also spills into another area. It also spells into an area of high credit quality right. So our values are up and rents are up that means our existing portfolios are going to do better and that's one of the reasons why.
Yeah, I'll bridge product is so important because on the bridge side with a huge portfolio and with values up in income streams up as these rents turning the values come in.
Gonna have a huge stream of bridge loans, turning into agency and private label loans in that.
That's a business platform, but I do expect the fourth quarter, and Paul and I have a difference of opinion.
Paul Paul pulls more conservative I'm seeing a lot of sales activity. So I think the prepayments should be.
Pretty strong prepayment piece should be pretty strong through the fourth quarter.
Well I appreciate the color, it's nice having that.
Wind at your back there.
On the fees.
I know Steve touched on.
The private label and.
Rick at the agency can you talk maybe about the opportunity that so far I know, it's a little smaller, but but continue to see.
Drive some increases there can you talk about the opportunity of that so far as well as kind of the competitive landscape there.
So the asset for our business at a single family build to rent business as a business we like the most.
So we're pretty dominant in that space, we do a construction loan.
Which times until British law, which eventually turns into a takeout alone if they don't sell the property.
When you do a construction loan, which we have significant number of commitments. The funding occurs over a period of time.
24 months. So the initial commitment is very small, but it builds up over time.
It's a big pipeline, we love the business, we like the risk profile, we got into it early cap rates have compressed values are up huge and we've really made a mark very well.
Terms of providing financing for for scattered sites.
We're doing a significant amount of that that business is growing and we like that as well once again, there's a lot of liquidity. There is a lot of competition in that market.
But we're growing it slowly Paul you have some numbers that you can lay out.
Yes, do you want on the build to rent side.
Yes, both.
So yes, so the numbers we laid out is on the build to rent side, we committed to fund on build to rent deals life to date about $500 million, we have a significant amount more in our pipeline and during the quarter. We did another I think it was another between what we fund it and what we committed to another $100 million.
So that's a product that's really starting to build momentum and as we talked about in our commentary. It also feeds down the road or agency and APL business, which is all part of our annuity based model.
But yes, we've laid out the numbers, we've done about $150 million of total product in the third quarter.
Through the year to date, we've done about 500 million life to date since the business has begun we've done about 1 billion with about $500 million of that being built to rent so and we've got a pretty big pipeline.
Great I appreciate the details there. Thanks for your time this morning.
Thanks, Steve.
We'll take our next question from Jade Rahmani of K B W.
Thank you very much.
I was wondering if you could share your view.
The competitive markets right now that funds and mortgage Reits clearly you haven't seen a surge in that our originations do you have any concerns about.
Underwriting standards and competitive pressures in the market.
We are definitely a lot of competitors and.
There's a lot of business out there I do always have concerns.
When there's a lot of competition.
Have a great reputation in the market we pick our spots.
We know where to put our dollars.
We believe that.
And all competitive markets. There are a lot of mistakes that are always going to be made.
And we just have to proceed very prudently, we put a huge focus on lending on cash flow deals.
Deals that have positive coverage that need very little heavy lift.
That's very different than what happened four or five years ago. When there were a lot of b and C assets being bought with tremendous amount of lift.
The lift is very small it's basically unit turns.
Our biggest concern right now is the market has turned into a syndicated market.
You have a lot of syndicators coming in with very little net worth and liquidity raising money and don't have liquidity to withstand a.
Withstand any bumps in the road. So we're very careful of who we're dealing with usually where speed sponsors with multiple assets.
And we want to make sure the structure between the G. P and L. P is a good I think that's where a lot of mistakes are being made right now they're working with.
Thinly capitalized sponsors, they're working with people, who they're trying to win a deal for five basis points with no structure, we're maintaining our structural ideals.
Other people are not.
We have a lot of experience in the way, we run our business and where we're able to be a little more selective the most.
And historically what percentage of the business.
Portable housing space.
You know.
We're one of the higher mission driven business people and a lot of it had to do with our small balance lending and all workforce housing I think we're one of the top five Fannie Mae mission driven business lenders.
Pretty consistent with what we've done I'd have to check the numbers to see if it's if it.
If it's migrated at all but we've usually been a top two delivered to Fannie and Freddie and mission driven business.
Yes, that's right Ed I don't have the numbers here that we'll get them to you guys, but.
I don't think I don't think its changed dramatically.
Okay and do you also know the conversion rate historically of the multifamily bridge loans into agency product.
Yeah, Paul How's that.
Sure. So I think you've got to look at it a couple of ways right. So we've historically targeted anywhere to 40% to 60% sometimes higher of recapture rate on our on our bridge loans certainly when their sales involved which there had been some lately you don't our lease with <unk>.
<unk> of that business, because you don't always have that ability, but anything thats not solved that comes up for refinance or take out our our recapture rate is very very high probably in the $70 to 80% rate on anything thats not solved.
With stuff being sold its probably in the 40% to 50% range overall, but that's our target and as Ivan mentioned.
We're putting on a lot of bridge loans, right now and with the increase in values and when rents roll.
We're really sizing up a lot of these deals to come agency Thats. Our model. So we think that recapture rate will be very high on the business. We've been putting on island would you agree with that.
Yes, I think you have to look at the product we're putting on most of the product we're putting on is requiring.
Turning to rents very little Capex and the business model for the person buying it is to put on a bridge loan and make those turns and then turn it into an agency.
Historically, most of the loans for a heavy lift loans.
2030%, 40% Capex huge repositioning and usually a two to three year gestation period.
And what happened with a lot of those loans.
The gains were so huge with the market changes that a lot of people chose to sell those assets.
So we think the recapture rate is going to be higher because he intended business purpose was specifically.
For a short term bridge loan with a quick turn into agency or FHA and we do think our FHA platform is gonna be a huge beneficiary of outbreaks loans because they are doing it.
While with the FHA would takes nine months to a year and they'll run that process simultaneously. So we're we're pretty optimistic and hopeful that that'll really feeding.
Can feed into our platform.
And lastly in terms of Fannie and Freddie and how Theyre right now it seems like the most recent monthly number showed a pretty decent sequential uptick are you seeing them.
<unk> become a lot more active or would you say, it's kind of a steady state.
Well positioned well when they come and go I think when they didn't know what their allocation as they backed off they were pretty full for the year I think there'll be pretty active in the first quarter.
They've lowered their pricing and we think we'll have a good fourth quarter.
And.
Then they'll want to gear up in the first quarter and we will see what the flows for them, but we think the numbers are going to be pretty good for the next two quarters.
Thanks for taking the questions.
We'll take our next question from Lee Cooperman of Omega family Office. Thank you let me first.
Steve Delaney his comments he's got he's done an outstanding job and deserve kudos.
Thank you I've been here almost for the entire runs in school. There. So one of my questions. I noticed you raised through fixed rate money at four and a half a sixth quarter stuck in seven one.
We're showing it as significant just a slight premium to book value.
So what are you putting money out at.
Figure out your cost of capital what are you putting money out at these days.
And you said that there's tremendous opportunity as I said it was a tremendous opportunities your spreadsheet get wider right.
So we generally putting its still a competitive market. So I think the range when we put out money on.
Multifamily bridge loans were generally getting 10% to 12% yield somewhere in that range and that doesn't take into consideration.
This significant economics can be derived when that converts into agency loans gain on sale on the servicing fee and then the returns become.
Infinite in a sense because the gain on sales in those long term servicing fees are really what we're striving for.
So it's a matter of balance of how.
How we raise.
The different elements of capital to fund that business and we're very careful on how we do that.
Actual machine you've created here I guess wished the logical question is what.
What could derail this is at the rising rates, maybe we're a beneficiary of these low rates, which had exposure to rising rates.
Listen we I believe in a little differently than most I believe that rates are going to rise different than most people I think that.
We aren't we are underwriting and positioning our business to a rise in the 10 year to about 250, that's what I'm thinking and the way I'm running a business. So we'll make sure that we have appropriate asset management skills underwrite all loans accordingly, and know how they exit and know how to manage that business. We're also underwriting.
LIBOR probably rise 50.
Up to 75, that's just our outlook. So we can handle that rise in interest rates and manage our business Accordingly, and make sure we have ample liquidity to manage the growth in our business.
Congratulations on a terrific job for all the shareholders, including yourself, which is that capitalism.
Thank you. Thanks, Thanks Lee.
And it appears that we have no further questions at this time I'd be happy to return the call over to our presenters for any concluding remarks.
Okay, well. Thank you everybody for participating once again, it's been an amazing quarter. We are looking forward to finishing the year very very strong and positioning ourself for a great 2022 have a great weekend everybody take care.
Thanks, everyone.
This does conclude today's conference you may now disconnect your lines and everyone have a great day.
Okay.
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