Q4 2022 Ladder Capital Corp Earnings Call
Good afternoon, and welcome to ladder capital Corp's earnings call for the fourth quarter of 2022.
As a reminder, today's call is being recorded.
This afternoon letter released its financial results for the quarter and year ended December 31st 2022.
Before the call begins I'd like to call your attention to the customary safe Harbor disclosure in our earnings release regarding forward looking statements.
Today's call May include forward looking statements and projections and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections, we do not undertake any obligation to update our forward looking statements or projections unless required by law.
In addition, later will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
These measures are reconciled to GAAP figures in our supplemental presentation, which is available in Investor Relations section of our website.
We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we made site on today's call at this time I'd like to turn the call over to ladders, President Pamela Mccormack.
Good evening.
We are pleased to report that ladder generated distributable earnings of $38 $9 million or 31 cents per share, reflecting an after tax return on equity of 10, 2% for the fourth quarter of 2022.
On depreciated book value grew to $13.66 per share and as of December 31, our same day liquidity from cash cash equivalents and our undrawn unsecured revolver was over $900 million.
As of December 31st our adjusted leverage ratio was one nine times and one one times net of cash and securities.
For the full year 2022 ladder generated distributable earnings of $448 $4 million or $1.16 per share representing a nine 7% after tax return on equity.
We are further pleased to report that after raising our quarterly dividend by a cumulative 15% over the course of 2022.
Our dividend remains well covered with carry from net interest margin and net rental income.
In 2022 we originated $1 $2 billion of balance sheet loans, two thirds of which were either multifamily or manufactured housing with our multifamily originations focused on newly constructed properties.
As of December 31st our total balance sheet loan portfolio had a weighted average spread of four and a quarter on floating rate loans and a weighted average coupon of eight in a quarter.
While loan origination slowed due to a lack of a transaction activity. We have strong liquidity to your point to this product as activity returns.
As of December 31st 40% of our loan portfolio was comprised of loans on multifamily or manufactured housing and 82% of the portfolio was comprised of post COVID-19 loans that reflect conservatively reset valuations with newly capitalized business plans and substantial reserves in place.
Only approximately 6% of our loans have a final maturity in 2023, and all of our floating rate loans have interest rate caps in place.
We continue to focus on dollars per foot or basis lending on smaller middle market loans, and we continue to see enhanced liquidity for these loans with payoffs from the various lending options available to refinance loans of this size.
86% of our balance sheet loans are lightly transitional as evidenced by our modest feeders to your funding commitments, which are limited to $322 million in total with approximately half of this commitment being contingent upon accretive good news leasing.
The topic on everyone's minds has been office.
We've continued to see stable performance in our office portfolio, which comprises 25% of our total loan portfolio.
If you exclude our two largest office loans.
Both of which Brian will address when he discusses our office investments in more detail shortly.
That percentage drops to just 18% with a $25 million average loan size consistent with the rest of our portfolio.
Further our average last dollar loan exposure is $112 per square foot.
A testament to our focus on basis.
65% of our office loans are acquisition loans 69 per cent or on class a properties.
The 8% are located in the Sunbelt and 72% of our office loans are post COVID-19 loans.
We've seen similar liquidity for our office loans with full and partial loan repayments <unk>.
Including over $200 million in 'twenty, 'twenty, two and an additional $28 million, thus far in Q1 of 2023.
We expect our credit discipline and unwavering focus on basis and the middle market to continue to distinguish louder with sustained credit performance.
Turning to our other investments.
Our real estate portfolio continued to contribute to distributable earnings by generating net right until income of $67 $9 million in 2022.
In addition, this portfolio has continued to generate attractive gains on sale at premiums to underappreciated book value.
In 2022 we realized $35 $8 million of gains in distributable earnings from the sale of real estate.
In the fourth quarter lot of realized $3 $8 million of gains on sale of real estate, including the sale of our largest office assets for gross proceeds of $118 million.
Our securities portfolio ended the year with the bounds of $588 million.
Turning to our capital structure.
A combination of our internal management high insider ownership strong credit performance and differentiated liability structure have earned letter the highest credit ratings in the sector.
Of significant note as of December 31st.
Equity unsecured bonds and nonrecourse non mark to market that made up 82% of our capital structure 50.
50% or $3 billion of our assets were unencumbered with.
With 76% of those assets comprised of cash and senior secured first mortgage loans.
In addition, and thanks to our large base of fixed rate unsecured debt. We ended the fourth quarter with a competitive total cost of debt capital equal to 5.34%.
In conclusion 2022 was a good year for ladder, we delivered a nine 7% return on equity selectively augmented our balance sheet loan portfolio and grew carry income to comfortably cover our higher quarterly dividend.
Lastly, the deployment of our significant liquidity into this higher rate environment will help out to grow earnings in 2023 and beyond with that I'll turn the call over to Paul.
Thank you Pavel.
As discussed in the fourth quarter ladder generated distributable earnings of $38 9 million or 31 cents per share.
And for 2022 ladder generated a $148 4 million or $1 16 per share.
All three segments performed well during the fourth quarter and in 2022.
Our net interest margin rose steadily as benchmark interest rates increased.
We benefited from our liability structure of which approximately 50% is fixed rate.
The $1 6 billion of unsecured corporate bonds that anchor our capital structure.
The overall weighted average maturity of approximately $4 seven years.
With the nearest maturity in October 2025.
And provide an attractive fixed rate cost of capital.
At a four 7% average coupons.
Our $3 $9 billion balance sheet loan portfolio was primarily floating rate diverse in terms of collateral and geography.
With our primary asset class focused on multifamily assets.
Tom will discuss 82% of the portfolio is made up of 2021 and 2022 vintage wells.
During the fourth quarter.
She'd loan origination was $38 million related to one multifamily loan.
Loan payoff proceeds of $180 million.
And acquired one office property in Houston, Texas via foreclosure.
During value of $10 million or basis of approximately $50 per square foot. Additionally, as Pamela mentioned subsequent to year end, we received $28 million of proceeds from two office loans that paid off at par during the fourth quarter. We increased the general portion of our seafood reserve by $2 $4 million or 15% driven by the current market outlook.
Overall, we believe that the granularity and the first diversity of our positions with limited exposure to any single sponsor market or asset.
It serves as a credit enhancement to our portfolio.
Our $900 million real estate segment also continues to perform well and in 2020 'twenty two marks a year in which we demonstrated the embedded value of the assets in the portfolio.
This portfolio continues to provide stable net operating income and includes 156 net lease properties representing over 70% of the segment.
Our net lease tenants are strong credits, primarily investment grade rated and committed to long term leases with an average remaining lease of 10 years.
During the fourth quarter, we sold one office complex, one net lease property and one residential holding which together generated a $39 million GAAP gain to shareholders and produced a $3 $8 million gain.
$3 $8 million of games for distributable earnings.
In 2022 overall, we sold eight properties generating a GAAP gain of $93 $5 million to shareholders and $35 $8 million of games for distributable earnings.
Our 2022 real estate sales overall generated irr's, ranging from 14% to 58% during their respective holding periods of each asset.
As of December 31st the carrying value of our securities portfolio was $588 million.
The portfolio was 86% AAA rated.
99, 5% investment grade rated in 2020, two we received $185 million of pay downs on these positions.
Given the seniority and shortly short dated maturity of this portfolio, we expect the mark to market associated with these positions to reverse.
As the portfolio continues to pay off at par.
Our adjusted leverage ratio stood at one nine times.
This liquidity includes our undrawn corporate revolver capacity, which has a pretty good which as previously reported in 2022 was increased to $324 million and extended to 2020 seven.
Further as Tom will discuss as of December 31st our unencumbered asset pool stood at $3 billion.
And with 76% comprised of cash and cash equivalents and first mortgage loss.
We believe our liquidity position and large pool of high quality unencumbered assets provides ladder with strong financial flexibility.
And substantial dry powder heading into 2023 with a corporate credit rating one notch from investment grade from two of the three rating agencies.
During the fourth quarter, we repurchased $639000 of our common stock at a weighted average price of $10.27.
And overall in 2022, we repurchased $7 $9 million of stock at a weighted average price of $10.11.
As previously reported in 2022, our board of directors increased the authorization level for us our share buyback program to $50 million.
With $46 seven.
Our remaining capacity as of December 31st 2022.
Our underappreciated book value per share was $13 66 at quarter end based on $126 5 million shares outstanding as of December 31st.
Finally in the fourth quarter, we declared a <unk> 23 per share dividend, which was paid on January 17, 2023, capping off a year in which ladder raised its quarterly dividend by 15%.
Which remains well covered.
For more details on our fourth quarter and full year 2022 operating results. Please refer to our earnings supplement which is available on our website as well as our 10-K.
With that I'll turn the call over to Brian .
Yeah.
Thanks, Paul.
I'll start with a few highlights from 2022 that show how our preparation for higher short term rates enabled us to execute our business plan throughout the year.
We expect the fed to aggressively raise short term rates and in less than 12 months. They raise the fed funds rate by 450 basis points. Since we had over $2 billion of fixed rate liabilities, including $1 6 billion of unsecured corporate bonds. The increase in our interest income outpaced increases in our interest.
Expense.
In the fourth quarter of 2022, our net interest income was $37 $3 million. That's three five times, our net interest income in the fourth quarter of 2021.
We believe the fed will continue raising rates in the first half of this year and we will benefit further from those actions. If they then whole peak funds rate where it is as they say they will we should benefit from higher net interest income throughout the rest of this year and into 2024.
Because our weighted average maturity on our fixed rate corporate bonds of about $4 seven years, we should be able to enjoy a strong net interest income for several years as long as the fed doesn't completely reversed their recent rate increases.
Since we ended 2022 with $609 million in cash and Undrawn $324 million revolver and an adjusted debt to equity ratio is below two times, we have plenty of earnings power as we make new investments in the quarters ahead in market conditions exhibiting the highest mortgage.
Interest rates in many years.
As mentioned earlier, many investors are trying to sort out what is going on in the office sector in the United States today.
Clearly certain cities are having more trouble than others and I'm happy to discuss those macro issues in Q&A, but I'd like to briefly address how ladder is fairing with our investments in this space.
Yeah.
As we started the fourth quarter, our top five office investments by size across our loan and equity portfolios had a combined carrying value of approximately $640 million.
There were two equity investments that combined for a total carrying value of $242 million. Both were financed years ago with non recourse fixed rate MBS that that's still had time before maturity.
The first of these was a net lease investment with a carrying value of $124 million made in 2017, when we acquired five office buildings, along with a newly constructed parking garage in Jacksonville, Florida. The tenant is bank of America and they have about nine years left on their initial.
Lease term with five year extensions at below market rents.
Last year as reported in the press.
Bank of America began to upgrade their office space at their own cost estimated to be approximately $150 million. They are also planning to construct an additional garage with 'twenty 300 parking spaces also at their own cost of $20 million.
We feel good about this investment so I'm going to move on.
The next equity investment was comprised of 11 multi tenanted suburban office buildings in Virginia that we acquired with a JV partner in 2013 with a carrying value of $118 million.
In December 2022, we sold all 11 buildings for $118 million. The IRR on this investment was 14, 4% over the life of the JV.
Yeah.
The next three investments are all first mortgage bridge loans that we have on our balance sheet. The combined loan amounts for these loans was $397 million.
The largest loan is at $220 million loan secured by a downtown Miami Office building that was acquired in mid 2021 by our borrower.
Miami is one of the few strong office markets in the country and this asset is over 65% leased with an average lease term of about six years.
Our sponsor invested $98 million of equity when the property was acquired and we feel comfortable here as well.
The next item I'll discuss it's also a Florida office loan located in oven tour of Florida, just steps away from the ovens for a mall and several large medical facilities, we made a $111 million first mortgage bridge loan on this property when it was purchased in the summer of 2021 for 140 million.
This asset is well leased and is achieving higher rents than we underwrote for it was also recently zone for additional development with some developers thinking it might have a better use than what it is used for today after one and a half years, all seems to be going well here also.
The third office loan and last of our five assets for today as a class a office building in Birmingham, Alabama.
One was originated in 2018 and has a current outstanding principal balance of $66 million or $108 per square foot. After a series of extensions that included the sponsor contributing over $14 million of additional equity to reload reserves and reduced the outstanding principal balance by over $11 million.
The loan has strong in place cash flow and recent leasing has picked up again with the sponsor recently, signing a 16 year lease with a leading law firm.
These five assets with a combined maximum exposure of 640 million going into the fourth quarter of 2022 was reduced to approximately 521 million following the $118 million sale in December .
I decided to provide a lot of specific data around the five largest office investments, we had going into the fourth quarter because for one thing.
These five line items make up a large part of our exposure to the office sector and to investors and analysts have been asking very specifically about this product type in recent calls.
Just a quick download also demonstrates how we are invested across the various types of investments in the office sector before during and after the pandemic.
This theory equity investments should contain the most risk to the company and we navigated this risk for our two largest equity investments by investing in both cases that reasonable dollars per square foot we.
We selected the two equity investments specifically outside of major cities and secured 10 year fixed rate nonrecourse see MBS financing also in both cases.
We further mitigated risk at the property level in one case was a strong tenants paying below market triple net rent for a long initial lease term and on the other by only 11 separate assets that could all be sold separately over time, adding diversity.
And liquidity by allowing sales at smaller dollar amounts if it was necessary.
There is a more nuanced point to this discussion around office and lending at ladder generally.
After the initial shock of the government mandated shutdown of the U S economy, when the fed drove interest rates to near zero and liquidity was seemingly everywhere. We actively encouraged our sponsors to pay off our mortgages that were originated in 2018 in 2019 in a strong economy with low.
Unemployment.
Because our portfolio of floating rate bridge loans had an average floor of $6 four 6% going into the pandemic. Our borrowers were very successful in refinancing our loans and we wound up with an awful lot of cash.
As the U S money supply is dramatically increased from $15 four trillion in January of 2020 to 24 trillion in June of 2021, we felt that inflation would probably start to show up in the U S economy and it did.
Well, we began to invest the cash that we accumulated during the worst part of the pandemic, we avoided fixed rate loans with a preference for floating rate assets expecting the fed to lift the short rates to quell the onset of inflation.
We also issued an additional $650 million of unsecured fixed rate corporate notes, hoping to create positive earnings correlation as rates rose.
This also turned out to be a good strategy. These prescient moves put us into a position today, where over 80% of our current loan inventory was originated after March 2021.
Because of our macro views of the economy. These loans were underwritten against an economic backdrop of high unemployment rates with inflation building in the good sector and a rising cost of labor as the citizenry of the U S went back to work.
Throw in rising rates and you've got the formula for a possible economic slowdown that would show up quickly in both residential and commercial real estate.
We did not select these loans to try to prove that we don't see any problems in all kinds of real estate valuations.
The fed infused the economy with liquidity and asset values increased of course, when they begin to drain the economy of liquidity. They should have the opposite impact and asset prices should fall. We show you. These loans because it illustrates how we manage risk.
Most of our inventory of loans were underwritten under the assumption that a mild recession with sooner right. We tried to stick to acquisition financing and if we did refi loans, we tried to see additional capital contributions from the sponsor to close the loans with us.
Proud to post pandemic loans in the discussion both for acquisitions, both had substantial equity cushions in front of our mortgages both were in Florida, and both were underwritten well after the pandemic shock to the economy and our one loan from 2018 of course, the lack of economic activity impact.
Leasing so we were only too happy to work with the sponsors we knew well and who knew that more time would be needed to execute their business plans. If the sponsor would add further capital to carry the asset we would work with them to extend their loans and give them more time.
The modifications on our largest pre pandemic office loans saw the principal balance of the loan pay down by $6 $3 million in 2021, and another $5 $2 million in 2022.
Those pay downs demonstrated the long term commitment to the asset by the sponsor and brought the loan size into the neighborhood of where we were originating loans. After March 2021.
I will end here, hoping to have conveyed a sense of strong risk management, yes, having a low fixed rate component to our interest cost is quite apparent and we're very happy to have it but our risk management and its primary goal to preserve capital is a constant effort that we take quite seriously it's not perfect, but we sure do you think it's better than most.
Wrapping up I'd like to thank our employees for their tireless effort and making ladder a great place to work with a strong credit culture and for their countless hours researching data to allow us to make better credit decisions, even if that meant granting extensions.
I'd also like to thank our investors for trusting us with your investment dollars. We've raised our dividend a few times in 2022 and because of strong loan performance and effective asset liability management, we should continue to easily cover our quarterly cash dividends for the foreseeable future as we make new investments it should get even easier.
I'll now turn the call over to Q&A.
Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from Steve Delaney with JMP Securities.
Good evening, everyone and congrats on a great close to 2022.
Boy that was very thorough.
I had a few questions jot it down but I just heard already heard the answer one thing you didn't talk about Brian we're seeing some signs of just early green shoots I guess of.
Better activity or interest in the C and B S CLO market and I know your investment portfolio is not huge and it's also short duration.
But can you comment on whether you feel your your CRE.
CRE Securities portfolio has seen any improvement in value thus far in 'twenty twenty-three. Thanks.
Sure Steve and thank you.
Yeah. It has yeah the markets as I said at the end of really 21, all through 'twenty two credit spreads blew out really I think in the mortgage sector because of the fed just being a constant seller of mortgage backed securities and that shop, the market a bit and drove spreads wider so the.
There's even the short duration book that we own yeah. We would have if we had sold it would have been down a few points. So we did have some paper mark to market losses, there and they have recovered largely and I'll also add to that well I wouldn't say, they're quite at par at this point, but theyre probably near.
98, and a half 99 and in addition to that regardless of what happened with prices, we got $185 million and pay offs, which was about 25% of that book and in the year 2022. So that's one of the reasons too that we were pretty comfortable we're not ever going to take that loss.
On a mark to market basis, because those assets are just so well secured the biggest problem with them. If we wanted to create liquidity today, which we certainly don't need to is that are you know there. There are some spread to LIBOR is not competitive with the spread to LIBOR of new origination loans today. However.
Most of them have like 80% subordination, which also doesn't kill it compares very favorably to anything today I don't think you can buy a book of 2018 in 2019 CLO AAA is like we have today. So we may have to wait a little bit longer, but if we ever did need to come up with liquidity, we could then and again.
And there are only one year alone so if theres a limit to just how bad it can get and they even if the fed continues to shop, but there you know I think that that lack of supply.
For a very long period of time, there is really starting to show up and that's why our bids are coming in and the fed is still a seller, but at the end of the year are most of the portfolio managers rebalance their portfolio.
And I think the fixed income guys got a lot of allocations going into January and January always a strong month for whatever reason I think that there's new allocations and things just optically look very cheap. So I think people are jumping on them now and you're also seeing that in the government market. The 10 year is a very easy sale you saw.
The auction yesterday it was great. The 30 year auction today was very messy. So it's sort of that duration its not too far out on the curve, but it's far enough that people feel like it's gonna be unacceptable.
Clearly the market. Thanks rates are going to be low over the next 10 years.
Yep. Thank you so much for the comments.
Sure.
Our next question is from Jade Rahmani with K B W. Please proceed.
Thank you very much what do you make up the current stock valuation for ladder in particular, given the lower than peer leverage.
And the strong outlook based on rates.
Also do you think you would consider stepping up your pace of stock buyback and how are you feeling about the dividend relative to the strong level of earnings you posted.
Okay I'll try to keep those in order and if I don't please remind me at the end.
First of all at the stock price it was a little bit discouraging at times, because when I sat down and I began to write the yearend review I basically said, okay. What did we do in 2022, we absolutely nailed the fed correctly, we had the lowest we went from the highest cost of funds because of our corporate debt to the lowest cost of funds in the space.
We haven't for years to come.
Whereas you're seeing a lot of other ways of raising money taking place in this space and I think it's a real differentiator for us this year, our income or our topline income went through the roof.
Because again, our interest income was going up but our interest expense was not really going up very quickly at all so a whole plan worked and our credit acumen did well well we didn't we didn't have too much difficulty there and for all of that getting it right. The stock dropped from I think it was 11 90 something at the end of last year or two around like a high 10 number.
10, 99. This year. So you really can't fight the tape. It is what it is a it was a tough year for all investors last year and you know some parts of the stock market I think the S&P was down 18% and of course it was up 20%. So it is if you try not to look at that too much but.
We're doing what we can do and controlling what we can control and sometimes you get caught up in a little bit of a narrative or you just get caught up in the whole market swing. So we're not put off by it you know we we wanted to say, we pretty much told people, we're going to keep raising our dividend.
Which we did.
And each time, we raised our dividend in the stockpile.
So now we're covering it very easily and yeah. There was there's always some version of the quality of earnings Oh, you're you've covered your dividend because you sold some retail centers, where we sold an office building and we're now covering at a straight carry them.
And it looks like I I personally if the fed is going to keep raising rates here. If they do we make more too much of a good thing obviously can be a problem, but at the end of the day, it's a lot easier as a lender when rates are higher than when rates are lower so we're very comfortable here, we think our income.
Is is with our leverage point below two O. A we have a full turn we can put onto the company and that those earnings will just go to the bottom line. It but he has no leverage at all even our cash you know we've been buying two week treasuries, which I think today, we were buying them at four 6%.
So even cash sitting around is doing better. So earnings look very good we are a little counter cyclical at times and so I suspect that will have no trouble with our dividend I imagine we will be in Frank discussions with our investors as well as our board of directors about what to do with the dividend going forward and as long as proud of this.
Nope, I don't see really any way around not raising it.
And I think the what was the last part stock.
Stock buyback.
Stock buyback.
We buy those periodically yeah we.
Our ROE is very good right now and well we didn't pull off a lot of transactions in the fourth quarter I think that had more to do with the rate shock that took place in the market and you're seeing it everywhere and it's not just here is this just not a lot of transactions going on we are still seeing people trying to get financing to buy an apartment complex that are to come.
Thinking they're going to double the rents. So that story is just not taking hold with us. So we're gonna have to wait until the market absorbs. The reality that rates are just gonna be higher I am of the opinion that you've seen the lowest rates in your life and I don't think rates are going to go straight up to like Jimmy Carter days, but I also don't think.
We're gonna be returning to zero either I am in my opinion is that tenure is too low at the at 360, but I don't I don't trade government bonds. So I would say if if the stock takes any kind of a softening, which it does periodically we're happy to step right in and buy it as long as it looks like a pretty good investment for.
And don't overlook the bonds also occasionally if interest rates go up quite a bit in the or the high yield market gets a wider in spread those also present unique opportunities too. So we keep our eyes open we watch it every day, if we don't we don't check it on Fridays and if it looks cheap we stepped right in and as long as the.
The compliance window is open.
Thank you very much on the.
Originations post COVID-19 it seems like the bulk occurred in 2021 through mid 2022, arguably before you know the valuation correction really ensued. So some of those deals may have been done at the peak of the market, especially in multifamily.
Cap rate sector, how do you feel about the risk there it doesn't seem like there will be a credit issues in multifamily. This year certainly that could unfold in 2024 and there is also huge supply coming in multifamily. So curious for your thoughts on that sector.
We.
I don't want to get too deep in the weeds, but at the end of 2021 every CLO lender in the space was originating any multifamily they could find at LIBOR plus 300, and we thought that was crazy. There was no differentiation between quality you know where are you entering a crime problem out in the garden style apartments and in a rough city or what have you.
You, making alone on a brand new property in Jersey City, and so what we did and I know we've talked about this I don't I'm not sure. If you remember it but we we stopped chasing.
Tracing multifamily loans and we did the other types of loans that were less favorite, but they were much wider in spread we really got into the multifamily side of things. After 2021 when those at the end of 2021, everybody thought spreads were widening just because it.
It was a year and we didn't believe that we thought it was the fed starting to sell our mortgages and they were gonna keep going wider so at that point. They most of the lenders had abandoned the multifamily sector because they had done the CLO, where they effective rate of return on their equity piece with 85% leverage was 6%.
And whereas the AAA is we're trading well with yields well north of that so we began.
I remember the day it happened there, where we're funding a transaction and the borrowers buying an interest rate cap in the cap cost six points and I said Wow, we're charging one point and they're paying six for a cat. So we introduced and then attempt to I guess, it's been my experience that when things get a little out of out of joint you always go with higher.
Quality. So we knew that sponsors were hating the interest rate cap because the costs were so excessive because the fed was saying they were going to raise rates. So we introduced a two year fixed rate product.
Pretty much geared itself towards brand new properties coming off construction and during the due diligence period after that when they were under out we were watching the properties lease up. So these were not really the bought by a two cap and hope you double the rent and rates stay low these were assets that were brand new they were.
We're clearly in markets that people thought it was attractive to build in but was most attractive is that they liked it they didn't have to buy the cap. What we liked was you couldn't have a construction overrun because they were finished and they were all brand new so we have quite a slips a sleeve of that was in in the inventory right now so but I'm not one.
Really worried because we were always cautious about dollars per unit and when we saw a property in Phoenix, Arizona that had run up in value I always remember in the credit meetings, you know one originator would say oh the prior manager doesn't know what he's doing and he's selling it for twice what you paid for it four years ago.
I would say I'd like to back him. So yeah, we were always cautious about run up in price what was the dollar per unit never mind, where people thought it was going and if rents look like they had to double we were not going to get involved in that but we also understand where there might be some rents going higher where they were a major construction projects going on in the assets.
Being added or facilities to that to the city and we focus in growing neighborhoods. We really did try to avoid the larger cities and and not just because we didn't like them. In particular, one is at the very expensive dollars per door and secondly.
They are.
They suffer from a lot of government intervention, when when things get a little bit rough so most of our ownership of the of our multifamily loans is outside of major cities.
Thanks, so much for the color I appreciate it.
As a reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Eric Hagen with B P. I G. Please proceed.
Hi, This is Sarah bar come on for Eric Thanks for taking my call. So in the fourth quarter, you had slightly lower origination volumes without one multifamily loan I was hoping you could contextualize that a bit and talk about how you approached underwriting not wellness.
Well as any other deals that you might have taken a look at that didn't cross the finish line.
That loan what.
Whereas the multifamily and the South East It was brand new and it had been under App for Awhile and I think for whatever reason documentation wise. It it took a while to get printed and when we close on that loan that building was fully leased I was a little surprised about sponsor wanted to even take a floating rate loan so.
So that's that property is a brand new property in Georgia and it is fully leased already so is that was there was no special approach there that's kind of where you're you're hoping to exit when you write a bridge loan on a lot of other assets we had under application.
As rates were rising we were requiring higher that yields at exit and it gets tougher you know so we're a six six that yield used to be the exit cap you know year and a half.
Two years ago, we were moving them up to seven and a half and 8%. So simply I think what happened isn't so much that people didn't want to fund new loans. They were just so used to aggressive underwriting, which might've been appropriate and at certain times, but it didn't look like it was going to continue so we actually did see some some assets where rents were fall.
While we were underwriting one of the things we do keep an eye on during the underwriting process. We literally watch them lease properties, you know AD units one by one and we're very sensitive if all of a sudden they signed five leases at lower rents than they than they've been in the last 12 months. So that we saw some of that also.
Okay great.
And so you talked about are in in terms of the equity investment sales I believe there were three during the quarter and you talked about how one of them was one of your largest office assets.
Can you talk I am I might've missed it but can you talk about on the other two sales during the quarter and maybe give some color around our cap rates there and any details you can share there.
Well, yeah, I I am going to talk them out of my head, but I know them. One the one that we sold was in Virginia was 11 office building in suburban office buildings for $118 million and that obviously was the price we paid for them. Although there was a large GAAP game associated with them. There I think we sold that at a six eight cap.
And so then so that's the one you knew about the other two one was we had owned part of residential new development on the lower east side of Manhattan, and we had one penthouse left to go and we sold that for $8 million I don't know what the cap rate is I apologize, let's just residential condos so that was.
Just one and the only thing we own in that building now is one retail condo.
At dollar per foot that are far lower than we've been selling out of the residential property fat. So we're pretty comfortable there although retail in New York City is a little tough right now because.
For various reasons, but we think that'll get straightened out eventually there and the other property. We sold was a wholesale club and then we sold it to another REIT, who likes that credit. It's a bj's wholesale club and I think we made about 35% versus our basis on that which is consistent with where we've been selling beach.
We own about 11 of them at one point I think we have five left now so those are the three asset sales.
Great. Thanks, that's it for me.
Youre welcome.
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
I just want to wrap up this is always an interesting our yearend call because it will be back on the phone in another month, I think or a month and a half.
But just wanted to say thanks ladder really came full circle after the pandemic and we're off to a great start. This year. We are in the right position with very low cost of funds and we are really looking forward to a very differentiated and successful year. So thank you for those stayed with us and thanks for all of US are asking the right questions on these calls Tonight.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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