Q3 2023 KKR Real Estate Finance Trust Inc Earnings Call
Good morning, and welcome to the KKR Real estate Finance Trust incorporated third quarter 2023 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing that Starkey followed by <unk>.
Zero after today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Jack Switala. Please go ahead.
Great. Thanks, operator, and welcome to the KKR Real estate Finance Trust earnings call for the third quarter of 2023.
As the operator mentioned this is Jack Switala.
Today I'm joined on the call by our CEO , Matt Salem, Our President and C O O Patrick Mattson and our CFO Kendra Decius.
I'd like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor relations portion of our website.
This call will also contain certain forward looking statements, which do not guarantee future events or performance.
Please refer to our most recently filed 10-Q for cautionary factors related to these statements.
Before I turn the call over to Matt I'll provide a brief recap of our results.
For the third quarter of 2023, we reported GAAP net income of $21 $4 million or <unk> 31 cents per diluted share.
Distributable earnings this quarter were $17 $4 million or 25 per share, including a write off of $15 million or 22 per share.
Distributable earnings prior to realized losses were <unk> 47 per share relative to our Q3 43 cents per share dividend.
Book value per share as of September 30th 2023 was $16 29, a decline of less than 1% quarter over quarter.
Our seasonal allowance decreased to $3 21 per share from $3 30 per share last quarter.
Finally in mid October we paid a cash dividend of 43 cents per common share with respect to the third quarter.
With that I'd now like to turn the call over to Matt.
Thank you Jack good morning, and thank you for joining us today.
The portfolio continues to benefit from the higher interest rate environment.
K RAF average run rate distributable earnings of 48 cents per quarter throughout 2023 exclude.
Excluding realized losses.
<unk> benefits from taking hours large real estate team.
With access to real time market data across our 64 billion equity and credit portfolio.
In addition, hey.
Hey, Chiara has a dedicated weighted special servicer and asset management platform.
Called Costar.
Started in 2022.
<unk> has over 45 people and $40 billion, our special servicing rights.
<unk> enhances our market connectivity.
Gives us real time performance information.
And enhances our ability to offer differentiated high quality service to our borrowers.
And to drive asset management outcomes.
The rate complex continues to evolve with higher for longer now the predominant theory.
And the 10 year Treasury closing in on 5% for the first time since 2007.
This recent increase will likely lead to further declines in real estate values and create a more cautious market sentiment.
Borrowers continue to feel pressure from higher carrying costs.
Including the need to purchase interest rate caps.
Near term loan maturities.
However, this was not a surprise for US we are positioned to manage this market environment with proactive asset management.
Market leading levels of liquidity.
Diverse largely non mark to market financing.
Yeah.
With the assistance of KKR capital markets.
We've built high levels of liquidity and ended the quarter with $716 million of availability.
Including 108 million of cash on hand, and $500 million of corporate revolver capacity.
76% of our secured financing as of September 30th was fully non mark to market with the remaining balance marked to credit only.
We have succeeded in terming out our debt and we have no corporate debt or in final facility maturities.
Due until Q4 of 2025.
The composition of payroll financing structure remains a true differentiator.
Yeah.
We continue to proactively manage our current portfolio of $7 9 billion.
Which remained effectively flat quarter over quarter.
We received repayments of $152 million in the quarter across four loans.
The majority of which was related to office Paydowns.
Consistent with what we have previously stated we expect limited repayments for the remainder of 2023.
Although we do expect the payments to exceed future fundings through 2024.
As we determine the run rate earnings potential of the business into 2024.
The main drivers will be interest rates portfolio performance and the yen and the ability to unlock equity held in our risk rated five assets.
Yeah.
At quarter end multifamily remains our largest segment by property type.
Our multifamily portfolio has performed well with.
With weighted average rent increases of four 1% year over year.
Weighted average occupancy of 91%.
And median year built on the multifamily portfolio of 2015.
Office assets represent 25% of chaos outstanding portfolio.
And as mentioned last quarter we.
We feel that we have identified the potential office issues within our watch list.
And do not anticipate further negative ratings migrations to the watch list from the office from the office sector.
Furthermore, in the third quarter.
Downgrade any loans across the portfolio.
While we amended the risk ratings of two of our office loans higher.
We raised our office or Chicago.
It had been on the watch list to risk rating of three following a modification.
Another example of our proactive approach to asset management.
We also upgrade our Oakland, California office alone to a risk rating of two.
As we received a large partial pay down of approximately 68%.
We expect full repayment of the Oakland office loan in mid 2024.
That I will turn the call over to Patrick.
Thank you Matt good morning, everyone I'll begin.
With updates to our seasonal allowance and watch list followed by our first on our capital and liquidity front.
This quarter, there was a $6 million decrease in our seasonal allowance for a total of $222 million.
293 basis points on our loan principal balance.
The decrease in our allowance was partially a result of a subordinated note write off.
<unk> with an office loan that we restructured.
We continue to proactively manage the portfolio and.
And to that end in September <unk> close on a modification of $118 million senior loan backed by an office property located in Chicago previously risk rated four.
As a part of this modification the sponsor contributed $18 5 million of new capital, including a $15 million principal pay down of the senior loan.
In connection with the principal reduction we increased the loan term for an additional five years and agreed to subordinate $15 million to the prior loan balance.
To the new contributed capital and.
And subsequently wrote off the subordinated loan.
Following the modification, we upgraded the reduced senior loan of $88 million to a risk rating of three as of quarter end.
Similar to last quarter, approximately two thirds of our total seasonal allowance is held against three five rated loans.
We continue to focus on solutions to efficiently resolve watchlist loans, while seeking to maximize shareholder value.
What are the best path leads to a loan modification or taking title and managing the property.
We have the tools at our disposal to maximize outcomes across a host of scenarios.
With this in mind I'll.
Provide a brief update to some of our watch list office lungs.
Regarding our mountain view office loan we continue to consider next steps for the asset.
Which may include taking ownership as we work with our sponsor on a transition plan.
Including exploring a path with the JV partner.
As a reminder, this property has recently renovated very high quality class a office campus located in a more challenged leasing market.
While precise timing is uncertain, we would anticipate transition to a new structure to be complete within the next couple of quarters.
Regarding our $156 million Philadelphia office loan.
The previously discussed short sale process for the entire portfolio did not result in a sale of the asset this quarter.
And so we provided the existing sponsor another short term loan extension as we evaluate next steps.
The loan is secured by a portfolio of four separate buildings totaling 711000 square feet.
Including a 500 space parking garage.
And we're exploring parallel paths of taking ownership of one or more of the properties will continue to explore individual asset sales.
We'll provide further updates as this process next quarter.
Additionally, subsequent to quarter end.
Hey, Ross finalized modification on our risk rate at $476 million, Washington, D C loan, which.
Which included a $20 million partial pay down.
An additional year of term.
And spread reduction.
Following some positive leasing momentum the property is currently 92% leased.
With a weighted average lease term of 12 eight years.
As a result of Paydown and recent leasing activity, we would anticipate a potential risk rating upgrade during the fourth quarter.
On the other risk rated for Washington D. C office loan with a current balance of $169 million.
The property is now currently 88% leased following strong leasing activity this year.
The sponsor is currently pursuing a recapitalization.
Yeah.
Wave from the watch list or risk rated three or better office portfolio, which equates to just under half of the outstanding principal balance of the office segment continues to perform well.
And as attractive credit metrics.
In aggregate the eight properties, representing these underlying risk rated three or better office properties are 90% leased.
With a weighted average debt yield of nine 5% in.
And our mediant eight two years of weighted average lease term remaining.
Consistent with the prior quarter.
The average risk rating of the portfolio was three point too.
And 85% of our portfolio as a risk rated three or better.
Our portfolio is 99% floating rate.
And all of our floating rate assets and liabilities are benchmarked to sofa.
Okay.
<unk> has built a fortified liability structure.
With $8 9 billion of financing capacity.
And $2 7 billion of Undrawn capacity.
The portion of our non mark to market capacity remains substantial at 76%.
And is diversified across to CRA clo's.
And a number of matched term lending agreements and asset specific financing structures as.
As well as our corporate revolver.
We continue to optimize our to CRA clo's reinvesting over 400 million of proceeds year to date on attractive financing terms.
Excluding matched term secured financing there are no corporate debt or final facility maturities until late 2025.
K RAF is well capitalized with a debt to equity ratio of two three times.
And a total look through leverage of four one times as of quarter end.
As of September 30th K rough had $108 million of cash.
And $500 million of corporate revolver capacity available.
Our best in class non mark to market financing and.
And our high levels of liquidity, coupled with our deep relationships with both our financing partners and borrowers position K RAF strongly for this dynamic CRE credit and interest rate environment.
Thank you for joining us today.
Now we're happy to take your questions.
Thank you we will now begin the question and answer session.
Last quick question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Jay Your question at any time. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Sara barcode with B P. I G. Please go ahead.
Hi, everyone. Thanks for taking the question. So you commented in the prepared remarks that approximately two thirds of that total seasonal reserve is allocated to those three five rite aid office loans pretty similar to last quarter.
It looks like the reserve on those assets are still being triangulated with a cap rate of about six 6% to eight 7% and that's in the queue, whereas the implied cap rates in the equity markets for high quality stabilized office rates are north of 9% in some cases, so I'm just curious is.
What's driving the reserves, there, especially given that we haven't yet seen a resolution or a buyer come in for those assets that we might have expected and it's part of east yourself. Thanks for any comment there.
Yes.
Thanks, Sir it's Matt.
Good question and new joining us today.
Yeah, I mean, obviously, there's a number of assumptions that are going into that one of which is capped.
It's up assumptions as well and then we're also looking at when you think about some of these assets that are a little bit further down the road or have gone through.
Some form of sales processes.
We're actually looking at where things are our pricing in the market around us or specifically for you know for these assets. So when we look at those reserves I think we still feel pretty good about the.
The quantity of those reserves against those five rated loans when we when we factor in all those different inputs at this point in time.
Okay. Thank you and then just another one for me. So you know excluding that $15 million loss on the Chicago asset that you've talked about.
Earnings and cash flow comfortably covered the dividend this quarter. So with that in mind. You know are you thinking about a potential pivot to offense here just given liquidity is looking pretty good and at what point do you go out into the market and maybe start to take a look at sourcing high coupon loans.
Any comment on sector interest there.
And you know just given the equity markets are a bit tough right. Now you know how how are you thinking about sourcing capital are you comfortable with liquidity in place for offense versus defense is there any opportunity for KKR to come in for the REIT I just curious on any and any comments there. Thank you.
Sure. Thanks, Sarah it's Matt again.
Let's try that I think there's a couple of questions embedded there let me try to answer those in.
In totality.
One from just a liquidity perspective, which I think was towards the end of the questions. I think we feel really good about where we stand from a liquidity perspective, we address that.
And some of the call some of the remarks prepared remarks on the call here.
And we're still at.
Pretty close to our highest levels of liquidity. So we will continue to maintain maintain that.
From an offense defense perspective, I still think we're and maintain liquidity mode. Here, we want to understand what the market environment looks like we want to see more velocity in repayments in our loan book, we want to see a return to normal across the broader real estate equity complex in the broader capital markets as.
Well yeah.
Yes, we're obviously still a very dynamic rate environment. The geopolitical landscape is quite volatile right now so I'd say, we're still in what let's let's continue to may.
Maintaining this high level of liquidity.
As we start to get into to 2024 could you see that pivot I think thats the potential for sure we are anticipating more repayments in 2024.
In our portfolio.
And so it's certainly if that starts to come to fruition and we and we start to see more velocity. There we would want to go out and redeploy that capital into the market.
Away from pay Rep. As you well know we're actively lending we're actively learning across insurance capital Bank capital as well as debt fund capital.
So we are actively pursuing the market.
And it is a market where you just want to kind of keep it simple.
So were sticking to those on themed property types that we all know so multifamily and industrial.
Trying to take advantage of.
Not only the volatility I just described but there's clearly some capital sources.
Out of the market market, namely mm.
Domiciled banks.
So.
I think that's to the extent we turned on paragraph we we'd be.
Pursuing some of those same type of themes and into next year.
Great. Thanks for the comment.
Okay.
The next question comes from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning.
Let's see Patrick I appreciate the comments on the on the loans I may have missed it but could you give us an update on the Minneapolis office in and what the outlook is for an options there.
Sure Stephen Good morning, So we didn't have any comments specifically on that asset not too much to report from last quarter. As you know we've done the modification.
Asset on the new senior rate hovers, we've got lease term in place for some considerable duration and so and that loans got term through 2025, So no real update we continue to actively.
Work on that asset, particularly just on around some of the leasing activity, but no sort of further updates on the market.
Great and then.
Can you talk a little bit about the restructuring through the modification process. You know I think I'm looking at my notes correctly, maybe one received a short term extension.
I think it was three years, though maybe on the restructuring on the new senior.
Can you talk about the considerations that go into how much additional duration youre willing to go.
Certain property types certain borrowers certain business plans can you maybe talk a little bit about how the the modification and restructured a specials are going is as you look at you know what.
Six six or seven loans left to address.
Sure Stephen it's Matt.
I can I can jump in there.
Would say.
First of all as you're highlighting.
Every modification or negotiation is very facts and circumstances dependent and a lot of it is.
As related to what your borrower is willing to do.
Obviously, what the occupancy and cash flow is that a particular asset et cetera.
Where we've given longer term.
That typically is around a more holistic solution.
Where you've got a committed sponsor theres typically dollars coming in the door to Delever us at times in conjunction with us.
Writing down or subordinating some of our mortgage.
To induce that to reduce that payment and get to a capital structure that makes more sense.
And.
Our sponsors can then lease had a lower basis at least from that from that new.
From that new basis.
So that's really what it comes down to when you see short term extensions, that's just a way for us to.
Try to effectuate, a broader either modification or loan sale or a foreclosure or or you know typically it's we're in the middle just a fluctuating something else.
And we need a little bit more time.
So I got to think about it as the longer terms are you faced with at least a resolution to that loan at least in the intermediate term.
And then in any of these short term lines as youre trying to get to that to that moment in time.
Great helpful color. Thanks, Matt I appreciate the comments this morning.
Thank you.
The next question comes from Don <unk> with Wells Fargo. Please go ahead.
Got it.
Hey, Matt can you talk a little bit about your thoughts on multifamily credit.
If the fed has to raise lets say another 50 basis points is that a manageable situation.
Sure Don I appreciate the question.
So I think that.
Taking a step back even.
The on multifamily obviously this rate environment as we mentioned in our prepared remarks is creating.
A lot of pressure.
Values pressure on sponsors.
And you're going to need a lot of liquidity to <unk>.
Carey Carey these assets through as it relates to multifamily.
Specifically.
In our own portfolio, we haven't seen.
Any real challenges yet.
From the rate environment on that on that component of the multifamily portfolio, we're watching it closely and certainly understand that the longer. This period goes obviously, the more stress or pressure is in the system.
But I'd say right now, we're not really seeing it within our within our own portfolio I do expect over time, taking a step out of <unk>, but just broadly in the sector.
For floating rate loans secured by multifamily to have some issues, especially if they have a sponsor that doesn't have a lot of liquidity to carry the care of the asset through to a more a lower <unk>.
Interest rate environment.
That being said.
Think about the fundamentals of multifamily away from value and away from cap rates, we're still seeing a lot of of positive trends there occupancies remain high.
We mentioned.
Some of the rental increases year over year in our own portfolio within <unk>.
And obviously if you go back further over a longer period of time to like 2021, you're talking about high teens type of of rental increases over that period. So we're still seeing positive fundamentals. There. It's still a very liquid asset class. The agencies are heavily heavily involved from a financing perspective.
So it's got a lot of positives, but clearly the rate environment is a headwind there and we'll continue to watch our portfolio closely to see if it creates any any potential noise, there, but long term value I think we feel relatively good about that that sector from our from our loan basis perspective.
Thanks.
The next question comes from Jade Rahmani with K B W. Please go ahead.
Attentiveness to covenants so in the quarter cash flow did cover the dividend.
Which is a strong result.
However, considering that the portfolio continues to shrink.
And with rates there is clearly the risk of further credit migration.
You know the average earning portfolio should be smaller for 2024, and therefore, you know it would follow that cash flow from operations would be pressured. So can you give any color as to your thinking around.
Are those two metrics.
Secondly, as it relates to covenants you know there's two main ones that come out one is the interest coverage covenant.
Which is a function of interest income versus interest expense and then the second would be liquidity as a percentage of loans. You know how are you feeling about adequacy on both of those.
Okay.
Got it.
Thanks, Jay it's Matt I can jump in for the first one and then maybe Patrick can cover.
The second question is around the covenant.
I think from a dividend perspective, like you're highlighting some of the things that we highlighted in our own our own commentary.
Just about what some of the big drivers are going to be as we think about the go forward in.
Over the next handful of quarters.
Nothing's really changed in terms of how we how we evaluate that.
That dividend and the board makes a decision.
Every every quarter.
And we're really coming at it from a run rate operating earnings perspective, as you are identifying and not really from a liquidity perspective, so as we start to.
Go down the road here and understand what the market environment. It looks like then we'll make a we'll make a decision at that point in time, but it is a very difficult market to be projecting that far out in the future in terms of what what what things may or may not look like so it will take a quarter to quarter and the and the board will make that decision.
Jay This is Patrick and I'll follow up on the Covenant question. So you asked the question specifically with regard to interest coverage, that's something that we've been monitoring frankly, the whole market's been monitoring because it's so affected by the increase in sulfur.
It's just math at some point that coverage becomes sort of tighter, but we did proactively this quarter reduced that covenant from one five to 1.4 times, we was still cleared the covenant this quarter without that adjustment, but I think just as an example of us being sort of proactive.
Round, the covenants and that went smoothly with all of our financing sort of partners.
With regard to the other covenants, whether it be networks liquidity you know as we've indicated.
In our prepared remarks, this quarter and past quarters.
We feel really good on.
On the liquidity side and so they don't feel challenged.
On either of those covenants. So really interest coverage was the one that was most in focus and we made our adjustment this past quarter just to give us further breathing room.
Thank you very much for both answers.
The follow up to Don's question about multifamily do you know what the in place debt yield is because the occupancy stats you cited and rent growth stats are very strong. So I'd assume that it's close to a stabilized debt yield what's the current debt yield.
I don't have that data by fingertips, we can follow up with you offline.
On that but theres still a right I mean keep in mind. There is still a range there in terms of where we are in the.
Different stages of of the business plan.
You know, we obviously at least on some new loan.
Loans on some newer assets that are still in lease up.
And then there's a handful of assets that have renovation programs and kind of upgrades going on as well. So these are still in transition in terms of what we think about is like.
Fully stabilized cash flows debt yield and assets, but we can follow up.
Thank you very much.
Yeah.
The next question comes from Rick Shane with J P. Morgan. Please go ahead.
Thanks, guys for taking my questions. This morning, I'd love to talk a little bit about mountain view in Philadelphia.
Incrementally it sounds like what's changed at mountain view is still considering.
The possibility of taking ownership of perhaps doing it in JV structure.
And Philadelphia.
It sounds like the sale.
Sell through now you're adding the possibility of taking ownership for at least portions of that.
Those properties as well.
I'm curious a couple of things.
With those changes.
Developments increase or decrease your potential loss expectations.
Yeah.
Matt.
I appreciate the question I would say.
The art.
Reserves are updated every quarter.
And so as these.
Processes continue to evolve.
We're updating our reserves to reflect that.
And so that's I mean, that's the basic answer to your question and so you Shouldnt anticipate any potential changes as it relates to like our comments as you know.
And where we are currently in the process because that's already been that's all.
Already been factored in.
Understood and then look I understand that that's the GAAP accounting.
And theirs, but at the same time.
From a profitability perspective, I'm, assuming that you guys say, okay wait a second these developments, we're incrementally positive or incrementally negative.
And since the reserve itself.
It remains.
It remains at that two thirds of the overall reserve and we can't see what specific to those those three level five other than that sort of broader comment.
I'm just how should we what should we take from this.
It sounds to me like things are obviously the.
Short Seattle, not going through the implication seems to be negative in that you were willing to sell the property below cost and take a loss and you weren't able to achieve that I'm, assuming it's not because you came back and said well, we actually think we can get a better deal.
Right.
I think you should take away a few things first of all the market is very liquid.
And a lot of our reserves are accounting for that level of liquidity.
And even on the Phili sale that you're identifying.
While we had and we had a real process, we had a real engaged buyer I think all of US here we're always.
<unk> full that like nothing is done until its done in this market and so we were always somewhat discounting that happening.
We're moving on from that obviously, one buyer and have a potential buyer on a subset of the properties and then the other ones being more stabilized cash flow and we could potentially we could potentially own.
So a little bit just more color on on Philadelphia, specifically, but.
Again.
I wouldn't necessarily think about this is like all right. We're trying to be transparent we're trying to give you information as it evolves understanding that it will evolve because this market is opaque and illiquid.
But we're trying to give as much information as we can I would say our reserves are always good updated to the extent the process changes and impacts that and an impact value.
So that's kind of where we are on those two assets in particular.
Got it look I appreciate having a very imperfect crystal ball I I certainly struggled with that.
As well in terms of what we do.
From a mechanical perspective.
Look I I appreciate that the intellectual integrity of when he restructured the loan creating a subordinated loan and writing it off immediately as opposed to.
Sort of carrying that on balance sheet and sort of extending and pretending.
When if and when you are to take possession.
<unk>.
Our properties do you would you generally speaking expect to realized losses, Dan or do you does it get deferred further.
As part of that resolution.
So if we go to title we would take a realized loss at that moment in time based on enterprise value.
<unk>.
Terrific. Thank you guys very much.
Okay.
As a reminder to ask a question you May Press Star then one.
The next question comes from Steve Delaney with JMP Securities. Please go ahead.
Steve there.
Can you I apologize I was on mute.
Hey, good morning, and congratulations on the Chicago office loan workout its not one that we had on the watch.
Watch list loans of four five but it's nice to Oh Boy you got.
Potential problem down the road, which is why I assume you took that took that action.
Leads us to the discussion.
Patrick's comments about the Washington D C. One of them that is being reworked.
That may be a fourth quarter item.
In that rework and I know Youre limited problem, which you can say do you do you will dissipate that that reworking that would involve in any kind of a write off to to K K RAF.
As you put a new facility in for the borrower.
Yes, so two comments there thank you for joining today.
Sure.
Just one just to clarify the Chicago office loans, where we received a $15 million pay down and then yes.
Subsequent write off on our loved subordination that write off that was a four rated loans that was one of the watch list loans that you are correct that was watch list, yes, I just wanted to make sure that.
That was clarified.
And then on the Washington D C loan that you're highlighting it is not our anticipation that there would be any kind of <unk>.
Off of consideration.
Function with that modification.
Okay, Great I would just as a side comment it would be great I know, there's legal issues with all of this but like the the.
The Chicago item was 22 cents I mean, you could we could argue whether that's material. It's you know it's it's certainly not with respect to book value, but I would just ask you to consider like an 8-K when you when you have one of these workouts.
One it shows progress and two it gives the animals a chance to go quickly go in and update an estimate before you know before we get to a to the earnings call. So just a request and we can follow up offline on that.
Gosh, the so no write down expected on D C.
You know, Matt you had comments about rates and sort of the strategic thing.
You know the fed has kind of signaled late late last week that maybe they're they're done or not.
Theres never done forever, but it feels like they're saying the bond market is it 5% is kind of done their job for them I'm. Just curious if it's on the private equity side of KKR.
If in fact, there's a consensus that this is the.
At the peak of rates and that they have nowhere to go but down over the next one to two years wouldn't that encourage some flows of private equity and strategic money kind of coming into the U S. Commercial real estate market once we get the fed kind of.
Get it split off the throat of the market just curious how what the connection you might see between where we are with rates and the rate cycle and the hope that some capital will flow into U S. Real estate. Thank you.
Sure.
No. Thank you I would say.
Yes, we anticipate that once we get through this rate hike environment and the market understands where that's going to settle out that transaction volume is going to pick up I would say that's not just in real estate I think we're seeing that across the broader KKR complex, including private equity.
Corporate credit.
Infrastructure.
So it does feel like we certainly could be moving into a somewhat different market environment as it relates to again transaction activity.
And acquisitions at.
At the same time I think were seeing them.
Good progress overall in the market is overall just in terms of.
Capital coming into the system from different fund raises I think the market everybody understands that.
That theres, some theres going to be a pretty good opportunity in commercial real estate over the course of the next year. So that's a that just broadly as a consensus and youre seeing capital formation around that.
Thanks for the comments.
Okay.
The next question is a follow up from Jade Rahmani with <unk>. Please go ahead.
Thank you for taking the follow up.
Just on seasonal in the third quarter, the economy performed really well, including on the employment side, that's a tailwind for the Cecil macro component in for two things should slow and we also have the treasury rates Spike. So do you think that alone drives an increase in just the macro.
Ponant of Cecil in the fourth quarter.
What the macro output is going to be at.
At this point and how those differ.
Different pads look and part of.
The model is not just macro in terms of GDP employment interest rates. It's also CRE prices, which have adjusted a fair amount as you know.
So it's difficult to say.
Macro modeling Cecil Reserve is I think we're much more focused on loan by loan outcomes from an asset management perspective, and you know what we can control.
Yeah.
Thanks, just have a office question.
In the third quarter, you know there were definitely some green shoots and leasing within certain markets and also within a subset of best in breed type properties. Some landlords also have said, they're going to moderate T eyes, and it looks like there's a little bit of relief and are tracking on free rent how would you care.
Victor is the major office trends you're seeing.
Well I think that the numbers are referencing are likely a better.
Indicator of what's going on in the broader market because we don't have that big of a portfolio.
And there's only really a handful of sold assets that were that were focused on there.
I would say that our general impression.
Across our assets and the office space is that the leasing environment has been better than the capital markets anticipates that there is demand for office.
And while it's costly it's not uneconomic at a lender's basis.
So that's where we are our general impression is always has always been that things are a little bit better than people think.
Thanks for that and then a technical question when I look at the slide deck. It shows the $152 million of repayments, but the cash flow statement subtracting the nine months from the six month implies 43 million is the different timing related or something else.
Jade, it's Patrick that has to do really with the.
The Oakland partial pay down that Matt had referenced on that deal we originate a whole loan.
Sold a.
First mortgage and we retain a mez so that difference is due to.
The fact that we own a mezzanine loan and so.
While we're showing that paydown reflective of that full loan balance. The reality is we just own the mezz portion.
Got it that makes sense. Thanks, a lot. Thanks.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to you Jack Switala for any closing remark.
Great. Thanks, operator, and thanks, everyone for joining today, please reach out to me or the team here. If you have any follow up questions take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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