Q1 2024 BrightSpire Capital Inc Earnings Call

Greetings and welcome to the bright spire capital, Inc. First quarter 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation, but anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: Greetings and welcome to the Brightspire Capital Inc. first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Palam, General Counsel. Thank you, David.

As a reminder, this conference is being recorded its now my pleasure to introduce David Palomar General Counsel. Thank you David you may begin.

David Palomar: Good morning.

David A. Palam: Good morning, and welcome to Brightspire Capital's first quarter 2024 earnings conference call. We will refer to Brightspire Capital as Brightspire BRSP or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer Mike Mazzei, President and Chief Operating Officer Andy Witt, and Chief Financial Officer Frank Saracino.

David Palomar: Welcome to bright fire capital first quarter 2024 earnings conference call, we will refer to bright fire capital as bright fire B R. S P or the company throughout this call.

David Palomar: Speaking on the call today are the company's Chief Executive Officer, Mike Mabee.

David Palomar: And Chief operating Officer, Andy Witt, and Chief Financial Officer, Frank Sarah stand out.

David A. Palam: Before I hand the call over to you, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially. For a discussion of risks that could affect results, please see the risk factors section of our most recent 10K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time.

David Palomar: Before I hand, the call over please note that on this call certain information presented contains forward looking statements. These statements, which are based on management's current expectations are subject to risks uncertainties and assumptions potential risks and uncertainties could cause the company's business and financial results to differ materially.

David Palomar: For a discussion of risks that could affect results. Please see the risk factors section of our most recent 10-K and other risk factors and forward looking statements in the company's current and periodic reports filed with the SEC from time to time.

David Palomar: All information discussed on this call is as of today.

David A. Palam: All information discussed on this call is as of today, May 1st, 2024, and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released this morning and is available on the company's website, present reconciliation to the appropriate gap measures and an explanation of why the company believes such non-gap financial measures are useful to investors. Finally, during this call, management may refer to distributable earnings as DE. With that said, I would now like to turn the call over to Mike.

David Palomar: First 2024, and the company does not intend and undertakes no duty to update for future events or circumstances in.

David Palomar: In addition, certain financial information presented on this call represents non-GAAP financial measures the company's earnings release and supplemental presentation, which was released this morning and is available on the company's website presents reconciliation to the appropriate GAAP measures and an explanation of why the comp.

David Palomar: We believe such non-GAAP financial measures are useful to investors.

David Palomar: Finally during this call management may refer to distributable earnings as D E.

David Palomar: With that I would now like to turn the call over to Mike.

Mike: Thank you David.

Michael Joseph Mazzei: Welcome to our first quarter 2024 earnings call and thank you for joining us this morning. In my remarks today, I will focus on some key financial highlights for the company, briefly discuss market conditions, and provide visibility as to what is ahead. Then I will turn the call over to Andy for more specifics on the portfolio, starting off with some financial highlights. For the first quarter, we reported a gap net loss of $57.1 million, or $0.45 a share, positive DE of $22.5 million, or $0.17 per share, and adjusted DE of $29.7 million, or $0.23 per share. Our current liquidity stands at $323 million, of which $158 million is cash on hand. This quarter, we recorded a 68 cent reduction in our underappreciated book value, which currently stands at 1067.

Mike: Welcome to our first quarter 2024 earnings call and thank you for joining us this morning.

Michael Joseph Mazzei: This reduction is primarily driven by a net increase in all CECL reserves of $0.07 per share. This brings our total CECL reserves to $151 million, or $1.15 per share. Our leverage ratio remains unchanged at 1.8 times, and our adjusted D.E.

Michael Joseph Mazzei: My remarks today I will focus on some key financial highlights for the company briefly discuss market conditions and provide visibility as to what does that had.

Michael Joseph Mazzei: And then I will turn the call over to Andy for more specifics on the portfolio.

Andrew Elmore Witt: Charlie off with some financial highlights for the first quarter, we reported GAAP net loss of $57 1 million or <unk> 45 cents a share positive D. E F $22 5 million or <unk> 17 per share and adjusted <unk> of $29 7 million or <unk> 23 per share.

Charlie: Look part of these stands at 323 million of which $158 million as cash on hand.

Charlie: This quarter, we recorded a 68% reduction in underappreciated book value, which currently stands at 10 six to seven.

David Palomar: This reduction was primarily driven by net increase most useful reserves must be seven cents per share.

David Palomar: This brings our total seafood reserves to 151 million or $1 15 per share.

David Palomar: Leverage ratio remains unchanged at one eight times and our adjusted <unk> dividend coverage for the first quarter was 1.15 times.

David Palomar: Now, let's briefly discuss the financial markets and the.

Michael Joseph Mazzei: dividend coverage for the first quarter was 1.15 times. Now, let's briefly discuss the financial markets. In the first two months of this year, the markets went into a high gear risk-on mode, which resulted in an everything rally. As we all know, this was driven by the Fed telegraphing the end of higher rates for a longer period and that the next move would be a near-term cut in the Fed funds rate. This fueled a strong conviction for continued economic growth and, at worst, a very soft landing.

David Palomar: First two months of this year the markets went into a high gear risk on mode, which resulted in an everything rally.

David Palomar: As we all know this was driven by the fed Telegraphing the end of the higher for longer period and that the next move would be a near term cut in the fed funds rate.

David Palomar: This fueled a strong conviction for continued economic growth and at worst a very soft landing.

Michael Joseph Mazzei: However, as the first quarter progressed, it became apparent that inflation is sticking while geopolitical risks have increased. Therefore, while the Fed's next move will likely be a cut, the expectations have shifted from multiple cuts starting in the second quarter to perhaps not starting until December. In response, the tenure treasury yield has risen once again, while gold rallied to an all-time high along with other commodity prices. When interest rates and the price of gold are positively correlated, it is generally not a good thing.

David Palomar: However, as the first quarter progressed it became apparent that inflation is sticking while geopolitical risks have increased.

David Palomar: Therefore, while the Feds next move will likely be a cut the expectations have shifted from multiple cuts starting in the second quarter, So perhaps not starting until December.

David Palomar: In response, the 10 year Treasury yield has risen once again.

David Palomar: While gold rallied with all time high along with other commodity prices.

David Palomar: When interest rates and the price of gold are positively correlated it is generally not a good thing.

Michael Joseph Mazzei: In light of this, we are maintaining a conservative position, and as a result, we increased our fees for reserves and also downgraded two loans to a risk-rated four during the quarter. We, of course, remain focused on the resolutions of our watchlist loans and REO assets, as this segment of the portfolio is critical to our path to doing new business and improving earnings, separately on our fourth quarter call in February. I stated that over the last 12 months, many peers in our sector, along with Brightspire, have recognized write-downs in capital.

David Palomar: In light of this we are maintaining a conservative position and as a result, we increase dose used for reserves and also downgraded to wireless to risk weighted for during the quarter.

David Palomar: We of course remain focused on the resolutions of all watch list loans and Oreo assets.

David Palomar: This segment of the portfolio is critical to our path to doing new business and improving earnings.

David Palomar: Separately on our fourth quarter call in February I stated that over the last 12 months many peers in our sector along with price via a recognized write downs in capital.

Michael Joseph Mazzei: I also emphasize the impact of holding higher cash balances, as well as increases in underperforming and under-covered assets. Therefore, five points in time dividend coverage obviously do not reflect the impact of these factors on future earnings for Brightspire are given and remain unchanged from the prior quarter. Our current dividend coverage is 1.15 times based on an adjusted DE of 23 cents per share. This is down from our previous quarter's coverage of 1.4 times, based on our then-adjusted BE of $0.28 per share. For further context,

David Palomar: I also emphasized the impact of holding higher cash balances as well as increases in underperforming and unencumbered assets.

David Palomar: Before five points in time dividend conferences, obviously do not reflect the impact of these factors our future earnings.

David Palomar: Or bright spire, our dividend remains unchanged from the prior quarter.

Michael Joseph Mazzei: Our current dividend coverage is 1.15 times based on adjusted EBITDA of 23 cents per share.

This is down from our previous quarters coverage of one four times based on our van adjusted <unk> of 28 cents per share.

Michael Joseph Mazzei: For further context.

Michael Joseph Mazzei: Our dividend coverage based solely on cash flow for this quarter is 1.05 times. This coverage ratio is based on first quarter cash flow earnings of $0.21 per share. In the previous quarter, the equivalent dividend coverage ratio was 1.25 times based on a per share cash flow of $0.25.

Michael Joseph Mazzei: Our dividend coverage based solely on cash flow for this quarter is 1.15 times.

Michael Joseph Mazzei: This coverage ratio is based on first quarter cash flow earnings of 21 five per share in.

David Palomar: In the previous quarter, the equivalent dividend coverage ratio was 125 times based on a per share cash flow of 25 cents.

Michael Joseph Mazzei: As we look ahead, our earnings will be buffered by achieving faster resolutions and monetization of lower earning assets, while the watch list loans or unencumbered assets, including all yeah.

Michael Joseph Mazzei: As we look ahead, our earnings will be buffered by achieving faster resolutions and monetization of lower earning assets, whether watch list loans or unencumbered assets, including REL. As I said earlier, we're striving to make headway on this portion of our portfolio to unlock the earnings power of this capital. However, in the coming quarters, we're also facing some potential headwinds on earnings that might not immediately affect distributable earnings but would affect cash flow.

David Palomar: As I said earlier, we're striving to make headway on this portion of our portfolio to unlock the earnings power of this capital.

Michael Joseph Mazzei: However, in the coming quarters, we're also facing some potential headwinds on earnings that might not immediately affect distributable earnings but would affect cash flow.

Michael Joseph Mazzei: Specifically this pertains to three of our older vintage office property equity investments.

Michael Joseph Mazzei: Specifically, this relates to three of our older vintage office property equity investors. The largest of the three is our Norway asset, which we have discussed often in the past. Each of these equity investments has some form of upcoming debt covenant test or maturity date within the next few quarters. For example, the Norway asset has a loaner value test in the second quarter of this year. Despite having passed last year's test, this year's hurdle will be more challenging.

Michael Joseph Mazzei: Larger of the three is our Norway asset, which we have discussed often in the past.

Michael Joseph Mazzei: Each of these equity investments have some form of upcoming debt Covenant test well maturity date within the next few quarters.

Michael Joseph Mazzei: For example, the Norway asset has a loan to value test in the second quarter of this year.

David Palomar: Despite having passed last year's test this year's hurdle will be more challenging.

Michael Joseph Mazzei: The other two office equity investments have debt maturity dates within the next nine months.

Michael Joseph Mazzei: The other two office equity investments have debt maturity dates within the next nine months. We will work with the lenders in an attempt to get extensions, but it's still too early to have certainty as to what those outcomes will be. The forthcoming debt events on these equity investments may result in lower going forward cash flow. Therefore, as I said, while there might still be distributable earnings recognized on these assets near term, the actual excess cash flow over debt service could be held by the lenders and not passed on to Brightspire. The cash flow generated by these three assets in aggregate is approximately $0.15 per share annually.

Michael Joseph Mazzei: We will work with the lenders in an attempt to get extensions, but its still too early to have certainty as to what those outcomes will be.

Michael Joseph Mazzei: The forthcoming Jennifer <unk> on these equity investments May result, in lower going forward cash flow. Therefore, as I said, while there might still be distributable earnings recognized on these assets near term actual S excess cash flow over that service could be helped by the lenders and not passed onto bright spot.

Michael Joseph Mazzei: Uh huh.

Michael Joseph Mazzei: The cash flow generated by these three assets in aggregate is approximately <unk> 15 per share annually.

Michael Joseph Mazzei: The underappreciated net equity NAVs for each, along with asset narratives, can be found in our supplemental. Importantly, as I mentioned earlier, these impacts could be offset by additional earnings pickup from monetizing Watchlist and REO assets. We do anticipate positive movement and having much more to say on a multiple of these assets over the next two quarters. However, there are also select watch list assets where developments can prove to be very fluid near-term as we work with our borrowers.

Michael Joseph Mazzei: The underappreciated net equity nav's for each along with asset narratives can be found in our supplemental.

David Palomar: Importantly, as I mentioned earlier these impacts could be offset by additional earnings pick up from monetizing watch list and real assets.

Michael Joseph Mazzei: We do anticipate positive movement and having much more to say on a multiple of these assets over the next two quarters.

Michael Joseph Mazzei: So were also swept watchlist assets, where developments can prove to be very fluid near term as we work with our borrowers.

Michael Joseph Mazzei: We will know much more by our next earnings call. Regarding the office equity investments I discussed, the existing debt on each, as well as our tenant's commitment to our Norway property, will be significant factors for valuation in the coming months. We, along with our Board of Directors, will continue to assess dividend coverage based on the progress, timing, and the net effect of these factors I have discussed. In closing, while both the capital markets and geopolitical events continue to be a challenge, we will continue to remain focused on what we can control in the near term and act prudently in managing the balance sheet and maintaining liquidity. And with that, I will now turn the call over to our president, Andy Witt.

Michael Joseph Mazzei: We will know much more by our next earnings call.

David Palomar: Regarding the office equity investments I discussed the existing debt on each as well as our tenant's commitment to our Norway property will be significant factors for evaluation in the coming months.

Andrew Elmore Witt: We along with our board of directors will continue to assess dividend coverages based on the progress timing and the net effect of these factors I have discussed it.

Andrew Elmore Witt: Clothing, while both the capital markets and geopolitical events continue to be a challenge. We will continue to remain focused on what we can control the near term and act prudently and managing the balance sheet and maintaining liquidity.

Andrew Elmore Witt: I will now turn the call over to our President Andy wet.

Andrew Elmore Witt: Thank you Mike Good morning, and thank you all for joining.

Andrew Elmore Witt: Thank you, Mike. Good morning, and thank you all for joining us.

Andrew Elmore Witt: During the first quarter, we received $114 million in prepayments.

Andrew Elmore Witt: During the first quarter, we received $114 million in repayments across four investments, which included our largest office loan for $88 million, one industrial loan for $20 million, and two partial repayments. We expect repayment activity to remain slow for the remainder of 2024, given tempered expectations for interest rates. Deployment for the quarter consisted of $14 million of future funding obligations. At the end of the quarter, remaining future funding obligations stand at $139.45 million of total outstanding commitments.

Andrew Elmore Witt: Our investments.

Andrew Elmore Witt: Our largest office.

Andrew Elmore Witt: 8 million, one industrial loan for $20 million.

Andrew Elmore Witt: So repayments, we expect repayment activity to remain slow.

Andrew Elmore Witt: 2024.

Andrew Elmore Witt: Expectations for interest rate relief.

Andrew Elmore Witt: Deployment for the quarter consisted of $14 million of future funding obligations.

Andrew Elmore Witt: The remaining future funding obligations stand.

Andrew Elmore Witt: 39 billion or 5% of total outstandings.

Andrew Elmore Witt: Subsequent to quarter end, we have to start.

Andrew Elmore Witt: Subsequent to Quarter End, we upsized one loan by $9 million to consolidate collateral related to a mixed-use asset in Pasadena, California. The original collateral consisted of a fully leased 94,000-square-foot office building with developable land. Upsizing alone provided the borrower with proceeds to complete the purchase of additional parcels of land previously under contract.

Andrew Elmore Witt: One nine.

Andrew Elmore Witt: 90 million to consolidated collateral related to a mixed use aspen.

Andrew Elmore Witt: So.

Andrew Elmore Witt: The original collateral consists of a fully leased 94000 square foot office building.

Speaker Change: Oh boy.

Andrew Elmore Witt: <unk> provided the borrower with proceeds to complete the purchase of additional parcels of land previously under contract.

Andrew Elmore Witt: Assembling the collateral under one lender was an important step towards protecting entitlements consisting of a 310-unit senior living development project. In terms of asset level updates, the San Jose Hotel loan borrower is continuing to market the property for sale and exploring refinancing alternatives. The loan remained current in April.

Andrew Elmore Witt: Assembling the collateral under one lender was an important step towards protecting entitled at 310 unit Senior living project.

Andrew Elmore Witt: In terms of the absolute level of days with San Jose Hotel loan borrower is continuing to market the property for sale.

Andrew Elmore Witt: Refinancing alternatives.

Andrew Elmore Witt: It remains for it.

Andrew Elmore Witt: Last quarter, we downgraded a Denver, Colorado multifamily loans, the low risk rating four to five and placed the loan on.

Andrew Elmore Witt: Last quarter, we downgraded a Denver, Colorado, multifamily loan from a risk rating of four to a five and placed the loan on non-accrual. During the quarter, in cooperation with the borrower, we marketed the property for sale. The marketing process demonstrated ample liquidity in the multifamily sector. There was substantial interest in the property, and it is currently under contract with a hard deposit. We anticipate the sale will close mid-year. On the REO side, the Washington, D.C. office property, which we took ownership of during the fourth quarter, is now under contract at our net asset value, and we anticipate finalizing the sale also mid-year. Turning to our watch list update.

Andrew Elmore Witt: On non accrual during the quarter, a cooperation with a borrower with market as the properties for sale the marketing process evidenced ample liquidity in the multifamily sector.

Andrew Elmore Witt: Initial interest in the property and it is currently under contract.

Andrew Elmore Witt: We anticipate the sale will close the deal.

Andrew Elmore Witt: On the audio side.

Andrew Elmore Witt: The Washington D C office property, which we took ownership during the fourth quarter is now under contract.

Andrew Elmore Witt: Asset value and we anticipate finalizing the sale also midyear.

Andrew Elmore Witt: Turning to our watch list during the first quarter, we added two investments for a total of $87 million.

Andrew Elmore Witt: During the first quarter, we added two investments for a total of $87 million. We added the $57 million Santa Clara, California, multi-family development loan to the watch list due to uncertainty associated with the upcoming maturity. This is the remaining collateral associated with a multifamily development loan, which was paid down by $51 million in June of 2022, concurrent with the release of a parcel from the collateral. Current market conditions have impacted the borrower's go-forward business.

Andrew Elmore Witt: The 57 million dollar Santa Clara, California multifamily development.

Andrew Elmore Witt: Watch list due to uncertainty associated with the upcoming maturity.

Andrew Elmore Witt: This is the remaining collateral associated with the multifamily development, well, which was paid down by $51 million in June of 2022.

Andrew Elmore Witt: The lease of a parcel from the collateral.

Andrew Elmore Witt: Current market conditions have impacted the borrowers go forward business plan.

Andrew Elmore Witt: We are in active dialogue with the borrower regarding alternative options for the remaining parts. In addition, we also downgraded a Miami, Florida, office loan. The collateral consisted of two buildings, and the borrower was pursuing a conversion to multifamily on one of the buildings. The borrower owned the adjacent parcel, and the plan was to consolidate the parcels in order to effectuate this redevelopment. We are approaching a final maturity.

Andrew Elmore Witt: We're in active dialogue with them.

Andrew Elmore Witt: Moreover, regarding alternative options.

Andrew Elmore Witt: First.

Andrew Elmore Witt: In addition, we are.

Andrew Elmore Witt: Also downgraded in Miami, Florida Office.

Andrew Elmore Witt: The collateral consisted of two buildings and the borrower was pursuing a conversion multifamily.

Andrew Elmore Witt: One of the buildings.

Speaker Change: Sure Jason.

Andrew Elmore Witt: And parcel.

Andrew Elmore Witt: Plan was to consolidate the parcels in order to effectuate this reads about.

Andrew Elmore Witt: We are approaching the final maturity it is unclear whether or not the borrower will be able to refinance the combined properties.

Andrew Elmore Witt: It is unclear whether or not the borrower will be able to refinance the combined properties. The lack of certainty on both of these investments has compelled us to move the investments to the watchlist from a risk rating of 3 to 4. As relates to the loan portfolio, as of March 31, 2024, excluding cash and net assets on the balance sheet, the loan portfolio is comprised of 85 investments with an aggregate carrying value of $2.8 billion and a net carrying value of $877 million, or 79% of the total investment portfolio. Our weighted average risk ranking remains flat quarter over quarter at 3.2.

Andrew Elmore Witt: Certainly.

Andrew Elmore Witt: These investments has compelled us to move the investments to the watch those risks.

Andrew Elmore Witt: Two four.

Andrew Elmore Witt: As it relates to the loan portfolio.

Andrew Elmore Witt: March 31 2024.

Andrew Elmore Witt: Cash and net assets on the balance sheet. The loan portfolio was comprised of 85 investments with an aggregate carrying value of $3 8 million.

Andrew Elmore Witt: And the net carrying value.

Andrew Elmore Witt: 77 billion.

Andrew Elmore Witt: Or 79% of the total investment portfolio.

Andrew Elmore Witt: Our weighted average risk rating remains.

Andrew Elmore Witt: It remains flat quarter over quarter, three point too yeah.

Frank Vito Saracino: The average loan size is $33 million. First mortgage loans constitute 97% of our loan portfolio, of which 100% are floating rates, and all of which have interest rate caps. The multifamily portion of our portfolio remains the largest segment, with 51 loans representing 54% of the loan portfolio, or $1.5 billion of aggregate carrying value. Office comprises 30% of the loan portfolio, consisting of 847 million of aggregate carrying value across 25 loans with an average loan balance of 34 million.

Andrew Elmore Witt: The average loan size is 33 billion.

Frank Vito Saracino: First mortgage loans constitute 97% of our loan portfolio of which 100% are floating rate and all of which have interest rate caps.

Frank Vito Saracino: The family portion of our portfolio remains the largest segment.

Frank Vito Saracino: 51 loans, representing 54% of the loan portfolio.

Frank Vito Saracino: $1 5 billion of aggregate carrying value.

Frank Vito Saracino: Office comprises 30% of the loan portfolio consisted of 847 million of aggregate carrying value across 25 loans with an average loan balance of $34 million.

Frank Vito Saracino: The remainder of our loan portfolio was comprised of 8% hospitality.

Frank Vito Saracino: The remainder of our loan portfolio is comprised of 8% hospitality, with mixed-use and industrial collateral making up the remainder. With that, I will turn the call over to Frank Saracino, our Chief Financial Officer, to elaborate on the first quarter results. Frank.

Frank Vito Saracino: Mixed use and industrial collateral, making up the remainder with that I will turn the call over to Frank Sorrentino, Our Chief financial officer to elaborate on the first quarter result, right.

Frank Vito Saracino: Thank you, Andy, and good morning, everyone. Before discussing our first quarter results, I want to mention that our first quarter 2024 Supplemental Financial Report is available in the Investor Relations section of our website. As Mike mentioned, for the first quarter, we generated adjusted DE of 29.7 million, or 23 cents per share. First quarter DE was $22.5 billion, or 17 cents per share. DE includes a specific preserve of the Denver, Colorado, multifamily load of approximately 7.1 million.

Frank Vito Saracino: Thank you Andy and good morning, everyone before discussing our first quarter results I wanted to mention that our first quarter 2020 for supplemental financial report is available on the Investor Relations section of our website.

Frank Vito Saracino: As Mike mentioned for the first quarter, we generated adjusted <unk> of $29 7 million or <unk> 23 per share.

Frank Vito Saracino: First quarter D E was $22 5 billion or 17 cents per share.

Frank Vito Saracino: They include a specific reserve on the Denver, Colorado multifamily loan of approximately $7 1 million.

Frank Vito Saracino: Additionally, we reported a total company gap net loss of $57.1 million, or $0.45 per share, which reflects the sequential increase in our CECL reserves. Quarter over quarter, total company gap netbook value decreased to $9.10 from $9.83 per share. Underappreciated book value also decreased to $10.67 from $11.35 per share. The change is mainly driven by an increase in our CECL reserves and partially offset by adjusted DE and an excess of dividends declared. I would like to quickly compare the first quarter adjusted distributable earnings of $0.23 versus the $0.28 recorded in the fourth quarter.

Frank Vito Saracino: Additionally, we reported total company GAAP net loss of $57 1 million or 45 per share, which reflects a sequential increase in our seasonal reserves.

Frank Vito Saracino: Quarter over quarter total company GAAP net book value decreased to $9.10 from $9 83 per share.

Frank Vito Saracino: Unappreciated book value also decreased to $10 67.

Frank Vito Saracino: From $11 35 per share.

Frank Vito Saracino: The change is mainly driven by an increase in our C. Some reserves and partially offset by adjusted D E in excess of dividends declared.

Frank Vito Saracino: I would like to quickly bridge the first quarter adjusted distributable earnings of 23 versus the 28 sales recorded in the fourth quarter. The change is driven by loan repayments non accrual loans and performance at our operating real estate portfolio.

Frank Vito Saracino: The change is driven by loan repayments, non-accrual loans, and performance at our operating real estate portfolio. Looking at reserves, our specific CECL reserves totaled 7.1 million and are related to the Denver, Colorado, multifamily loan. As Andy mentioned, this loan was downgraded to a five and four Q, and the underlying property is currently under contract with a hard deposit. However, during 1Q, no loans were downgraded to a 5. Our general CECL provision stands at 143.7 million or 488 basis points on total loan commitments and increased to 67 million from the prior quarter.

Frank Vito Saracino: Looking at reserves are specific see some reserves totaled $7 1 million and is related to the Denver, Colorado multifamily loans as Andy mentioned this one was downgraded to a five <unk> and the underlying property is currently under contract with a hard deposit.

Frank Vito Saracino: During once you no loans were downgraded to a thought.

Frank Vito Saracino: Our general seasonal provision stands at $143 7 million, a 488 basis points on total loan commitments, an increase of $67 million from the prior quarter. The increase in the general seasonal was primarily driven by economic conditions as well as specific inputs on certain loans.

Frank Vito Saracino: The increase in the general CECL was primarily driven by economic conditions as well as specific inputs on certain loans. Looking at our watch list loans, our one risk rank five loans represents 1% of total loan portfolio carrying value, and 11 loans equating to 18% of the total portfolio carrying value are risk-free. With that, we conclude our prepared remarks, and with that, we open it up for questions. Operator?

Frank Vito Saracino: Looking at our watch list loans are one risk ranked five one represents 1% of the total loan portfolio carrying value 11 loans equating to 18% of the total portfolio carrying value a rich Frank poor.

Frank Vito Saracino: This concludes our prepared remarks and with that let's open it up for questions operator.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star two if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for your question. Our first questions come from the line of Stephen Laws with Raymond James. Please proceed with your question.

Stephen Albert Laws: Like to ask a question. Please press star one on your telephone keypad.

Stephen Albert Laws: Confirmation tone will indicate your line is in the question queue.

Stephen Albert Laws: You May press Star two if you would like to remove your question from the queue.

Operator: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Operator: Our first questions come from the line of Stephen laws with Raymond James. Please proceed with your question.

Stephen Albert Laws: Hi, good morning. Mike, I may have been typing faster and should have been listening, but I wanted to touch base on the cashflow comment about the real estate. I think you said 15 cents is kind of the number that those three assets contribute, you know, looks like adjusted to sugar earnings. If I look, say, trailing 12 months, it clearly has over-earned by more than $0.15 on the dividend. So, you know, can you talk a little bit or make sure I'm clear as far as the coverage comments that it's just a little bit less coverage on the dividend, or maybe if you could, you know, speak to that.

Stephen Albert Laws: Hi, good morning.

Stephen Albert Laws: Mike I may have been typing faster than it should've been listening, but wanted to touch base back on the on the cash flow comment around the real estate.

Stephen Albert Laws: I think you said 15 cents as kind of the number that those three assets.

Stephen Albert Laws: Contribute you know it looks like adjusted distributable earnings you know what that looks like trailing 12 months clearly is as over earned up by more than 15 cents on the dividend. So you know can you talk a little bit of make sure I'm clear on is as far as the coverage comments that a it's just a little bit less coverage on the dividend or maybe if you.

Stephen Albert Laws: Could you speak to that.

Speaker Change: Right. Thank you some of the some of the coverage deterioration that we had came from various that nickel. So Tim from various sources that we can go through that.

Michael Joseph Mazzei: Great, thank you. Some of the coverage deterioration that we had came from various sources that nickel. So it came from various sources that we can go through the three kinds of places where that came from. So those are all small numbers, adding up to a nickel. But as we look forward, we really are, there are a lot of questions we see on these calls about it's not just about DE, it's about cash flow, and are companies paying out capital to sustain their dividends.

Michael Joseph Mazzei: Kind of places where that came from so those are all small numbers.

Michael Joseph Mazzei: Adding up to a nickel, but as we look forward.

Michael Joseph Mazzei: We really are there are a lot of there are a lot of questions. We see on these calls about it's not just about the it's about cash flow and our our companies paying out a capital to sustain the dividends. So we want to be very clear going backward, telling you what that cash flow coverage was in that cash flow coverage dropped.

Michael Joseph Mazzei: So we want to be very clear, going back and telling you what that cash flow coverage was. And that cash flow coverage drop is similar to the drop, the same drivers, if you will, as the dropping in DE coverage, dividend coverage. So we look out ahead, and we're seeing that there are certain events that while they may not affect actual DE, i.e., if you're getting cash trapped at an entity level with your lender, you're still getting that distributable earnings in your income.

Michael Joseph Mazzei: It was similar to the drop of the same drivers if you will as the dropping a and D E coverage dividend coverage.

Michael Joseph Mazzei: So when we look out ahead, we're seeing that there are there are certain events that while they may not affect actual D. E. I E. If you're getting cash trapped at a at an entity level with your lender you you're still getting that distributable earnings and your income, but we do recognize that they can affect cash and so that 15 cents was something that we want to make sure we're putting.

Michael Joseph Mazzei: But we do recognize that they can affect cash. And so that 15 cents was something that we want to make sure we put out there and telegraphed. Everyone knows about these assets. Everyone knows about the Norway asset.

Michael Joseph Mazzei: Out there in Telegraphing, everyone knows about these assets everyone knows about the Norway asset we pass its dividend tests last year, but we see this test is going to be more difficult. So we just wanted to make sure that we're ahead of that and that we know everyone is also focused on cash flow coverage and we want to make sure we earmarked that and as I said on the call. We we.

Michael Joseph Mazzei: We have other things that we're working on that will offset that it'll be a timing issue.

Michael Joseph Mazzei: We passed the dividend test last year, but we see that this test is going to be more difficult. So we just want to make sure that we're ahead of that. And we know everyone is also focused on cash flow coverage, and we want to make sure we earmark that. And as I said in the call, we have other things that we're working on that will offset that. It'll be a timing issue.

Michael Joseph Mazzei: With the equity investments you have you have a drop dead date certain that these events maturities.

Michael Joseph Mazzei: Covenant tests are going to happen.

Michael Joseph Mazzei: T U S assets those tests are going to be a maturity takes I should say you're going to be at the end of the year are already beginning of next year. So we will start working with the lenders there. So that those three things add up to the 15th we're talking about and hopefully what we're working on with the watch list.

Michael Joseph Mazzei: And resolutions well will offset that.

Michael Joseph Mazzei: With the equity investments, you have drop-dead dates certain that these events, maturities, and covenant tests are going to happen. The two U.S. assets, those tests are going to be maturity dates, I should say, are going to be at the end of the year or very beginning of next year. So we'll start working with the lenders there so that those three things add up to the 15 cents we're talking about. And hopefully, what we're working on with the watch list and resolutions will offset that.

Stephen Albert Laws: Yeah, no; I appreciate the clarity there. And that leads to my next question. You know, when I think about the Denver loan, you know, it's already on non-accrual. Now it's under contract for sale. You know, can you talk about whether there's financing for that? Will we see a pickup in net interest income? Is that debt repaid on sale? And similarly, the DC office at REO that expects to finalize the sale mid year?

Speaker Change: Yeah, No no I appreciate the clarity there and that leads to my next question you know when I think about the the Denver alone you know its already on non accrual are now its under contract for sale. You know can you talk about whether theres financing on that when we see a pick up in net interest income as that debt is repaid on sale and similarly.

Stephen Albert Laws: The D C office at Oreo, that's that expects to finalize the sale mid year, you know as that capital that that'll be recycled into new performing loans, that's accretive to earnings but can you talk about the potential lift from you know in the you know after that transaction is completed.

Stephen Albert Laws: You know, is that capital that'll be recycled into, you know, new performing loans? So that's accretive to earnings? Or can you talk about the potential lift from, you know, on the balance sheet after that transaction is completed?

Stephen Albert Laws: There were a lot of requests to as Andy said, we had so many bids on the the Denver multifamily assets. Many of them are requesting some sort of sell all effectively sell our even though were the lender a stapled financing both of those transactions the sale of the Denver multifamily and the sale of a D. C O R.

Michael Joseph Mazzei: There were a lot of requests. As Andy said, we had so many bids on the Denver multifamily assets. Many of them were requesting some sort of seller, effectively a buyer, even though the lender was stapled financing. Both of those transactions, the sale of the Denver multifamily and the sale of the D.C. REO, are both all cash. So there'll be no debt provided from us. And that kind of also indicates that it feels like there's a trough in the market where investors can come out and say, you know what, that's expensive, but this looks good on an all cash basis. OK. And so if you're getting transactions happening on an all cash basis, it is an indication that you're kind of bottoming out in some of these markets.

Michael Joseph Mazzei: All cash so there'll be no debt so far.

Michael Joseph Mazzei: Got it from us and that kind of also indicates that it feels like there's a trough in the market where investors can come out and say you know what that's expensive, but this looks on an all cash basis, okay, and so if you're getting transactions happening on an all cash basis as it is an indication that you're kind of bottoming out and in some of these are in some of these markets.

Speaker Change: And then I guess generally you know around portfolio leverage appetite for new investments you know as you look here to the end of the year do you think the the loan portfolio's flattish do you expect it to increase as you see opportunities kind of how do you expect new originations versus repayments to trend over the year.

Stephen Albert Laws: And then I guess generally, you know, around portfolio leverage appetite for new investments, you know, as you look here at the end of the year, do you think the loan portfolios are flattish? Do you expect it to increase as you see opportunities? Kind of how do you expect new originations versus repayments to trend over the year?

Stephen Albert Laws: We're going to drive this down before we drive it up so you know and.

Michael Joseph Mazzei: We're going to drive this down before we drive it up. So, you know, and that's really going to, we're going to have some payoffs, but it's really around the resolution of the watch list assets and some of the remaining REO there. We've been chopping wood on that watch list for quite a long time, and we're actually tired of talking about it as well.

Michael Joseph Mazzei: That's really going to come we are going to have some pay offs.

Michael Joseph Mazzei: It's really around the resolution of the watch list assets in some of the remaining Oreo that.

Michael Joseph Mazzei: We we've been shopping mode on that watch list for quite a long time, we're actually tired of talking about it as well.

Michael Joseph Mazzei: But we are gonna make headway. We think there are some assets on the watch list that are going to stick around and we see two assets there multifamily assets that look like we can upgrade them. We're waiting another quarter to make sure that those business plans are really on track before we do so so we probably could have done that this quarter, but we have to.

Stephen Albert Laws: But we are going to make headway. We think there are some assets on the watch list that are going to stick around. We see two assets there, multifamily assets that look like we can upgrade them. We're waiting another quarter to make sure that those business plans are really on track before we do so. So we probably could have done that this quarter, but we hesitated.

Stephen Albert Laws: We have another a multifamily asset that is the marketing process, our Phoenix asset I believe it's about 19 million that marketing process has started a we don't know if we're going to provide that on that.

Michael Joseph Mazzei: We have another multifamily asset. That is the marking process. A Phoenix asset. I believe it's about 19 million.

Michael Joseph Mazzei: That marking process has started. We don't know if we're going to provide debt on that. And, you know, the large hotel asset in San Jose. There's been some public chatter about that. We're not going to comment on it here, but that public chatter would indicate that things are underway there. We're going to wait patiently to see how that gets resolved. So we do think there's going to be some movement on the watch list, which is going to give us a decrease in assets but give us an increase in the amount of capital we'll have to work with.

Michael Joseph Mazzei: And you know I'm, a large hotel asset in San Jose there's been some public chatter about that we're not going to comment on it here, but that public charter would indicate that things are underway. There. We're gonna wait patiently to see how that gets resolved. So we do think there's going to be some movement on the watch list, which is going to give us a decrease in assets, but give us.

Michael Joseph Mazzei: An increase in the amount of capital will have to work with so it's going to happen sequentially, let's get that watchlist fixed.

Michael Joseph Mazzei: So it's going to happen sequentially. Let's get that watch list fixed. [inaudible] One other thing I'll add is, on the REO, we did sell the DC one, we could sell the Long Island City two assets that we have there, collectively roughly $70 million in capital, unencumbered, we are playing those through, we have a single user that is looking at those closely, and that would be significant enough, I'm not shorting anything, that would be significant enough to play those through and allow that to see where it goes, I'd say we're in the early innings there, but otherwise, if that falls down, then we'll take those to market and sell them where it is as is.

Michael Joseph Mazzei: And then utilize that capital to reinvest and it'll be a timing issue with regard to the trigger dates on the equity and what those effects on cash flow will be coupled or against how fast we can resolve and repatriate the capital on the watch list.

Michael Joseph Mazzei: The other thing I'll add is on the Oreo, we did sell the D. C. One you know we could sell the long island city to assets that we have they are collectively roughly $70 million in capital unencumbered.

Michael Joseph Mazzei: We are playing those through our we have we have a single user that is looking at those closely.

Michael Joseph Mazzei: And that would be significant enough I'm not shorting anything that would be significant enough to play those through and allow that to see where it goes I'd say, we're in the early innings, there, but otherwise if we if that falls down then we will take those to market and sell them, whereas others, but so to get back to your question. We think we're gonna trough a little.

Michael Joseph Mazzei: So, to get back to your question, we think we're going to trough a little bit more on the balance sheet, more focused on the watch list and REO before we start putting money out and growing the assets again.

Michael Joseph Mazzei: A bit more on the balance sheet more focus on the watch list and Oreo before we start putting money out and growing the assets again.

Stephen Albert Laws: Got it. I appreciate the comments this morning, Mike.

Speaker Change: Got it I appreciate the comments this morning.

Stephen Albert Laws: Thank you our next questions come from the line of Steve Delaney with citizens JMP. Please proceed with your question.

Steven Cole DeLaney: Thank you. Our next questions come from the line of Steve Delaney with Citizens JMP. Please proceed with your question.

Steven Cole DeLaney: Thanks. Good morning, everyone.

Steven Cole DeLaney: Thanks, Good morning, everyone. So look Mike I was going to ask you about new loan originations, but I'm glad I.

Steven Cole DeLaney: Scratch that you're I applaud the clarity.

Steven Cole DeLaney: <unk>.

Steven Cole DeLaney: Playing defense and being effective in managing your liquidity as opposed to.

Steven Cole DeLaney: So, look, Mike, I was going to ask about new loan originations, but I'm glad I didn't. I applaud the clarity about playing defense and being effective and managing your liquidity as opposed to, you know, putting a toe in the water as far as new loans. It sounds like to me, you know, the focus of the team is just better to be 100% focused on the near-term task rather than sort of ease into new lending. So I just want to applaud that.

Steven Cole DeLaney: Putting a toe in the water as far as new loans, it's kind of it sounds like to me you know.

Steven Cole DeLaney: Focus of the team, it's just better to be 100% focused on the near term task rather than just sort of ease into new lending. So I just want to applaud that I think that clarity and the focus of management is very helpful to us where we did that.

Steven Cole DeLaney: I think that clarity of the focus of management is very helpful to us where we sit. To that end, the boost in the CESA reserves. In your opening comments, you talked about the Fed's shift in policy. How impactful was FIRE for the long term, in terms of your thought as you were evaluating the assets and the need for you know boosting the reserve by 57 cents.

Steven Cole DeLaney: Houston the seats are reserved in your opening comments you talked about the fed shift in policy.

Steven Cole DeLaney: How impactful was.

Steven Cole DeLaney: Higher for longer in terms of your your thought as you were evaluating the asset and the AR and the need for boosting the reserve by 57 cents.

Michael Joseph Mazzei: Well, Steve, thank you for the kind words. You're very generous.

Speaker Change: We'll see thank you for the kind words, you very generous.

Speaker Change: I want to underscore that.

Michael Joseph Mazzei: I want to underscore that, you know, we are playing defense a little bit longer than we'd like, and we do recognize that we've seen others in our peer group make substantial headway on their watch list assets and are now focusing on our REO. And we've seen what the effect has been. And so, you know, we are really looking to accomplish the same. And so we've been working really hard on making progress there. I don't want to use the word dams, but we are.

Michael Joseph Mazzei: You know, we are playing defense, a little bit longer than we'd like.

Michael Joseph Mazzei: And we do recognize that we have seen others of our peer group.

Michael Joseph Mazzei: Make substantial headway on their watch list assets and now focusing on our Oreo.

Michael Joseph Mazzei: And we've seen that with what the effect is that than that.

Michael Joseph Mazzei: It has been and.

Michael Joseph Mazzei: And so you know we are really looking to accomplish the same and so we've been working really hard.

Michael Joseph Mazzei: We're making progress there I don't want to use the word the dams are gonna break, but we are we've been at this for a while we do think some things over the next quarter or two are really going to start to rear their heads in terms of resolutions around that and we do wanted to score that that.

Michael Joseph Mazzei: We've been at this for a while, and we do think some things in the next quarter or two are really going to start to rear their heads in terms of resolutions around that. And we do emphasize that that has had a big effect on some of our peers in terms of getting certainty around what's out there. And we recognize that, and we want to be forward with that. With regard to the CECL, we generally, listen. We saw the Fed reduce its commercial real estate index, which rolls into the TREP model. They did that right after our earnings last quarter. No surprise, this is longer for hire.

Michael Joseph Mazzei: Has had a big effect on our some of our peers in terms of getting certainty around what's out there and we recognize that and we want it they want to be followed with that with regard to the simple.

Michael Joseph Mazzei: We we generally listen.

Michael Joseph Mazzei: The fed reduce it's a it's it's it's commercial real estate index.

Michael Joseph Mazzei: Which rolls into the Trepp model they did that right. After our earnings last quarter no surprise this longer for higher we've heard US mentioned on other calls where you know it's wearing borrowers out.

Michael Joseph Mazzei: Many borrowers are looking at you know hey, if this gets cut in May my.

Michael Joseph Mazzei: We've heard this mentioned on other calls where it's wearing borrowers out. Many borrowers are looking at, hey, if this gets cut in May, my cap costs re-up for the second half of the year are going to look better. And now that's looking further away.

Michael Joseph Mazzei: My my cap costs, we up for the second half of the year is going to look better and now that's looking further away and so we're kind of recognizing those aspects in our model and what we're trying to be to lean more into it but we're not where we can win in and then also where markets are softer we're really trying to make sure that the model.

Michael Joseph Mazzei: And so we're kind of recognizing those aspects in our model, and we're trying to lean more into them. We're not, where we can. And then also, where markets are softer, we're really trying to make sure that the model is reflecting the softness in those markets. So we really, it's a combination of those three things. I can't say there won't be any more CECL coming, but we are. This rate environment persisting where it is did have a big effect on how we were looking at our model and the underlying trend.

Michael Joseph Mazzei: Reflecting.

Michael Joseph Mazzei: The softness in those in those markets. So we really it's a combination of those those three things I can't say there won't be any more seasonal coming but we are this rate environment persisting, where it is it did have a big effect on how we were looking at.

Michael Joseph Mazzei: At all modeling and the underlying trends.

Steven Cole DeLaney: I applaud that for being ahead of it. With respect to the buyback, I know that liquidity is important to be able to, you know, manage your bank financing, et cetera. Obviously, with the stock, you know, in the 60% of book range or so, and the peer group at 70 some percent of book, gosh, it would be great to, I guess my comment about not lending, I mean, heck. If I was in your seat, I think I'd rather buy back some stocks than make a new loan. But I applaud the board for putting the new authorization up, and we'll just watch to see how you're able to work that into your cash flow going forward.

Michael Joseph Mazzei: Applaud that for being for being ahead of it with respect to the buyback I know that liquidity is important to be able to you know.

Steven Cole DeLaney: Manage your bank financings etcetera, obviously with the stock you know in the 60% of book range or so.

Steven Cole DeLaney: Peer group at 70, some percent of book Gosh, It would be it would be great. So I guess my comment about not lending I mean heck.

Steven Cole DeLaney: If I was in your seat I think I'd I'd, rather buy back some stock and make a new one.

Steven Cole DeLaney: But I.

Steven Cole DeLaney: I I hope I applaud the board for for putting the new authorization up and we'll just.

Steven Cole DeLaney: Watch to see how you were able to work that into your cash flow going forward.

Michael Joseph Mazzei: Steve, I would say to you, I would say to you, arithmetically, you're correct. But you know, we're here for a reason. Let's just be blunt.

Steven Cole DeLaney: Oh shoot.

Michael Joseph Mazzei: I would say to you.

Michael Joseph Mazzei: I would say to you Arithmetically you're correct.

Michael Joseph Mazzei: But you know we're here for a reason, let's just be blunt the stock is where it is because of the uncertainty around that and our I think our first job is true.

Michael Joseph Mazzei: The stock is where it is because of the uncertainty around that. And I think our first job is to resolve that uncertainty. As I said, some in our peer group have done a good job at that. We need to follow that lead and make sure we're doing that. And right now, I think buying back some stock, you're right, it would have a bigger impact than making new loans. But letting capital get out of the firm isn't really helpful right now. We are trading where we are, and I think resolving those watchlist assets will pay us a bigger reward than buying them back.

Michael Joseph Mazzei: Resolve that uncertainty as I said some of our peer group have done a good job at that meeting to followed follow that lead in and make sure. We're where we're doing that and right now I think buying back some stock you're right. It would have a bigger impact than making new loans, but letting capital get out of the firm isn't really helpful. Right. Now we are trading where we are and I think resolving those watch list.

Michael Joseph Mazzei: Assets will pay us a bigger reward.

Michael Joseph Mazzei: And then than buying back the stock.

Steven Cole DeLaney: Well, we'll keep that in mind and maybe defer that for our modeling purposes until later this year after you've resolved some more of the problems. Thank you so much, Mike. Yes. We'd love to be in a position where we can do that, but right now, I think in the near term, it's exactly what I said, make headway on the watch.

Speaker Change: Well, we'll keep we'll keep that in mind and maybe defer that for modeling purposes until later this year. After year you resolve some some more of the problem. Thank you. So much money, yes, we'd love to we'd love to be in that we'd love to be in a position where we can.

Steven Cole DeLaney: Well, we can do that but right now I think near term. It's it's it's exactly what I said that make headway on the on the watch list.

Speaker Change: I appreciate it thank you.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Matthew Erdner with Jones Trading. Please proceed with your question. Hey, good morning.

Matthew Erdner: Our next questions come from the line of Matthew <unk> with Jones trading. Please proceed with your question.

Matthew Erdner: Thank you.

Matthew Erdner: Hey, good morning, guys. Thanks for taking the question on some of these watch list loans are you guys seeing a specific group of sponsors or borrowers.

Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. On some of these watch list loans, are you guys seeing a specific group of sponsors or borrowers kind of play out the same way?

Speaker Change: Play out the same way thank.

Matthew Erdner: Thank you.

Matthew Erdner: Okay. So I'll watch list is really divergence in terms of sponsors.

Michael Joseph Mazzei: Okay, so our watch list is really divergent in terms of sponsors, but I think what you're getting at politely is that there are deals, especially in the multifamily sector, where there have been syndicators, and I think those are the weaker deals. We're finding that the multifamily loans, where you have local owners with friends and family money that they could go back and tap, those are proving more resilient.

Michael Joseph Mazzei: I think what you're getting at.

Michael Joseph Mazzei: Politely as yet there are deals, especially.

Michael Joseph Mazzei: In the multifamily sector, where there've been syndicators and I think those are the weaker deals we're finding on the multifamily loans.

Michael Joseph Mazzei: Have local owners with friends and family money that they could go back and tap.

Michael Joseph Mazzei: And we're finding that where they're more highly syndicated, and you don't have that connectivity with your limiteds, that is where we're seeing more of a breakdown, and we're working more closely with those GPs. So really, it's whether they're syndicated, that's the big sensitive point, soft tissue in multifamily. In office, it doesn't matter. I mean, in office. It's the office that is the issue. And as we resolve the watch list, and I think this is going to be the case with everyone in our peer group, as we resolve the watch list, and we get through the multifamily, and there's plenty of liquidity out there for multifamily and hotel, as Andy indicated in his remarks, we think that the watch lists and, or the REO are going to start to gravitate more toward the office. But to answer your question, it's the syndicators in the multifamily sector that are probably the weakest link.

Michael Joseph Mazzei: Those are all proving more resilient and we're finding that where they're more highly syndicated and you don't have that connectivity with you are you are limited.

Michael Joseph Mazzei: That is where we're seeing more of a break down and we're working more closely with those with those G. P. So really it's whether the syndicated that's the pigs are sensitive point.

Michael Joseph Mazzei: Soft tissue and multi and multifamily and office it don't matter I mean, it office its offices the issue and as we resolve the watch list.

Michael Joseph Mazzei: This is gonna be the case with every one of our peer group as we resolve the watch list and we get through the multifamily and there's plenty of liquidity out there for multi on hotel as Andy indicated in his remarks, we think that the watch list and the Oreo, We're gonna start to gravitate more towards the office, but to answer your question. It's the syndicators.

Michael Joseph Mazzei: In the multifamily sector that'll probably the weakest tissue.

Speaker Change: Gotcha, Yeah. That's helpful. Thanks for the color there and then you know talking about one extension as you know are you guys open to continue making those and then I guess, what's the willingness on your guys' part to do that and then you know are the.

Michael Joseph Mazzei: The borrowers willing to do that as well.

Michael Joseph Mazzei: This willingness on all sides of the table to do that and and the willingness is really where it makes sense. There's only so much and so far we can go if if a borrower is showing that there they're really focused on the asset is the best operator for that asset.

Michael Joseph Mazzei: They're putting some level of skin back in the game than there's a willingness to absolutely work with those borrowers we're not here to pull the rug out from folks who are really committed to the assets and where we think they could do a better job at running them and we can or somebody else just buying them in getting a bed. So on both sides as a willingness if we think we've run out of road.

Michael Joseph Mazzei: And that's really the watch list loans that they'll be back out downgraded we felt like we've worked with those borrowers the economic situation out there with the higher for longer environment is really weighing on those assets and we are really questioning the ability to go forward with them and so that's why we downgraded we downgraded those loans.

Speaker Change: Yeah that makes sense. Thank you guys.

Michael Joseph Mazzei: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Michael Massi for closing remarks.

Matthew Erdner: Gotcha. Yeah, that's helpful. Thanks for the color there.

Matthew Erdner: And then, you know, talking about one extension, you know, are you guys open to continuing making those? And then, you know, I guess, what's the willingness on your guys' part to do that? And then, you know, is the borrower willing to do that as well?

Michael Joseph Mazzei: there's willingness on all sides of the table to do that and and and the willingness is really where it makes sense there's only so much and so far we can go if a borrower is showing that they're they're really focused on the asset they're the best operator for that asset and they're putting some level of skin back in the game then there's a willingness to absolutely work with those borrowers we're not here to pull the rug out from folks who are really committed to the assets and where we think they could do a better job at running them than we can or somebody else just buying them and hitting a bid so on both sides as a willingness if we think we've run out of rope and that's really the watchlist loans that got big that got downgraded we felt like that we've worked with those borrowers the economic situation out there with the higher for longer environment is really weighing on those assets and we're really questioning the ability to go forward with them and so that's why we downgraded we downgraded those loans

Matthew Erdner: Yeah, that makes sense. Thank you, guys.

Operator: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Michael Mazzei for closing remarks.

Speaker Change: Well, thank you for joining us today, and we look forward to seeing you in August and before we go and just wanted to give a shout out to Sarah becomes who was leaving a P. T. J. She joined the sector just a short time ago, but in that short time. She made a big impact we have a lot of respect for Sarah we wish her luck in her new role.

Michael Joseph Mazzei: Well, thank you for joining us today, and we look forward to seeing you in August. And before we go, we just want to give a shout out to Sarah Barcombs, who was leading BTIG. She joined the sector just a short time ago, but in that short time, she made a big impact. We have a lot of respect for Sarah, and we wish her luck in her new role. And again, thank you for joining us today. And we will see you in August. Thank you. This does conclude today's teleconference.

Michael Joseph Mazzei: And again, thank you for joining us today, and we will see you in August.

Michael Joseph Mazzei: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.

Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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