Q2 2024 Ares Commercial Real Estate Corp Earnings Call
Operator: Please stand by; we're about to begin. Good afternoon, ladies and gentlemen.
Operator: Standby, we're about to begin.
Please standby were about to begin.
Operator: Good afternoon, ladies and gentlemen, welcome to Ares Commercial Real Estate Corporation's second quarter earnings conference call. At this time, all participants are in a listen-only mode.
Operator: Welcome to Ares Commercial Real Estate Corporation's second quarter earnings conference call. At this time, all participants are in a listen-only mode. And as a reminder, this conference is being recorded on Tuesday, August 6, 2024. I will now turn the call over to Mr. John Stilmar, partner of Public Markets Investor Relations. Mr. Stilmar, please go ahead.
Speaker Change: Good afternoon, ladies and gentlemen, welcome to Ares commercial real estate Corporation's second quarter earnings Conference call. At this time, all participants are in a listen only mode and as a reminder, this conference is being recorded on Tuesday August 6th 'twenty 'twenty four I will now turn the call over to Mr. John still more.
Operator: And as a reminder, this conference has been recorded on Tuesday, August 6, 2024.
John Stilmar: I will now turn the call over to Mr. John Stilmar, Partner of Public Markets, Investor Relations.
Speaker Change: <unk> partner of public markets Investor Relations Mr. Still more please go ahead.
John Stilmar: Mr. Stilmar, please go ahead. Good afternoon. And thank you for joining us. Joining us on today's conference call.
John Stilmar: Good afternoon, and thank you for joining us on today's conference call. In addition to our press release and the 10Q that we filed with the SEC, we've put an earnings presentation under the investor resources section of our website at www.arescre.com.
Speaker Change: Good afternoon, and thank you for joining us on today's conference call.
John Stilmar: In addition to our press release and the ten queue that we filed with the SEC, we've put an earnings presentation under the Investor Resources section of our website at www.areacr.com.
Speaker Change: And to our press release, and the 10-Q that we filed with the SEC, which puts an earnings presentation under the Investor resources section of our website at Www Dot Ares CRE dotcom before.
John Stilmar: Before we begin, I want to remind everyone that comments made during the course of this conference call, as well as the webcast and the accompanying documents, contain forward-looking statements that are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, beliefs, exceeds, expects, intends, will, should, may, and similar such expressions. These forward-looking statements are based on management's current expectation of market conditions and management's judgment. These statements are not guarantees of future performance, condition, or results. They involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements, as a result of a number of factors, including those listed in FCC filings.
John Stilmar: Before we begin, I want to remind everyone that comments made during the course of this conference call, as well as the webcast, and the accompanying documents, contain forward-looking statements that are subject to risks and uncertainty. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar such expressions. These forward-looking statements are based on management's current expectation of market conditions and management's judgment.
Speaker Change: Before we begin I wonder mind, everyone that comments made during the course of this conference call as well as webcast and the accompanying documents contain forward looking statements are subject to risks and uncertainties. Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may and similar such expressions. These forward.
Speaker Change: Looking statements are based on management's current expectations of market conditions and management's judgment.
John Stilmar: These statements are not guarantees of future performance, conditions, or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statement as a result of a number of factors, including those listed in its FCC filing. Ares Commercial Real Estate Corp. assumes no obligation to update any such forward-looking statement.
Speaker Change: Statements are not guarantees of future performance condition or results and involve a number of risks and uncertainties.
Speaker Change: The company's actual results could differ materially from those expressed in the forward looking statements as a result of a number of factors, including those listed in its SEC filings.
John Stilmar: Ares Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements.
Speaker Change: Average commercial real estate Corporation.
Speaker Change: Assumes no obligation to update any such forward looking statements.
John Stilmar: During this conference call, we referred to certain non-GAAP financial measures. We used these as measures of operating performance, and measures should not be considered in isolation from, or as a substitute for, measures prepared in accordance with the generally accepted accounting principles. These measures may not be comparable to like-type of measures used by other companies.
John Stilmar: During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance, and these measures should not be considered in isolation from, or to substitute for, measures prepared in accordance with the Generally Accepted Accounting Principles. These measures may not be comparable to like-titled measures used by others.
Speaker Change: During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance and measures should not be considered in isolation from or as a substitute for measures prepared in accordance with the generally accepted accounting principles. These measures may not be comparable to like titled measures used by other.
Bryan Donohoe: Now I'd like to turn the call over to our CEO, Bryan Donohoe. Bryan?
Bryan Donohoe: Now I'd like to turn the call over to our CEO, Brian Dothel.
Speaker Change: Companies now I'd like to turn the call over to our CEO Bryan Donohoe, Brian.
Bryan Donohoe: Brian? Thank you, John.
Bryan Donohoe: Thank you, John, and good afternoon, everyone. Before we begin a review of our second quarter 2024 results, I wanted to take a moment to congratulate Tasek Youn as our new Chief Operating Officer and Jeff Gonzalez as our new Chief Financial Officer and Treasurer. Both of these appointments will be effective as of August 30th, 2024. As you know, both Pasek and Jeff have been long-term members of our management team, with Tasek having joined in 2012 and Jeff in 2013.
Bryan Donohoe: Good afternoon, everyone.
Bryan Donohoe: Thank you John and good afternoon, everyone.
Bryan Donohoe: Before we begin a review of our second quarter 2024 results, I wanted to take a moment to congratulate TASIC UNE as our new Chief Operating Officer and Jeff Gonzalez as our new Chief Financial Officer and Treasurer. Both of these appointments will be effective as of August 30, 2024. As you know, both TASIC and Jeff have been long-term members of our management team, with TASIC having joined in 2012 and Jeff in 2013. TASIC will continue to help execute our strategic goals, partnering with our debt capital markets teams to further bolster the strength of our balance sheet and working with our asset management team.
Speaker Change: Before we begin our review of our second quarter 2024 results I wanted to take a moment to congratulate Tae sik Yoon as our new Chief operating officer, and Jeff Gonzales, as our new Chief Financial Officer and Treasurer.
Speaker Change: Both of these appointments will be effective as of August 32024.
Speaker Change: As you know, but tae sik and Jeff has been long term members of our management team with taste like having joined in 2012 and Jeff in 2013.
Bryan Donohoe: Paycheck will continue to help execute our strategic goals, partnering with our debt capital markets team to further bolster the strength of our balance sheet and working with asset management. During the past 11 years, Jeff has worked closely with TASIC and our senior management team, serving in various finance roles, including as our controller since 2015. Jeff's financial expertise, long tenure at Acre, and deep understanding of our company and portfolio are highly valuable and make Jeff a natural choice as our next CFO.
Speaker Change: He said, we will continue to help execute our strategic goals partnering with our debt capital markets team to further bolster the strength of our balance sheet and working with our asset management team.
Bryan Donohoe: During the past 11 years, Jeff has worked closely with TASIC and our senior management team, serving in various financials, including as our controller since 2015. Jeff's financial expertise, long tenure at Acre, and deep understanding of our company and portfolio are highly valuable and make Jeff a natural choice as our next CFO.
Speaker Change: During the past 11 years, Jeff has worked closely with Tae sik, and our senior management team.
Jeff: Having in various finance roles, including as our controller since 2015.
Speaker Change: Jeff's financial expertise long tenure at acre and deep understanding of our company and portfolio are highly valuable and make Jeff and natural choice as our next CFO.
Bryan Donohoe: So, with that, let me give some brief comments on market conditions and how we believe these trends are impacting our financial results and positioning of our balance sheet. Commercial real estate market sentiment is modestly improving, driven by reduced interest rate expectations, future supply dynamics, and the amount of capital available to be invested from the sidelines. bond. While these positive dynamics are pointing to increased activity levels and a potential bottoming of CRE values more broadly, sales activities and financing of properties remains dynamic. These trends are impacting the timing of exits and resolutions, which in turn informs our strategy and impacts our near-term earnings.
Bryan Donohoe: So with that, let me give some brief comments on market conditions and how we believe these trends are impacting our financial results and the positioning of our balance sheet. Commercial real estate market sentiment is modestly improving, driven by reduced interest rate expectations, future supply dynamics, and the amount of capital available to be invested from the sidelines. While these positive dynamics are pointing to increased activity levels and a potential bottoming of CRE values more broadly,
Speaker Change: So with that let me give some brief comments on market conditions and how we believe these trends are impacting our financial results and positioning of our balance sheet.
Speaker Change: Commercial real estate market sentiment is modestly improving driven by reduced the interest rate expectations future supply dynamics and the amount of capital available to be invested from the sidelines.
Speaker Change: While these positive dynamics are pointing to increased activity levels and the potential bottoming of CRE values more broadly sale.
Bryan Donohoe: Sales activities and financing of properties remain dynamic. These trends are impacting the timing of exits and resolution, which in turn informs our strategy and impacts our near-term earnings. As one example, during the second quarter, the anticipated sale of a multifamily property securing one of our senior loans did not move forward as anticipated, given the uncertainty around the ultimate execution of the sales process. We put the loan on non-accrual and revised the risk rating from a 4 to a 5.
Speaker Change: Sales activities and financing of properties remains dynamic.
Speaker Change: These trends are impacting the timing of exits and resolutions, which in turn informs our strategy and impacts our near term earnings.
Bryan Donohoe: As one example, during the second quarter, the anticipated sale of a multi-family property securing one of our senior loans did not move forward as they anticipated. Given the uncertainty around the ultimate execution in the sales process, we put the loan on non-accrual and revised the risk rating from a 4 to a 5. However, subsequent to the end of the second quarter, the property has since gone under contract for sale with a hard deposit, increasing the likelihood of a near-term resolution.
Speaker Change: As one example, during the second quarter the anticipated sale of a multifamily property securing one of our senior loans did not move forward as anticipated.
Speaker Change: Given the uncertainty around the ultimate execution in the sales process, we put the loan on non accrual and revised the risk rating from a four to a five.
Bryan Donohoe: However, subsequent to the end of the second quarter, the property has since gone under contract for sale with a hard deposit, increasing the likelihood of a near-term resolution. Due to this volatility in the market, our strategy is to maintain significant levels of liquidity and to further reduce leverage.
Speaker Change: However, subsequent to the end of the second quarter. The property has since gone under contract for sale with a hard deposit increasing the likelihood of a near term resolution.
Bryan Donohoe: Due to this variability in the market, our strategy is to maintain significant levels of liquidity and to further reduce leverage. Our focus on strengthening our balance sheet in order to drive maximum flexibility in addressing our underperforming loans results in uneven and below potential levels of earnings. Upon resolution of these loans, we expect the company will be positioned to invest further and return to a higher level of profitability.
Speaker Change: Due to this variability in the market our strategy is to maintain significant levels of liquidity and to further reduce leverage.
Bryan Donohoe: Our focus on strengthening our balance sheet in order to drive maximum flexibility in addressing our underperforming loans results in uneven and below potential levels of earnings. Upon resolution of these loans, we expect the company will be positioned to invest further and return to a higher level of profitability. During the second quarter, we saw no negative migration in our risk-rated one to three loans.
Speaker Change: Our focus on strengthening our balance sheet in order to drive maximum flexibility in addressing our underperforming loans, resulting in uneven and below potential levels of earnings.
Speaker Change: Resolution of these loans, we expect the company will be positioned to invest further and returned to a higher level of profitability.
Bryan Donohoe: During the second quarter, we saw no negative migration in our risk-graded one to three loans. These 35 loans account for about three quarters of our total $2 billion loan portfolio. Furthermore, the underlying borrowers have committed approximately $140 million of capital over the last 12 months in support of the risk-graded three or better loans.
Speaker Change: During the second quarter, we saw no negative migration in our risk rated one to three logs. These.
Bryan Donohoe: These 35 loans account for about three quarters of our total $2 billion loan portfolio. Furthermore, the underlying borrowers have committed approximately $140 million of capital over the last 12 months in support of the risk-rated three or better loans. Now turning to our risk-rated four and five loans. We ended the second quarter with seven loans totaling approximately $477 million in outstanding. In the second quarter, we took title to a California office property that was previously financed by a $33 million risk-rated five loan and was on non-accrual at March 31, 2021. In conjunction with this, we recorded a realized loss of $16 million and classified the property as REO held for sale.
These 35 loans account for about three quarters of our total $2 billion loan portfolio.
Speaker Change: Furthermore, the underlying borrowers have committed approximately $140 million of capital over the last 12 months in support of the risk rated three or better wells.
Bryan Donohoe: Now, turning to our risk-graded four and five loans, we ended the second quarter with seven loans totaling approximately 477 million of outstanding principal. In the second quarter, we took title to a California office property that was previously financed by a $33 million risk-graded five loan and was on non-accrual at March 31, 2024. In conjunction with this, we recorded a realized loss of $16 million and classified the property as REO held for sale. Also, during the second quarter, three loans migrated from a risk-grading of four to a risk-grading of five. These loans are comprised of the multi-family loan I mentioned earlier, a $169 million office loan in North Carolina, and a $120 million senior loan in California.
Speaker Change: Now turning to our risk rated four and five lines. We ended the second quarter with seven loans totaling approximately $477 million of outstanding principal.
Speaker Change: In the second quarter, we took title to a California office property that was previously financed by a 33 million dollar risk rated five loan and its on non accrual at March 31 2024.
Speaker Change: In conjunction with des we recorded a realized loss of $16 million in classified the property is our REO held for sale.
Bryan Donohoe: Also, during the second quarter, three loans migrated from a risk rating of four to a risk rating of five. These loans are comprised of the multifamily loan I mentioned earlier. $169 million office loan in North Carolina and one $20 million senior loan in California. We are focused on addressing all three of these loans, which would significantly reduce the balance of risk-rated four and five loans. With that, I'll turn the call over to Tasek, who will provide more details on our second quarter earnings and capital position.
Speaker Change: Also during the second quarter three loans migrated from a risk rating of four two a risk rating of five.
Speaker Change: These loans are comprised of the multifamily loan I mentioned earlier $169 million office law in North Carolina.
Speaker Change: And $120 million senior loan in California.
Bryan Donohoe: We are focused on addressing all three of these loans, which would significantly reduce the balance of risk-graded four and five loans.
We are focused on addressing all three of these loans, which would significantly reduce the balance of risk rated four and five loves.
TASIC UNE: With that, I'll turn the call over to TASIC, who will provide more details on our second quarter earnings and capital position.
<unk>: With that I'll turn the call over to <unk>, who will provide more details on our second quarter earnings and capital position.
TASIC UNE: Thank you, Brian.
Tasek Youn: I, too, want to take a moment and congratulate Jeff Gonzalez as our new CFO. Jeff and I have worked together for many years, and we look forward to our continued partnership.
<unk>: Thank you Brian.
TASIC UNE: I, too, want to take a moment and congratulate Jeff Gonzalez as a new CFO. Jeff and I have worked together for many years and look forward to our continued partnership.
<unk>: I too wanted to take a moment and congratulate Jeff Gonzales as our new CFO Jeff.
Speaker Change: Jeff and I have worked together for many years and look forward to our continued partnership.
TASIC UNE: For the second quarter of 2024, we reported a gap net loss of approximately $6.1 million or $0.11 per comment share. Our Distribute Earnings Laws for the second quarter of 2024 was approximately $6.6 million or $0.12 cents for common share and was driven by a realized loss of $16.4 million or $0.30 for common share upon taking title to the California Office property as RIO that Bryan mentioned. Distribute earnings, excluding the realized loss of $16.4 million or $9.8 million or $18 cents for common share for the second quarter. Our overall seasonal reserve now stands at approximately $139 million, about $2 million less than the approximately $141 million reserve as of March 31, 2024.
Tasek Youn: For the second quarter of 2024, we reported a gap net loss of approximately 6.1 million, or 11 cents per common share. Our distributable earnings loss for the second quarter of 2024 was approximately $6.6 million, or $0.12 per common share, and was driven by a realized loss of $16.4 million, or $0.30 per common share, upon taking title to the California office property as an REO that Bryan mentioned. Distributable earnings, excluding the realized loss of $16.4 million, were $9.8 million, or $0.18 per common share, for the second quarter.
Jeff Gonzales: For the second quarter of 2024, we reported a GAAP net loss of approximately $6 1 million or 11 cents per common share.
Jeff Gonzales: Distributable earnings loss for the second quarter of 2024 was approximately $6 6 million or 12 cents per common share.
Jeff Gonzales: And was driven by a realized loss of $16 4 million or <unk> 30 per common share upon taking title to the California office property as Oreo that Brian mentioned.
Distributable earnings excluding the realized loss of $16 4 million or $9 8 million or 18 cents per common share for the second quarter.
Tasek Youn: Our overall CECL reserve now stands at approximately $139 million, about $2 million less than the approximately $141 million reserve as of March 31, 2024. This reduction was driven by a $15 million reversal of an existing reserve associated with the realization of a loss that was incurred on the California office property.
Jeff Gonzales: Our overall seasonal reserve now stands at approximately $139 million.
Jeff Gonzales: 2 million less than the approximately 141 million reserve.
Jeff Gonzales: As of March 31, 2024.
TASIC UNE: This reduction was driven by a $15 million reversal of an existing reserve associated with the realization of loss that was incurred and the California office property. The overall seasonal reserve of approximately $139 million at quarter end represents about 7% of the outstanding principal balance of our loan's health investment. 90% of our total seasonal reserve, or around $125 million, relates to our risk-rated four or five loans, representing approximately 26% of the $477 million in outstanding principal balance of risk-rated four and five loans' health investment.
Jeff Gonzales: This reduction was driven by a $15 million reversal of an existing reserve associated with the realization of loss that was incurred in the California office property.
Tasek Youn: The overall CSER reserve of approximately $139 million at quarter end represents about 7% of the outstanding principal balance of our loans, health, and 90% of our total CESA reserve, or around $125 million, relates to our risk-rated four or five loans, representing approximately 26% of the $477 million in outstanding principal balance of risk-rated four and five loans held for investors. As Bryan mentioned, we continue to take appropriate steps with our balance sheet to maintain financial flexibility in order to support our strategic priorities.
Jeff Gonzales: The overall CSR reserve of approximately 139 million at quarter end represents about 7% of the outstanding principal balance of our loans held for investment.
Jeff Gonzales: 90% of our total seats or reserve around 125 million relates to our risk rated four or five loans, representing approximately 26% of the $477 million an outstanding principal balance of risk rated four and five loans held for investment.
TASIC UNE: As Bryan mentioned, we continue to take appropriate steps with our balance sheet to maintain financial flexibility in order to support our strategic priorities. We believe that operating at lower leverage and maintaining higher levels of liquidity in the near term best positions accompany to maximize resolutions of under-performing loans and advance the long-term objectives of our company.
Jeff Gonzales: As Brian mentioned, we continue to take appropriate steps with our balance sheet to maintain financial flexibility in order to support our strategic priorities.
Tasek Youn: We believe that operating at lower leverage and maintaining higher levels of liquidity in the near term are the best positions to maximize resolutions of underperforming loans and advance the long-term objectives of our company. Finally, we declared a regular cash dividend of 25 cents per common share for the third quarter of 2024. The third quarter dividend will be payable on October 15th, 2024 to common stockholders of record as of September 30th, 2024.
Brian: We believe that operating at lower leverage and maintaining higher levels of liquidity in the near term.
This positions the company to maximize resolutions of underperforming loans and advanced our long term objectives of our company.
TASIC UNE: Finally, we declared a regular cash dividend of $0.25 per common share for the third quarter of 2024. The third quarter dividend will be payable on October 15, 2024, to common stockholders of record as of September 30, 2024.
Brian: Finally, we declared a regular cash dividend of 25 cents per common share for the third quarter of 2024.
Brian: Third quarter dividend will be payable on October 15th 2024 to common stockholders of record as of September 30th 2024.
Bryan Donohoe: And with that, I will turn the call back over to Bryan for some closing remarks.
Bryan Donohoe: And with that, I will turn the call back over to Bryan for some closing remarks.
Brian: And with that I will turn the call back over to Brian for some closing remarks.
Bryan Donohoe: Thanks, Tasek. As we've discussed, we are intently focused on executing on the goals of reducing our risk-rated four and five loans, which we believe will ultimately lead to the resumption of new investment activity, portfolio growth, and a higher state of profitability. In the near term, we're taking what we believe are the necessary steps towards bringing further certainty to the acre portfolio and book value.
Thanks Tae sik.
Bryan Donohoe: As we've discussed, we are intently focused on executing on the goals of reducing our risk-rated four and five loans, which we believe will ultimately lead to the resumption of new investment activity, portfolio growth, and a higher state of profitability. In the near term, we're taking what we believe are the necessary steps toward bringing further certainty to the acre portfolio and book value. As always, we appreciate you joining our call today, and we'd be happy to open the line for questions.
Brian: As we've discussed we are intently focused on executing on the goals of reducing our risk rated four and five loans, which we believe will ultimately lead to the resumption of new investment activity portfolio growth and a higher state of profitability.
Brian: In the near term, we're taking what we believe are the necessary steps towards bringing further certainty to the acre portfolio and book value.
Operator: As always, we appreciate you joining our call today, and we'd be happy to open the line for questions.
Brian: As always we appreciate you joining our call today and we'd be happy to open the line for questions.
Operator: Thank you, Mr. Donahoe.
Operator: Thank you, Mr. Donohoe. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone, and if you would like to withdraw your question, simply press star 2. We'll go first this afternoon to Shane Rick of J.P. Morgan.
Speaker Change: Thank you Mr Donahoe, ladies and gentlemen at this time, if you would like to ask a question. Please press star one on your telephone and if you would like to withdraw your question simply press Star two.
Operator: Ladies and gentlemen, at this time, if you would like to ask a question, please press star one on your telephone. And if you would like to withdraw your question, simply press star two.
Shane Rick: We'll go first this afternoon to Shane Rick of JP Morgan.
Speaker Change: Well first this afternoon to Shane Rick of J P. Morgan.
Shane Rick: Well, I don't know who that is, but look, we'll give this a try.
Shane Rick: Well, I don't know who that is, but we'll give this a try. Morning, everybody, or, you know. I guess I've been called worse.
Speaker Change: Well I don't know who that is but we'll give this a try good morning everybody.
Shane Rick: Good morning, everybody. Hey Rick. I guess I've been called worse. This is a question we've been asking to some of your peers as well. Conditions are changing very quickly. Outlook has changed radically just based upon the shape of the forward curve. Some of what dictates behavior is obviously fundamental, but a lot of it is sentiment driven. How quickly are you seeing behavior from borrowers change? They're outlook changing, they're willingness to work with you, resolve loans, and you know, try to hold on to properties just given the better expectations in terms of the forward curve.
Hey, Eric.
Speaker Change: Yeah.
Eric: I guess I've been called worse.
Shane Rick: Anyway, look, you know, and this is a question we've been asking some of your peers as well. Conditions are changing very quickly. Outlook has changed radically just based on the shape of the forward curve. Some of what dictates behavior is obviously fundamental, but a lot of it is sentiment-driven. How quickly are you seeing behavior from borrowers change, their outlook change, their willingness to work with you, resolve loans, and, you know, try to hold on to properties just given the better expectations in terms of the forward curve?
Speaker Change: Anyway.
Speaker Change: Look you know and this is a question we've been asking to some of your peers as well conditions are changing very quickly outlook has changed radically just based upon the shape of the forward curve.
Speaker Change: Some of what dictates behavior is obviously fundamental but a lot of it is sentiment driven are you. How quickly are you seeing behavior from borrowers change their outlook changing their willingness to work with you resolve loans and.
Speaker Change: You know try to hold on to properties just given the.
Speaker Change: Better expectations in terms of the forward curve.
Speaker Change: Okay.
Bryan Donohoe: Yeah, it's a great question, Rick, and I think the optimism is starting to crystallize with rates, but you really started to see that creep back into the market beginning around the holidays last year in Q4. And if you listen to the Ares Management investor presentation, I think we noted about 2X the real estate activity year-over-year increase. And I think that's reflective of some of that change in sentiment. And the rate movement certainly, I mean, we had pretty, pretty volatile markets over the last week, all of which may inert to the benefit of real estate values with the backdrop that we touched on in the prepared remarks of declining cost of funds and costs of capital alongside a supply story that starts to be more creative to long term values.
Bryan Donohoe: Yeah, it's a great question, Rick. And I think the optimism is starting to crystallize with rates, but you really started to see that creep back into the market beginning around the holidays last year in Q4. And if you listen to the Ares management investor presentation, I think we noted about 2x the real estate activity year over year increase, and I think that's reflective of some of that change in sentiment.
Speaker Change: Yeah, It's a great question, Rick and I think the optimism is starting to crystallize with rates, but you really started to see that creep back into the market beginning around the holidays last year in Q4.
Speaker Change: And if you listen to the Ares management.
Speaker Change: Investor presentation.
We noted.
Speaker Change: About two ex the real estate activity.
Speaker Change: Year over year increase and I think that's reflective of some of that change in sentiment and the rate movement certainly that we have.
Bryan Donohoe: And the rate movement, certainly, I mean, we had pretty volatile markets over the last week, all of which may be to the benefit of real estate values with the backdrop that we touched on in the prepared remarks of declining costs of funds and cost of capital alongside a supply story that starts to be more accretive to long-term values. I don't know that the last month or so of rate decline has yet fully crystallized in terms of the market, but the sentiment is out there, and the behaviors are changing in real time, and I think they should all move directionally positive.
Speaker Change: Pretty pretty volatile markets over the last week, all of which may endure to the benefit of real estate values with the backdrop that we touched on the prepared remarks of declining cost of funds and cost of capital alongside.
Speaker Change: A supply story that starts to be more accretive to long term value. So.
Shane Rick: So I don't know that the last month or so of rate decline has yet fully crystallized in terms of the market, but the sentiment is out there and the behaviors are changing in real time. And I think should all move directionally positive. Yeah, I appreciate that. Thank you very much.
Speaker Change: I don't know that the last month or so of rate decline has yet fully crystallized in terms of the market, but the sentiment is out there and the behaviors are changing in real time and I think.
Speaker Change: Should all move Directionally positive.
Shane Rick: Yeah, I appreciate that. Thank you very much.
Speaker Change: Got it yeah I appreciate that thank you very much.
Bryan Donohoe: Thanks, Rick.
Rick: Thanks, Rick.
Steven Laws: Thank you. We go next to Steven Laws of Raymond James now.
Speaker Change: Yeah.
Stephen Laws: We go next now to Stephen Laws of Raymond James. Hi, good afternoon. First, kind of want to think about, you know, it sounds like the portfolio is probably going to continue to run off a little bit and leverage it down, but that doesn't may or may not mean earnings go the same way.
Speaker Change: Thank you well go next to Stephen laws of Raymond James.
Steven Laws: Hi, good afternoon. First, I kind of want to think about, you know, it sounds like the portfolio is probably going to continue to run off a little bit and leverage itself down, but that may or may not mean earnings go the same way. So, as I think about when distributable earnings X losses are going to draw down, you know, can you talk about the things that will move the needle there, whether it's the financing on non-accrual assets, potentially, you know, new loans to help facilitate a resolution, you know, kind of how do we think about the earnings trough, you know, even given a declining portfolio size?
Stephen Laws: Hi, good afternoon.
Stephen Laws: First kind of want to think about it sounds like the portfolio is probably going to continue to run off a little bit and leverages down but that does that may or may not mean earnings go the same way. So as I think about when distributable earnings ex losses are going to trough.
TASIC UNE: So as I think about when the trivial earnings X losses are going to draw off, you know, can you talk about the things that will move the needle there, whether it's the financing on a cool assets, potentially, you know, new loans to help facilitate a resolution. You know, kind of how do we think about the earnings trough, you know, even given a declining portfolio size? Sure. Thanks very much for your question, Stephen. That's a great question in terms of, you know, what are the drivers of our current earnings? Certainly, as Brian mentioned, and as we have mentioned, you know, in our remarks for this call and in part calls, you know, we've been very purposeful in maintaining financial flexibility.
Speaker Change: Can you talk about the things that will move the needle there whether it's the financing all non accrual assets potentially you know new loans to help facilitate a resolution.
Speaker Change: You know kind of how do we think about the earnings trough, even given a declining portfolio size.
John Stilmar: Sure. Thanks very much for your question, Steven. John, that's a great question in terms of, you know, what are the drivers of our current earnings? Certainly, as Bryan mentioned, and as we have mentioned in our remarks for this call and in part calls, we've been very purposeful in, you know, maintaining financial flexibility. You know, we've been very purposeful in delevering the balance sheet. We've been very purposeful in making our overall asset size smaller, as well as maintaining higher levels of liquidity.
Speaker Change: Sure.
Speaker Change: Thanks very much for your question Steven.
Speaker Change: That's a great question in terms of what are the drivers of our current earnings.
Certainly as Brian mentioned and as we have mentioned.
In our remarks.
Speaker Change: For this call and in prior calls, we've been very purposeful and maintaining financial flexibility.
TASIC UNE: You know, we've been very purposeful in delivering the balance sheet. We've been very purposeful in, you know, in making our overall assets, I smaller, as well as maintaining higher levels of liquidity. All of that has obviously had its impact on earnings. The other thing that has had a big impact on earnings are the number of loans that we put on non-accrual, including, for example, putting on non-accrual this $97.5 million multi-family loan that Brian mentioned in our call. Each of those activities obviously has a big movement in our earnings, but as we said, as we continue to resolve these four and five risk-graded loans, and we're able to either pay down debt associated with those assets, since many of those assets are in non-accrual, you know, we're not recognizing interest income from those.
Speaker Change: We've been very purposeful in de levering the balance sheet, we've been very purposeful.
Uh huh.
Speaker Change: Making our overall asset size smaller as well as maintaining higher levels of liquidity all of that has obviously had its impact on earnings.
John Stilmar: All of that has obviously had its impact on earnings. The other thing that has had a big impact on earnings is the number of loans that we put on non-accrual, including, for example, putting this $97.5 million multifamily loan that Bryan mentioned in our call on non-accrual. Each of those activities obviously has a big movement in our earnings. But as we said, as we continue to resolve these four and five risk-rated loans, and we're able to either pay down debt associated with those assets, since many of those assets are in non-accrual, you know, we're not recognizing interest income from those. But as we resolve these risk-rated four and five loans and we pay down debt, we potentially utilize that cash for other purposes, again, I think that can start to have a positive impact on our business.
Speaker Change: The other thing that has had a big impact on earnings or the number of loans that we put on non accrual, including for example, putting on non accrual there is $97 $5 million multifamily loan.
Speaker Change: I mentioned in our call each of those activities, obviously has a big movement in our earnings but as we said as we continue to resolve these four and five risk rated loans.
Speaker Change: And we're able to either pay down debt associated with those assets.
Speaker Change: Many of those assets are in non accrual.
Speaker Change: Recognizing interest income from those.
TASIC UNE: But as we resolve these risk-graded four and five loans, and we pay down debt, we potentially utilize that cash for other purposes. Again, I think that can start to have a positive impact on earnings. I think one of the things that Bryan mentioned is that, you know, we do expect to have uneven earnings, you know, as we work through, you know, our strategic plan. Our current earnings, as Bryan also mentioned, are below potential levels of earnings. The earning net interest margin that, you know, we will be able to stabilize and increase our earnings, kind of go forward basis.
Speaker Change: But as we resolve these risk rated four and five loans and we pay down debt.
Speaker Change: We potentially utilize that cash for other purposes again, I think that can start to have a positive impact on earnings.
Speaker Change: One of the things that Brian mentioned is that we do expect to have uneven earnings as we work through our strategic plan. Our current earnings as Brian also mentioned are below potential levels of earnings.
Brian: So your question is a great. One I do think there is a lot of different things that are going to move the earnings.
Brian: And we're hopeful that as we resolve these loans and get acre back into the business of investing.
Brian: Investing in new loans and.
Brian: Earning net interest margin.
Brian: We will be able to stabilize and increase our earnings on a go forward basis.
TASIC UNE: Great, and to follow up on that, you know, the current, you know, if you've declared the dividend for Q3 and the current run rate annualized is about a 9.5% return on book value, you know, you still feel comfortable with that as you look at longer term earnings potential portfolio, you know, on a run rate earnings basis. Yeah, you know, I think, you know, our board declared the 25 cent dividend for the third quarter, and that was based upon, you know, a obviously review of our current financial position, our balance sheet, the outlook. But, as we said, you know, we do think again, we will have some unevenness in our earnings based upon the strategic activities that we're pursuing.
Speaker Change: Great and to follow up on that.
Speaker Change: We declared the dividend for Q3 and the current run rate annualized it's about a nine 5% return on book value.
Speaker Change: Do you still feel comfortable with that if you look at longer term earnings potential of the portfolio.
Speaker Change: Run rate earnings basis.
Speaker Change: Yes.
Our board declared a 25 cent dividend for the third quarter and that was based upon.
Speaker Change: Obviously, a review of our current financial position our balance sheet.
Speaker Change: Outlook, but as we've said we do think again, we will have some unevenness in our earnings based upon.
Speaker Change: The strategic activities that we're pursuing.
TASIC UNE: As always, the markets will also impact our earnings going forward in terms of, you know, the commercial real estate market in terms of interest rate, other macroeconomic factors. So I think our board will, you know, continue to evaluate our dividends on a quarter-by-quarter basis, take all of this into consideration. You know, as we said, you know, we do believe that the market is, you know, variable right now, both in terms of certainty and timing. So we will, you know, we'll continue to evaluate our dividend, and the board will make these decisions on a quarter-by-quarter basis.
Speaker Change: As always the markets will also impact our earnings going forward in terms of the <unk>.
Speaker Change: Commercial real estate market in terms of interest rate other macroeconomic factors. So I think our board will continue to evaluate our dividends on a quarter by quarter basis take all of business consideration.
Speaker Change: As we've said we do believe that the market is variable right now both in terms of certainty and timing.
Speaker Change: So we will we will continue to evaluate our dividend and the board will make these decisions on a quarter by quarter basis.
TASIC UNE: Great, and then last questions for me regarding the new five rated multi-family asset that went on on a cool. I guess two parts, how much did the, how much interest income did it contribute in Q2? And then, you know, assuming the sale that's under contract now, how much of a realized loss should we expect to flow through the third quarter to several earnings? Sure, so for the second quarter, you know, we did not recognize any income, any interest income from this multi-family loan. So it was on non-equival for the entirety of the second quarter. As you can see, sort of one indicator of, you know, but, you know, we did actually receive interest income again, but we did not recognize it as interest income.
Speaker Change: Great and then.
Speaker Change: Last question for me regarding the new five rated.
Speaker Change: Multifamily asset that went on non accrual.
Speaker Change: I guess two parts how much did the how much interest income did it contribute in Q2.
Speaker Change: And then you know assume.
Speaker Change: I mean, the sale, but it's under contract now.
How much of a realized loss should we expect to flow through the third quarter distributable earnings.
Speaker Change: Sure.
Speaker Change: So for the second quarter, we did not recognize any income any interest income from multifamily loan.
Speaker Change: So it was on non accrual for the entirety of the second quarter.
Speaker Change: As you can see sort of one indicator of but we did actually receive interest income again, but we did not recognize it as interest income.
TASIC UNE: We did it as cost recovery. And so one thing you can see is that the caring value of this loan did go down from, you know, from the outstanding principal balance to its caring value by about two million. So that gives you an approximation of, you know, how much interest income was received but not recognized as revenue or income. And then in terms of, you know, the loss we, you know, potentially could recognize, I think if you look at our 10-Q, you'll see that, you know, we have a about a six and a half million dollar CSO reserve against this multi-family loan.
Speaker Change: We did it as cost recovery.
Speaker Change: And so one thing as you can see is that the carrying value of this loan.
Speaker Change: Did go down from.
Speaker Change: From the outstanding principal balance to its carrying value.
Speaker Change: About $2 million, so that gives you an approximation.
Speaker Change: How much interest income was received but not recognized as revenue or income.
And then in terms of the loss we.
Speaker Change: Potentially it could recognize I think if you look at our 10-Q, you'll see that we have a about a $6 $5 million seasonal reserve against theirs multifamily loan.
TASIC UNE: Again, just given the sensitivity of it being under contract, I don't think we should be more specific. All of that happened, you know, post-Poder end, but as of 630, you can see we had about a 6.5 million Cesar Reserve against his multi-family law.
Speaker Change: Again, just given the sensitivity of it being under contract I don't think we should be more specific all of that happened post quarter end, but as of 630, you can see we had about a $6 5 million seats a reserve against this multifamily loans.
TASIC UNE: Great.
TASIC UNE: Appreciate the comments today, Bryan and Tasek; appreciate it. Great.
Speaker Change: Great I appreciate the comments, Brian It takes I appreciate it.
TASIC UNE: Thank you, Steven.
Steven: Okay. Thank you Steven.
Jason Sabshon: We go next now to Jade Rahmani at KBW. Hi, this is actually Jason Sabshon on for Jade.
Steven: Thank you well go next now to Jade Rahmani at K B W.
Yeah.
Steven: Hi, This is actually Jason section on for Jade.
Jason Sabshon: What dollar value of RIO do you ultimately expect and where do you think book value per share might trough? Sorry, I had a tough time hearing the beginning of that question. Oh yeah, I said, um, what dollar, what dollar value of RIO do you ultimately expect, and where do you think book value per share might trough? So if I understand the first part of the question, it's how much RIO ultimately do you expect to see within the portfolio? Yes. I think it's tough to predict. Obviously, we have active dialogue with each of our borrowers, and the primary charge of the company is to work through those discussions. To the extent that we're seeing value added by the sponsor, their operation, we're financially, we'd like to keep everybody in their natural seat.
Jason section: What dollar value of our you know do you ultimately expect and where do you think book value per share might trough.
Steven: Okay.
Speaker Change: Hi, I had a tough time hearing at the beginning of that question.
Speaker Change: Oh, Yeah I said.
Speaker Change: What dollar what dollar value of Oreo do you ultimately expect where do you think book value per share might trough.
Speaker Change: Okay. So if I understand the first part of the question. It's how much RVO ultimately do you expect to see within the portfolio.
Steven Laws: So if I understand the first part of the question, it's, How much REO, ultimately, do you expect to see within the portfolio? Yes.
Speaker Change: Yes.
Speaker Change: I think it's tough to predict obviously, we have active dialogue with each of our borrowers and the primary charge of of the company is to work through those discussions and.
To the extent that we're seeing value added by the sponsor either operationally or financially we'd like to keep everybody in their in their natural seat there.
Bryan Donohoe: There are situations where we do find that we, as a large operator of real estate, can add significant value in certain situations, and obviously those are times when we will step in to those assets. I think that's an important arrow available to us. So it would be tough to put a finite point on the amount, but it's something that, to the extent we do step in, you will likely see a student for a short duration of time as we stabilize assets and return them to, I'll say, rightful ownership and the equity side of the lecture.
Speaker Change: There are situations, where we do find that we as a large operator of real estate can add significant value in certain situations and obviously those are times when we will step in to those assets and I think thats, an important arrow available to us.
Speaker Change: It would be tough to put a finite point on on the amount, but it is something that to the extent, we do step back and you will likely see us do it for a short duration of time.
Speaker Change: As we stabilize assets and return them to.
Speaker Change: I'll say rightful ownership in the equity side of the ledger.
Speaker Change: Okay.
Jason Sabshon: Great.
Steven Laws: Great, thank you. And as a follow-up question, what would drive migration from risk four to five in some loans? And are there any loans in particular that you're monitoring more closely?
Jason Sabshon: Thank you.
Speaker Change: Great. Thank you and as a follow up.
TASIC UNE: And as a follow-up, what would drive migration from risk four to five in some loans, and are there any loans in particular that are monitoring more closely? I'd say I'll let TASIC walk through some of the technical components of risk rating definition, but our asset management team is very well built out and our monitoring is applied to every single asset in the portfolio, taking into account both financial results, borrowers, sentiment, interest rate, environment, and the like. So all of the factors that would come through that viewpoint are taken into account as we think through those risk ratings and TASIC. Maybe you can just give the five definition.
Speaker Change: What would drive migration from risk four to five and some loans and are there any loans in particular that you're monitoring more closely.
Speaker Change: Okay.
Speaker Change: Say ill, let tae sik walk through some of the technical components of risk rating definition, but.
Bryan Donohoe: Our asset management team is very well built out, and our monitoring is applied to every single asset in the portfolio, taking into account both financial results, borrower sentiment, interest rates, environment, and the like. So all of the factors that would come through that lens are taken into account as we think through those risk ratings. And, Tasek, maybe you can just give the five definitions.
Speaker Change: Our asset management team is very well built out and are monitoring is applied to every single asset in the portfolio taking into account both financial results borrower sentiment interest rate.
Speaker Change: Environment and the like so.
Speaker Change: All of the factors that would come through that that viewpoint are taken into account as we think through those risk ratings and tastes. If maybe you can just give the five.
Speaker Change: Definition.
Tasek Youn: Yeah, again, I think that, you know, when you kind of look through our public disclosures, you'll see some more definitive definitions of what our risk ratings entail. So I would encourage you to look at that.
TASIC UNE: Yeah, again, I think that when you kind of look through our public disclosures, you'll see some more definitive definitions of what our risk ratings entail. I would encourage you to look at that, but maybe just summarize and try to address your question of what would drive a four versus five. Again, there's a multitude of factors, but some of the factors would include the certainty and timing. So, for example, if you have a loan that doesn't mature for two years versus a loan that has already matured or has a very short term maturity, you know, the obviously the shorter term maturity would increase the likelihood of a potential event.
Speaker Change: Yeah.
Speaker Change: Again, I think that.
Speaker Change: Can you kind of look through our public disclosures.
Speaker Change: Youll see some more definitive.
Speaker Change: Definitions of what our risk ratings and <unk>. So I would encourage you to look at that.
Tasek Youn: But, you know, maybe just to summarize and try to address your question of, you know, what would drive a four versus five. Again, there's a multitude of factors, but some of the factors would include kind of certainty and timing. So, for example, if you have a loan that doesn't mature for two years versus a loan that has already matured or has a very short-term maturity, obviously, the shorter term maturity would increase the likelihood of a potential event.
Speaker Change: So maybe just summarize and try to address your question of <unk>.
Speaker Change: What what would drive a four versus five again, there is a multitude of factors, but some of those factors would include kind of certainty.
Speaker Change: And and timing. So for example, if you have a loan that doesn't mature for two years versus alone that has already matured or has a very short term maturity.
Speaker Change: Obviously, the shorter term maturity.
Increase the likelihood of a potential event and that would be factored in as well as the likelihood of a loss.
TASIC UNE: And that would be factored in as well as the likelihood of a loss. So it's really a combination of a multitude of factors, but I would say again, the timing and certainty of loss, as that increases, you know, there's potential migration, therefore, from a four to a five.
Tasek Youn: And that would be, you know, factored in as well as, you know, the likelihood of a loss. So, it's really a combination of a multitude of factors, but I would say, again, the timing and certainty of laws, as that increases, there's potential migration, therefore, from a 4 to a 5.
Speaker Change: So it's really a combination of a multitude of factors, but I would say again, the timing uncertainty of loss as that increases.
Speaker Change: There is potential migration, therefore from a four to five.
TASIC UNE: Thank you.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Will Mass: We'll go next now to Doug Harter at UBS. Thanks.
Doug Harter: We'll go next to Doug Harter at UBS.
Speaker Change: Well go next now to Doug Harter at UBS.
Will Mass: Hi, this is actually Will Mass on for Doug today. I actually have a similar question on credit migrations the last one. I was hoping you could walk us through your compensable and the current pace of credit migration, just looking at balancing resolutions versus the development of new problem assets going forward. That's a good question. I think we touch on in our remarks in our first question there around the overall market sentiment. If you look at the scale of our portfolio relative to the entire real estate industry, we're a very small portion of that. The positive sentiment is certainly the right backdrop and a backdrop we're appreciative of having had a tumultuous 24-odd months here.
Thanks, Hi, this is actually will mask on for Doug today actually had a similar question on credit migration the last one I.
Will Mask: I was hoping you could walk us through your confidence level in the current pace of credit migration, just looking at balancing resolutions versus development of new problem assets going forward.
Speaker Change: Yes, it's a good question I think.
Speaker Change: We touched on in our remarks, and our first question there around the overall market sentiment.
Speaker Change: If you look at the scale of our portfolio relative to the.
Bryan Donohoe: The entire real estate industry, right? We're a very small portion of that. So the positive sentiment is certainly the right backdrop and a backdrop we're appreciative of having had a tumultuous 24-odd months here. You know, I think we're seeing stability in the underlying fundamentals of the assets. I think, as a catalyst, the change in rates is making it more likely for borrowers to continue to invest in their assets, just that change in the cost of funds.
Speaker Change: The entire real estate industry right, we're a very small portion of that so.
Speaker Change: The positive sentiment is certainly the right backdrop in a backdrop, where appreciative of having had a tumultuous 24 odd months here.
Bryan Donohoe: I think we're seeing stability in undergoing fundamentals of the assets. I think as a catalyst, the change in rates is making it more likely for borrowers to continue to invest in their assets, just that change in the cost of funds. As we touched on, no migration from the one to three assets and small migrations within the four and five, and we're certainly focused on resolving those appropriately in the near term. I think the backdrop is supportive of a continued stability in the portfolio. Okay, great. Thank you.
Speaker Change: I think we're seeing stability in the underlying fundamentals of the assets.
Speaker Change: <unk> as a catalyst to change in rates is making it more likely for borrowers to continue to invest in their assets just that change in the cost of funds. So.
Bryan Donohoe: So, as we touched on, no migration from the one to three assets and small migrations within the four and fives. And we're certainly focused on resolving those appropriately in the near term. So I think the backdrop is supportive of continued stability in the portfolio.
Speaker Change: As we touched on no migration.
Speaker Change: The 1% to three assets.
Speaker Change: And small migrations within the four and five.
Speaker Change: And we're certainly focused on resolving those appropriately.
Speaker Change: In the near term so.
Speaker Change: The backdrop is supportive of continued stability in the portfolio.
Doug Harter: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Operator: Thank you. And just a reminder, ladies and gentlemen, call star one, please, for any further questions today. We'll go next to Chris Muller with Citizens JMP.
Operator: Just a reminder, ladies and gentlemen: Star One, please, for any further questions today.
Speaker Change: Thank you and just a reminder, ladies and gentlemen star one please for any further questions today over the next now to Chris Muller with citizens JMP.
Chris Muller: What would next mount to Chris Muller with Citizens' JMP?
Chris Muller: Hi, guys. Thanks for taking the questions, and congrats to TASIC and Jeff on the new roles. So I guess my question is, what would it take for you guys to get back on offense? Is it more working through some of the problem loans, or is it more Fed and Fed them in driven? And do you think that could be a back half of a year type thing, or more a 2025 type of that? Yeah, good question, Chris. I think ultimately, as you saw and as you heard, there remains some uncertainty out there, and the unevenness of the earnings profile is such that it keeps us thinking through not out of the woods yet, but certainly starting to see additional light come through.
Chris Muller: Hey, guys. Thanks for taking the questions and congrats to Tae sik and Jeff on the new roles.
Chris Muller: So I guess my question is what would it take for you guys to get back on offense is it more walking through some of the problem loans.
Chris Muller: Or is it more fed and sediment driven and do you think that could be back half of the year type thing or more of a 2025 type of that.
Chris Muller: Yeah, good question, Chris. I think, ultimately, we're
Chris Muller: Yes. Good question, Chris I think ultimately we will.
Speaker Change: As you saw and as you heard there is there remains some uncertainty out there in the unevenness of of the earnings profile is such that it keeps us thinking through not out of the woods, yet, but certainly starting to see additional light come through and I think that stability I mentioned on the prior answer.
Bryan Donohoe: And I think that that stability I mentioned on the prior answer is a part of that. But we've got a team that is at the ready to go on offense. We're seeing increased transaction activity broadly in the market. So we're excited by the prospects of getting back out there, but we want to make sure that we're doing so with sound footing. So the focus will remain on resolving those assets, bringing additional clarity to the book. And then we have a team that's, as I said, ready to go once we've brought that clarity to our stakeholders.
Speaker Change: Part of that.
Speaker Change: Like we've got a team that is at the ready to go on offense, we're seeing increased transaction activity broadly in the market. So we're excited by the prospects of getting back out there, but we want to make sure that we're doing so with sound footing. So the focus will remain on resolving those assets, bringing additional.
Speaker Change: Clarity to the book.
Speaker Change: And then we have a team that's as I said ready to go once we brought that clarity to our stakeholders.
Bryan Donohoe: That's helpful. And then maybe stay on the asset management side of things. So of that 140 million of equity contributions from borrowers, I guess what is that going towards? Is it renewing rate caps, loan pay downs, reserve replenishment, or maybe a combination of all those? It's a combination. So think about, and I think part of the positive attributes of the movement and the interest rate curve is that some of that money in the next iteration of it will be reallocated from carry and interest rate caps and be more to accretive spends like CapEx projects and tenant improvement dollars.
Speaker Change: Got it that's helpful. And then maybe staying on the asset management side of things. So of that 140 million of equity contributions from borrowers I guess, what is that going towards is it we're doing recaps loan pay downs reserve replenishment or maybe a combination of all of those.
Speaker Change: It's a combination so think about and I think part of the positive attributes of the movement in the interest rate curve is that some of that money in the next iteration of it well it will be reallocated from carry an interest rate caps and be more two accretive spends like capital Capex.
<unk> and tenant improvement dollars, so as we've seen stability and even the office leasing market and slight upticks in the demand side there those ti packages have gotten more expensive. So it is an important <unk>.
Bryan Donohoe: So, as we've seen stability and even the office leasing market and slide up ticks in the band side there, those TI packages have gotten more expensive. So it is an important attribute that sponsors are continuing to invest in their assets. So it runs the gamut from carry to caps to renovation projects and certainly tenant improvement dollars that will be long-term value creators at the underlying asset level.
Speaker Change: Attribute that sponsors are continuing to invest in their asset. So it runs the gamut from carry to cap two.
Speaker Change: Two renovation projects and certainly tenant improvement dollars that will be long term value creators at the underlying asset level.
Will Mass: Thanks for taking my questions.
Speaker Change: Got it thanks for taking my questions.
Operator: Absolutely. And did only that appear? We have no further questions this afternoon.
Speaker Change: Absolutely.
Speaker Change: And gentlemen, it appears we have no further questions. This afternoon, Mr. Donahoe I'd like to turn things back to you for any closing comments.
Bryan Donohoe: Mr. Donohoe, I'd like to turn things back to you for any closing comments. Thank you. And thanks everybody for joining today, and thank you to the entire team for all the work this quarter. We look forward to speaking again in the near future. Thanks for the time.
Bryan Donohoe: Thank you and thank you everybody for joining today and thank you to the entire team for all the work this quarter, and we look forward to speaking again in the near future. Thanks for your time.
Mr. Donahoe: Thank you and thanks, everybody for joining today and thank you to the entire team for.
Mr. Donahoe: All the work this quarter and we look forward to speaking again in the near future. Thanks for the time.
Operator: Thank you, Mr. Donohoe.
Operator: Thank you, Mr. Donohoe. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available approximately one hour after the end of this call through September 6, 2024, to domestic callers by calling 1-800-756-8809, and to international callers by dialing 402-422-4222.
Speaker Change: Thank you Mr Donahoe, ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call an archived replay of this conference call will be available approximately one hour. After the end of this call through September six 2024 to domestic callers by calling one 870 568809 and two international callers by dialing.
Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archive replay of this conference call will be available approximately one hour after the end of this call through September 6, 2024, two domestic callers by calling 1-800-756-8809 and two international callers by dialing 402-220-7214. An archive replay will also be available on a webcast link located on the homepage of the Best of Resources section of our website. Again, thanks for joining us, everyone. We wish you all a great day.
Speaker Change: Four zero to 220721 for an archived replay will also be available on a webcast link located on the homepage of the Investor resources section of our website again, thanks for joining US everyone. We wish you all a great day Goodbye.
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