Q2 2024 Franklin BSP Realty Trust Inc Earnings Call

Good morning everyone and welcome to the Franklin BSP Realty Trust's second quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: This concludes our second quarter 2024 earnings conference call. All participants will be in a listen-only mode.

Operator: Press Second Quarter, 2024, Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions of SBRT, Jerome Baglien, Chief Financial Officer and Chief Operating Officer of SBRT, and Michael Comparato, President of SBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Thank you, Lindsey, and good morning, everyone, and thank you all for joining us today.

Operator: After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchstone phone. To withdraw your question, please press star, then two.

Operator: Please note that this event is being recorded.

Lindsey Crabbe: I would now like to turn the conference over to Lindsey Crabbe, director of in-rest relations. Please go ahead.

Rich Furns: Good morning. Thank you, Cole, for hosting our call today.

Rich Furns: Welcome to SBRT's second quarter, 2024, earnings call, J-R-R-S-B-R-T, Jerome Baglien, Chief Financial Officer, and Chief Operating Officer of SBRT, and Michael Comparato, President of SBRT.

[inaudible]

Speaker Change: of SBRT, Jerome Baglien, Chief Financial Officer and Chief Operating Officer of SBRT, and Michael Comparato, President of SBRT.

Rich Furns: Before we begin, I want to mention that some of today's comments are forward with statement and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties, as described in our motion. This is recently filed SEC periodic reports. The actual future results may differ materially.

Speaker Change: Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions.

Rich Furns: The information conveyed on this call is current only as of the date of this call, August 3, 2024. The company assumes the obligation to update any statements made during this call, including any forward-looking statements. Whether, as a result of new information, future events to otherwise accept is required by law.

The information conveyed on this call is current only as of the date of this call, August 1, 2024. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Rich Furns: Additionally, we will refer to certain non-GAAP financial measures, which are required to guide the GAAP figures in our earnings release and supplementary slide gaps. Each of which are available on our website at www.fyrtreece.com. We will refer to this supplementary slide back on today's call.

Additionally, we will refer to certain non-GAAP financial measures which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreads.com. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Richard Byrne.

Rich Furns: With that, I'll turn the call over to Rich Furns. Great. Thank you, Lindsay, and good morning, everyone, and thank you all for joining us today. Apologies in advance. I'm dialing in from a remote location. So if I'm not coming in loud and clear, I'll try to talk louder and clearer. As Lindsay mentioned, our earnings release from supplementary documental deck was published to our website yesterday.

Richard Byrne: Thank you, Lindsey, and good morning, everyone, and thank you all for joining us today.

Richard Byrne: Apologies in advance; I'm dialing in from a remote location, so if I'm not coming in loud and clear, I'll try to talk louder and clearer. As Lindsey mentioned, our earnings release and supplemental deck were published on our website yesterday. I'm going to begin today's call on slide four by reviewing our second quarter results, and then, of course, we'll open the call up, as always, to your questions. A substantial and growing portion of our portfolio is from this new vintage. Approximately 25% of our loan portfolio was originated in the last 12 months. This resulted in a $0.37 decrease in our second quarter book value and negatively affected GAAP earnings.

Richard Byrne: The vast majority of the specific reserve relates to a Denver office property which was downgraded to a risk rating of five this quarter, which Mike will go over in some good detail. But I would be remiss if I didn't touch on a very positive note that between Q2 and shortly into Q3, we were able to liquidate 18 Walgreens properties, very close to our mark. We only have five remaining Walgreens stores in REL.

Rich Furns: I'm going to begin today's call on slide 4 by reviewing our second quarter results, and then, of course, we'll open the call up, as always, to your questions. The quarter was marked by several key developments.

Rich Furns: Jerry is going to detail our financial performance, and Michael covered market conditions in our watch list and our Rio portfolio, all of which in much greater detail. But first, I'm going to provide an overview of the quarter's most significant events. First, our origination engine was extremely active. We continue to see great deal flow and originated 622 million in new commitments during the second quarter. Our year-to-date origination total is over 1.3 billion. The deals we have originated post-the rise in interest rates are some of the best we've seen from a risk-reward perspective in a very long time.

Richard Byrne: The quarter was marked by several key developments.

Richard Byrne: First, our origination engine was extremely active. We continued to see great deal flow and originated $622 million in new commitments during the second quarter.

Richard Byrne: Our year-to-date origination total is over $1.3 billion. The deals we have originated post the rise in interest rates are some of the best we've seen from a risk-reward perspective in a very long time.

Rich Furns: A substantial and growing portion of our portfolio was from this new vintage. Approximately 25% of our loan portfolio was originated in the last 12 months. We continue to deploy capital and grow our balance sheet because of the confidence that we have in our portfolio. Each new loan we originated enhances the credit quality of our book.

Richard Byrne: We continue to deploy capital and grow our balance sheet because of the confidence that we have in our portfolio. Each new loan we originate enhances the credit quality of our book.

Rich Furns: Second. During the quarter, our Cecil provision increased by 31.4 million. The increase was entirely related to a 32.3 million specific Cecil provision on four watch list loans. This resulted in a 37-cent decrease to our second quarter book value and negatively affected GAAP earnings. The vast majority of the specific reserve relates to a Denver office property, which was downgraded to a risk rating of five this quarter.

Richard Byrne: Second, during the quarter our CECL provision increased by $31.4 million. The increase was entirely related to a $32.3 million specific CECL provision on four watchlist loans.

Rich Furns: Next, there was a lot of movement within our watch list, which Michael will go over in some good detail. But I would be remiss if I didn't touch on a very positive note that between Q2 and shortly into Q3, we were able to liquidate 18 Walgreens properties very close to our mark basis. We only have five remaining Walgreens stores in Rio. As it relates to the watch list in RIO, what we are experiencing now is very common at this point in the cycle, especially after the high volume of originations in the 2021 vintage. And as Michael detailed, we already have had positive developments on some of our watch list names subsequent to quarter end.

Speaker Change: that between Q2 and shortly into Q3, we were able to liquidate 18 Walgreens properties very close to our mark basis. We only have five remaining Walgreens stores in REL.

Jerome Baglien: As it relates to the watch list scenario, what we are experiencing now is very common at this point in the cycle, especially after the high volume of originations in the 2021 vintage. And, as Mike will detail, we have already had positive developments on some of our watch list names subsequent to quarter end. Next, at quarter end, we have $700 million in available liquidity. Our ability to grow our loan portfolio decreased our liquidity position from the first quarter, but we are very comfortable with the amount of liquidity we have today.

Rich Furns: Next, the quarter end, we had 700 million in available liquidity. Our ability to grow our loan portfolio decreased our liquidity position from the first quarter, but we are very comfortable with the amount of liquidity we have today. Next, we purchased three million of FBRT common stock during the second quarter. Inclusive of the first quarter, we have repurchased almost five million of FBRT common shares in the first half of 2024. In total, since the program began, the company and its advisor purchased nearly 69 million of FBRT common stock.

Jerome Baglien: Next, we purchased 3 million of FBRT common stock during the second quarter. Inclusive of the first quarter, we have repurchased almost 5 million of FBRT common shares in the first half of 2024. With that, Jerry, let me turn things over to you.

Richard Byrne: Inclusive of the first quarter, we have repurchased almost 5 million of FBRT common shares in the first half of 2024. In total, since the program began, the company and its advisor have purchased nearly 69 million of FBRT common stock.

Rich Furns: Lastly, notwithstanding Denver, it was a solid quarter. This is not to say we think we are completely out of the woods with respect to the pre-rate, increased loans still on our balance sheet, but we like where FBRT is and where its overall positioning is. Our originations have been at favorable levels, and we continue to support our stock. We believe our solid financial position will allow us to emerge from this period as a market leader.

Speaker Change: Lastly, notwithstanding Denver, it was a solid quarter. This is not to say we think we are completely out of the woods with respect to the pre-rate increase loans still on our balance sheet.

Speaker Change: But we like where FBRT is and where its overall positioning is. Our originations have been at favorable levels and we continue to support our stock. We believe our solid financial position will allow us to emerge from this period as a market leader.

Jerome Baglien: With that, Jerry, let me turn things over to you. Great. Thanks, Rich.

Jerome Baglien: Great, thanks Rich, and thanks to everyone joining us on the call today. Our CECL Reserve reflects a $32.3 million specific CECL provision across four watch list loans this quarter. The Walgreens assets sold close to our marked basis but did result in gap net income being reduced by $4.3 million this quarter, that's net of minority interest. This consisted of $1.9 million in asset write-downs based on the closing sale price of the 18 stores and $2.4 million of abated rent that was credited to the buyer in association with the sale. Distributable earnings were lower this quarter largely because of the realization of the loss from the Walgreens that we had previously recognized in our gap earnings and that is now flowing through distributable earnings.

Jerome Baglien: And thanks for everyone joining us on the call today.

Speaker Change: Great, thanks Rich and thanks for everyone joining us on the call today. Let's move on to results and I'll start on slide 5.

Jerome Baglien: Let's move on to results, and I'll start on slide five. FBRT reported a gap loss of 3.8 million, or 11 cents per diluted common share of this quarter. The declining gap net income is largely due to the increase in our seasonal reserve, as Rich mentioned, and lower quarter-over-quarter of conduit income. Our seasonal reserve reflects a 32.3 million specific seasonal provision across four watch list loans of this quarter. It reduced gap earnings and book value per share by 37 cents. Book value at quarter end was $15.27, which incorporates 93 cents per share of seasonal reserves. The Walgreens assets sold to close to our marked basis but did result in gap net income being reduced by 4.3 million this quarter.

Speaker Change: The Walgreens assets sold close to our marked basis, but did result in gap net income being reduced by $4.3 million this quarter.

Jerome Baglien: That's net of minority interest. This consisted of 1.9 million in asset write downs based on the closing sale price of the 18 stores and 2.4 million of a baited rent that was credited to the buyer in association with the sale. We earned 32.4 million indistributable earnings in the second quarter, or 31 cents per fully converted share. Distributable earnings were lower this quarter largely because of the realization of the loss from the Walgreens that we had previously recognized in our GAAP earnings, and that is now flowing through distributable earnings. There will be an additional impact to key three to distributable earnings associated with the realization of the loss from the 16 additional stores that settled in Q3, and that's approximately 25 million.

Speaker Change: That's net of minority interest. This consisted of $1.9 million in asset write downs based on the closing sale price of the 18 stores and $2.4 million of abated rent that was credited to the buyer in association with the sale.

Speaker Change: We earned $32.4 million in distributable earnings in the second quarter, or $0.31 per fully converted share.

Speaker Change: Distributable earnings were lower this quarter largely because of the realization of the loss from the Walgreens that we had previously recognized in our gap earnings, and that is now flowing through distributable earnings.

Speaker Change: There will be an additional impact to Q3 to distributable earnings associated with the realization of the loss from the 16 additional stores that settled in Q3, and that's approximately $25 million.

Jerome Baglien: On slide seven, you can see that we had strong portfolio growth of $195 million this quarter, driven by new loans exceeding repayments. Six loans were repaid during the quarter from the multi-family and hospitality sectors. Turning to slide eight, our average cost of debt on our core portfolio decreased slightly to 7.8 percent, although our average debt outstanding increased to support the growth in our portfolio. We continue to have available liquidity on our warehouse lines and increased demand from our lenders to finance new loans. The strong interest reinforces the quality of our recent loans. On our core book, over 80 percent of our finance are non-recourse, non-marked to market.

Michael Comparato: Six lawns were repaid during the quarter from the multifamily and hospitality sectors. We have reinvestment available on one of our CLOs as of today. While we're comfortable right now, we'll stay alert for opportunities in the capital markets down the road. This lets us strategically tap into CLO financing that aligns with our future funding needs and when market conditions are favorable. With that, I'll turn it over to Mike to give you an update on our portfolio.

Speaker Change: Turning to slide 8, our average cost of debt on our core portfolio decreased slightly to 7.8%, although our average debt outstanding increased to support the growth in our portfolio.

Speaker Change: We continue to have available liquidity on our warehouse lines and increased demand from our lenders to finance new loans. This strong interest reinforces the quality of our recent loans.

Speaker Change: On our core book, over 80% of our financings are non-recourse, non-mark-to-market.

Jerome Baglien: We have reinvested available on one of our CLOs as of today.

Jerome Baglien: While we're comfortable right now, we'll stay alert for opportunities in the capital markets down the road. This lets us strategically tap into CLO financing with aligns with our future funding needs, and when market conditions are favorable. Our net leverage position increased to 2.7 times at the end of the quarter. This increase in net leverage is mainly driven by the growth on our portfolio, as we have found attractive investment opportunities throughout the second quarter.

Speaker Change: We have reinvest available on one of our CLOs as of today. While we're comfortable right now, we'll stay alert for opportunities in the capital markets down the road. This lets us strategically tap into CLO financing what aligns with our future funding needs and when market conditions are favorable.

Michael Comparato: With that, I'll turn it over to Mike to give you an update on our portfolio. Thanks, Jerry, and good morning, everyone. Thank you for joining us today.

Speaker Change: With that, I'll turn it over to Mike to give you an update on our portfolio.

Michael Comparato: I'm going to start on slide 12. Our 5.4 billion core portfolio consists of 153 loans, with an average size of 36 million. As you can see, 99 percent of our loans are senior mortgages. Our portfolio breakout has not changed. We are focused on originating predominantly high-quality multi-family assets, while looking to other asset classes to add additional yield. We are confident in the playbook we have followed to build our current portfolio, and believe it is the right way to approach and take advantage of the opportunities at hand. On previous calls, we've shared that we meaningfully reduce our originations back by 1970s and 1980s vintage multi-family assets in the fourth quarter of 2021, and focused on higher quality newer multi-family assets in large liquid markets.

Michael Comparato: We're focused on originating predominantly high-quality multifamily assets while looking to other asset classes to add additional yield. We've seen the largest names in the space, from Blackstone to Brookfield to KKR, acquire billions in large multifamily transactions in just the past six to eight weeks. The property was marketed by a national brokerage firm, and we received 324 executed confidentiality agreements.

Mike: Our portfolio breakout has not changed.

Mike: We are focused on originating predominantly high-quality multifamily assets while looking to other asset classes to add additional yield. We are confident in the playbook we have followed to build our current portfolio and believe it is the right way to approach and take advantage of the opportunities at hand.

Mike: On previous calls, we've shared that we meaningfully reduced our originations, backed by 1970s and 1980s vintage multifamily assets in the fourth quarter of 2021, and focused on higher quality, newer multifamily assets in large liquid markets.

Michael Comparato: We have limited exposure to secondary markets and have nearly no exposure to tertiary markets. That decision was paramount to our current market advantage and our ability to actively originate new loans. In recent quarters, I've touched on the mountain of equity capital searching for multi-family assets. It has only grown stronger. We've seen the largest names in the space from Blackstone to Brookfield to KKR, acquire billions and large multi-family transactions in just the past six to eight weeks. But to put a finer point on just how deep the equity pool is right now, I would point you to a transaction that we are currently selling in the Sunbelt from one of our managed equity vehicles.

Mike: We have limited exposure to secondary markets and have nearly no exposure to tertiary markets. That decision was paramount to our current market advantage and our ability to actively originate new loans.

Michael Comparato: The property was marketed by a national brokerage firm, and we received 324 executed confidentiality agreements, conducted 46 site tours, and ultimately received 47 written offers, 21 of which were inside of a five cap. That is a staggering amount of participants looking to put equity to work and reminds me of late 2009 and early 2010 in terms of demand meaningfully outweighing supply coming out of a financial shock. Let me be clear: there is no lack of demand for stabilized multifamily assets; what the market is experiencing is a lack of willing sellers. Moving on to slide 13, during the quarter we originated 18 loans at a weighted average spread of 318 basis points.

Mike: The property was marketed by a national brokerage firm, and we received 324 executed confidentiality agreements.

Mike: conducted 46 site tours and ultimately received 47 written offers, 21 of which were inside of a 5-cap.

Mike: Let me be clear, there is no lack of demand for stabilized multifamily assets. What the market is experiencing is a lack of willing sellers.

Mike: Moving on to slide 13, during the quarter we originated 18 loans at a weighted average spread of 318 basis points.

Michael Comparato: We continued to see solid opportunities this quarter, and the forward pipeline is strong. The transactions we are adding to our portfolio offer highly accretive terms with better underlying credit metrics versus loans written over the past several quarters. Our conduit platform was also active in the second quarter, although it generated lower income quarter over quarter. We do expect conduit revenue to contribute to earnings in the coming quarters. We view the conduit as an excellent earnings enhancer in good times, but also as a gain on sale business that can offset core balance sheet losses in more difficult market conditions.

Mike: We continue to see solid opportunities this quarter, and the forward pipeline is strong.

Michael Comparato: The transactions we are adding to our portfolio offer highly accretive terms with better underlying credit metrics versus loans written over the past several quarters. We do expect Conduit Revenue to contribute to earnings in the coming quarters. We view The Conduit as an excellent earnings enhancer in good times but also as a gain-on-sale business that can offset core balance sheet losses and more difficult market conditions. Five loans are risk rated four, and two loans are risk rated five. While neither of the five rated loans are in default, nor have they ever been in default, given our recent appraisals, it was difficult not to downgrade these two positions from last quarter.

Mike: Our Conduit platform was also active in the second quarter, although it generated lower income quarter over quarter. We do expect Conduit revenue to contribute to earnings in the coming quarters.

Michael Comparato: SBRT is on a very short list of mortgage rates that benefit from having this gain on sale business.

Michael Comparato: Slide 14 is a summary of our watch list. We ended the quarter with seven loans on our watch list. Five loans are a risk rated four, and two loans are risk rated a five. While neither of the five rated loans are in default nor have ever been in default, given our recent appraisals, it was difficult not to downgrade these two positions from last quarter. Subsequent to quarter, we had positive updates on several of our watch list loans. The bar were sold at Dallas hospitality asset very close to our basis. We modified a 272 unit Fort Worth multi-family loan, resulting in an additional principal pay down and a new rate capping purchase.

Mike: Slide 14 is a summary of our watch list.

Michael Comparato: Subsequent to quarter-end, we had positive updates on several of our watch lists last week. We expect that the extension will be executed shortly. The remaining loans on watchlist are a portfolio of multifamily assets in various locations in the Sun Belt. The loan has been paid down to approximately $102 million through five asset sales, and five of the remaining ten assets are currently under contract to be sold, with the remaining five assets in various stages of the sale process.

Mike: We modified a 272-unit Fort Worth multifamily loan, resulting in an additional principal paydown and a new rate cap being purchased. And we came to a verbal agreement with the borrower on our Charlotte, North Carolina multifamily property to pay the loan down and extend the loan further.

Michael Comparato: And we came to a verbal agreement with the bar were on our Charlotte North Carolina multi family property to pay the loan to pay the loan down and extend the loan further. We expect that extension will be executed shortly. The remaining loans on watch list are a portfolio of multi family assets and various locations in the Sunbelt. This was a hundred and forty-seven million dollar cross-collateralized loan backed by 15 multi-family assets. The loan has been paid down to approximately 102 million through five asset sales, and five of the remaining ten assets are currently under contract to be sold, with the remaining five assets in various stages of the sale process.

Mike: The remaining loans on watchlist are a portfolio of multifamily assets and various locations in the Sun Belt.

Mike: This was a $147 million cross-collateralized loan backed by 15 multifamily assets.

Michael Comparato: We are not occurring interest on a monthly basis on this loan, but we are sweeping all cash and recognizing cash income, or excuse me, recognizing interest income as it's received. 176 unit apartment community in Fort Worth, Texas that we've commenced for closure proceedings, but are in active dialogue with the bar were. The CBD high-rise office building in Denver, Colorado. This is the loan that we took the majority of our specific Cecil provision against in the second quarter. We made a significant modification to the loan collateralized by this office building, and as part of that modification, we obtained a new appraisal for the collateral.

Michael Comparato: We are not accruing interest on a monthly basis on this loan, but we are sweeping all cash and recognizing cash income, or excuse me, recognizing interest income as it's received. The CBD High-Rise Office Building in Denver, Colorado.

Mike: A 176-unit apartment community in Fort Worth, Texas, that we have commenced foreclosure proceedings but are in active dialogue with the borrower.

Mike: The CBD High-Rise Office Building in Denver, Colorado.

Mike: This is the loan that we took the majority of our specific CECL provision against in the second quarter. We made a significant modification to the loan collateralized by this office building, and as part of that modification, we obtained a new appraisal for the collateral.

Michael Comparato: The valuation difference between the appraisal and our loan balance drew of the increased reserve. The loan has not been in default and has remained current on debt payments. The asset is now on our books at a substantial discount to its original principal value. I personally toured this asset just last week and am pleased to report the institutional sponsor has kept the property in very good condition, and we will continue to work with them in coming quarters. The final loan on our watch list is a suburban Class A office building in Alpharetta, Georgia. The loan is not in default, and the borrower has contributed millions of dollars of equity to pay down the loan and keep it current.

Michael Comparato: The valuation difference between the appraisal and our loan balance drove the increased reserve. In addition, excluding the Denver and Alpharetta office assets, our weighted average in-place debt yield of our pre-2024 Originated Office portfolio is approximately 13.2%. That loan has performed exactly as expected, with seven properties sold since origination, and our original $55.8 million loan participation in FBRT has been paid down to $18.1 million. We could not be happier with the progress so far.

Mike: The loan has not been in default and has remained current on debt payments.

Mike: The asset is now on our books at a substantial discount to its original principal value.

Speaker Change: I personally toured this asset just last week and I'm pleased to report the institutional sponsor has kept the property in very good condition and we will continue to work with them in coming quarters.

Michael Comparato: We also had this asset appraised and took a specific reserve to adjust for the value differential. With regard to the rest of our office portfolio, excluding our largest office loan, a triple net lease had quarters and distribution facility, our pre-2024 originated office exposure has been reduced to only 178 million or 3.3% of our core portfolio, with our second and third largest office loans having principal repayments in just the last 60 days. In addition, excluding the Denver and Alpharetta office assets, the weighted average in place that yield of our pre 2024 originated office portfolio is approximately 13.2%.

Michael Comparato: We will continue to actively work towards zero exposure to pre-2024 originated office loans.

Michael Comparato: Lastly, an office just a quick note on the market and our 2024 originated office loan. That loan is performed exactly as expected, with seven properties sold since origination, and our original $55.8 million loan participation, and FBRT has been paid down to 18.1 million. We could not be happier with the progress so far. Fundament for office is clearly off the lows. While the realization of losses has likely only just begun, the CNBS market is open for stabilized office buildings with good narratives, and we've begun to see bridge lenders dip their toe back into the sector. In fact, a CRE CLO was just priced last week that had an 8% office contribution.

Mike: That loan is performed exactly as expected, with seven properties sold since origination, and our original $55.8 million loan participation in FBRT has been paid down to $18.1 million. We could not be happier with the progress so far.

Mike: Sentiment for office is clearly off the lows.

Michael Comparato: Lender appetite for office credit is opening up again, albeit very, very slowly and only for the right opportunity. This asset was taken via Mez foreclosure, and it was one of the resolutions on last quarter's watchlist. Our asset management team is onsite regularly, and we have installed the largest property manager in the country to manage day-to-day operations. This asset was also taken via foreclosure together with two other multifamily assets in Mooresville, North Carolina, and Chapel Hill, North Carolina. Mooresville is nearing 90% occupancy and should be headed to the market for sale shortly.

Michael Comparato: Lender appetite for office credit is opening up again, albeit very, very slowly and only for the right opportunities.

Michael Comparato: Moving to slide 15, we held six foreclosure REO positions at quarter end. These positions are a Portland multifamily property; excuse me, a Portland office property, which we continue to believe is not the right time to exit the asset. A 426-unit apartment community in Cleveland, Ohio. This asset was taken via mes foreclosure and was one of the resolutions to last quarter's watch list. Our asset management team is onsite regularly, and we have installed the largest property manager in the country to manage day-to-day operations. A 471-unit apartment community in Raleigh, North Carolina. This asset was also taken via foreclosure, together with two other multifamily assets in Moore's Hill, North Carolina, and Chappell Hill, North Carolina.

Mike: Our asset management team is onsite regularly, and we have installed the largest property manager in the country to manage day-to-day operations.

Mike: A 471-unit apartment community in Raleigh, North Carolina. This asset was also taken via foreclosure together with two other multifamily assets in Mooresville, North Carolina and Chapel Hill, North Carolina.

Michael Comparato: We have installed one of the largest property managers in the country to run all three of the North Carolina assets overseen by our internal equity asset management group. Moore's Hill is nearing 90% occupancy and should be headed to the market for sale short. As for the Rawling and Chapel Hill assets, I also visited these properties just a few weeks ago. These are very solid assets and good locations. We will take the time needed to improve the assets, stabilize the assets, and look to liquidate them in the future. The Lubbock Multi-Family Property occupancy is up 30 points in the last 90 days, and our asset management team continues to meaningfully improve the asset.

Michael Comparato: As for the Raleigh and Chapel Hill assets, I also visited these properties just a few weeks ago. These are very solid assets and good locations. We will take the time needed to improve the assets, stabilize the assets, and look to liquidate them in the future. In addition, we continue to be overall bullish on the next few years in the multifamily market. With rates hopefully declining and new supply burning off, owning some real estate right now isn't necessarily a bad thing, of which 462 million, or almost 90%, were originated in Q3 and Q4 of 2021 or Q1 of 2022.

Mike: As for the Raleigh and Chapel Hill assets, I also visited these properties just a few weeks ago. These are very solid assets and good locations. We will take the time needed to improve the assets, stabilize the assets, and look to liquidate them in the future.

Michael Comparato: We expect to be in the position to liquidate the asset in the coming quarters. And our last foreclosure REO is our Walgreens portfolio, which Rich and Jerry have already covered, but I will happily reiterate that we only have five locations remaining.

Michael Comparato: I want to add a note regarding our liquidation of the multi-family assets we've taken back as REO. While I previously mentioned the mountain of equity looking for multi-family acquisitions, there is a meaningful pricing gap between stabilized assets and non-stabilized assets. We firmly believe that taking over an asset, stabilizing it, and liquidating it will result in higher recovery value than alone liquidation or an as-is sale of a non-stabilized asset. In addition, we continue to be overall bullish on the next few years in the multi-family market. With rates hopefully declining and new supply burning off, owning some real estate right now isn't necessarily a bad thing.

Mike: I want to add a note regarding our liquidation of the multifamily assets we've taken back as REO. While I previously mentioned the mountain of equity looking for multifamily acquisitions, there is a meaningful pricing gap between stabilized assets and non-stabilized assets.

Mike: We firmly believe that taking over an asset, stabilizing it, and liquidating it will result in higher recovery value than a loan liquidation or an as-is sale of a non-stabilized asset.

Michael Comparato: Lastly, contrary to prevailing view, not all multi-family loans originated in late 21 and early 22 are problematic. Property location, vintage, and loan structure influence loan performance, asset liquidity, and value. Year-to-date, we have been successfully repaid on approximately 521 million at multi-family loans, of which 462 million, or almost 90 percent, were originated in Q3 and Q4 of 2021 or Q1 of 2022. While we acknowledge challenges exist within this vintage, it is inaccurate to generalize about the entire vintage, other than to collectively agree it was a recent peak valuation for the multi-family sector.

Speaker Change: Lastly, contrary to prevailing view, not all multifamily loans originated in late 21 and early 22 are problematic. Property location, vintage, and loan structure influence loan performance, asset liquidity, and value.

Operator: While we acknowledge challenges exist within this vintage, it is inaccurate to generalize about the entire vintage other than to collectively agree it was a recent peak valuation for the multifamily set. Current industry challenges will likely persist for the next several quarters, and our asset management team is working to resolve loans in REO in a manner that will ultimately maximize recovery value for shareholders. And with that, I would like to turn it back to the operator to begin the Q&A session. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: While we acknowledge challenges exist within this vintage, it is inaccurate to generalize about the entire vintage other than to collectively agree it was a recent peak valuation for the multifamily sector.

Michael Comparato: As we look at the company's overall positioning, we believe SBRT will emerge as a market leader once this repricing cycle at hand plays out. Current industry challenges will likely persist for the next several quarters, and our asset management team is working to resolve loans in RIO in a manner that will ultimately maximize recovery value for shareholders.

Mike: Current industry challenges will likely persist for the next several quarters and our asset management team is working to resolve loans in REO in a manner that will ultimately maximize recovery value for shareholders.

Michael Comparato: To conclude, we will continue to lead with transparency, and we will provide updates as we make progress on final loan and RIO resolutions. The current opportunity and CRE credit has been and continues to be compelling, and we are excited by what this vintage of new loans adds to our portfolio.

Speaker Change: To conclude, we will continue to lead with transparency, and we will provide updates as we make progress on final loan and REO resolutions.

Operator: And with that, I would like to turn it back to the operator to begin the Q&A session. Thank you, and we will now begin the question-and-answer session. If you would like to ask a question, please press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two, and at this time, we will pause momentarily for the first question.

Speaker Change: And with that, I would like to turn it back to the operator to begin the Q&A session.

Speaker Change: Thank you, and we will now begin the question and answer session. If you would like to ask a question, please press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Matthew Erdner: Our first question today will come from Matthew Erdner with Jones Trading. Please go ahead.

Speaker Change: Our first question today will come from Matthew Erdner with Jones Trading. Please go ahead.

Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. Jerry, the first one is for you.

Jerome Baglien: Can you kind of repeat what happened with the Walgreens and that kind of $25 million that's going to hit next quarter? Sure. The $25 million that I referenced is essentially the realization difference in Q3. So we sold 18 stores, and most of those settle in Q3. Our distributable is meant to capture the cash effect of our earnings. And so that cash effect or the realization effect, that rolls through in Q3, not Q2. And so that's why I mentioned that in Q3, you'll have that flowing through the distributable portion of our earnings. We obviously already ran that through GAAP.

Jerome Baglien: Sure. The $25 million that I referenced is essentially the realization difference in Q3. So we sold 18 stores, and most of those settled in Q3. Our distributable is meant to capture the cash effect of our earnings, and so that cash effect, or the realization effect, rolls through in Q3, not Q2, and so that's why I mentioned that in Q3, you'll have that flowing through the distributable portion of our earnings.

Speaker Change: Sure. The $25 million that I referenced is essentially the realization difference in Q3. So we sold...

Speaker Change: 18 stores.

Speaker Change: and most of those settle in Q3. Our distributable is meant to capture the cash effect of our earnings.

Michael Comparato: We obviously already ran that through GAAP, so you won't have a change in the book value. But in order to kind of keep the consistency between what we show in the distributable and what we show in our GAAP earnings, it's going to come through there. So it's really just a reminder in terms of how we flow through that income effect on our transaction. Yeah, that's very helpful.

Jerome Baglien: So you won't have a change to the book value, but in order to kind of keep the consistency between what we show in distributable and what we show in our GAAP earnings, it's going to come through there. So it's really just a reminder in terms of how we flow through that income effect on our transactions.

Matthew Erdner: Yeah, that's very helpful.

Michael Comparato: And then I want to touch on the Denver asset a little bit. You mentioned your talks with the bar over there and that you had good conversations. Is there any kind of additional timeline that you guys are able to give around that asset? And then, you know, what are your thoughts on if you have to take it on? You know, how long would you guys look to hold that? And would it be similar to the Portland one? Hey Matt, it's Mike.

Matthew Erdner: And then I want to touch on the Denver asset a little bit. You mentioned your talks with the bar over there and have had good conversations. Is there any kind of additional timeline that you guys are able to give around that asset? And then, you know, what are your thoughts on if you have to take it on? You know, how long would you guys look to hold that, and would it be similar to the Portland one?

Speaker Change: Does that help clarify it?

Jerome Baglien: Hi, Matt. Thanks. Thanks for the question. Look, I think we just entered into, I think it was a quarter or two ago, and we mentioned it when it happened a quarter or two ago. We just entered into this modification with them. You know, the asset continues to perform generally in the same spot. As I mentioned today, it's not in default. It's never been in default. And I think both sides are doing everything that they can to push this out and see where the market goes. Clearly, office is the worst asset class in the industry by a long shot.

Michael Comparato: Okay, I think we just entered into I think it was a quarter or two ago, and we mentioned it when it happened a quarter or two ago, we just entered into this modification with them. You know, the asset continues to perform generally in the same spot. As I mentioned today, it's not in default; it's never been in default.

Michael Comparato: And I think both sides are doing everything that they can to, you know, push this out and see where the market goes. Clearly, you know, office is the worst asset class in the industry by a long shot. Liquidating assets today is not an enjoyable experience.

Jerome Baglien: Liquidating assets today is not an enjoyable experience. So I think everybody is looking for time. Again, I think the fact that they've done a great job keeping the asset in the condition it's in; they have an exceptional amount of equity invested into the property. All we can do is continue having phone calls, continue having dialogue, and going from there. If it ends up being Oreo at some time in future quarters, obviously we'll have to reassess it at that time and where the market is. But for now, not in default, continue having conversations, and we'll continue to try to be as constructive as we can.

Operator: So I think everybody is looking for time. Again, I think the fact that they've done a great job keeping the asset and the condition it's in, they have an exceptional amount of equity invested in the property. All we can do is continue having phone calls, continue having dialogue, and go from there. If it ends up being REO at some time in future quarters, obviously, we'll have to reassess it at that time and see where the market is.

Operator: But for now, not by default, continue having conversations, and we'll continue to try to be as constructive as we can. Thanks for that. And our next question will come from Steven Laws with Raymond James. Please go ahead.

Matthew Erdner: Thanks for that.

Stephen Laws: And our next question will come from Stephen Laws with Raymond James.

Speaker Change: Thanks for that.

Speaker Change: And our next question will come from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws: So you go ahead. Hi, good morning.

Stephen Laws: You know, first year, maybe a public start, you know, what was the NII drag this quarter from, you know, loans that you're not accruing interest or using any interest received to pay down loan balance. And then, you know, as you think about resolutions, Mike, I appreciate you running through a lot of details. It seems like a few of these assets are potentially second half resolutions.

Jerome Baglien: You know, loans that you're not accruing interest on or using any interest received to pay down the loan balance. And then, you know, as you think about resolutions, Mike, I appreciate you running through a lot of detail. It seems like a few of these assets are... potentially second half resolutions. Could you maybe highlight which ones you think can potentially get resolved this year?

Stephen Laws: Could you make highlight which ones do you think can potentially get resolved this year? Yeah, I'll start.

Jerome Baglien: Yeah, in terms of the drag, you know, it's a mix of different things kind of coming. Nonaccrual for us also has two different buckets, you know, stuff that's on pure cost recovery where we're actually reducing the basis. And then the other income, which, like Mike mentioned before, we're not accruing, but we're recognizing the cash interest income as received. So it's roughly a $4 million difference in terms of the drag that it puts on the portfolio. So even with all the portfolio growth, there is a little built-in drag from what I would call the friction of turning over some of these assets as we kind of work through them.

Jerome Baglien: Jerry, why don't you start? Yeah, in terms of the drag, you know, it's a mix of different things kind of coming. in and out in terms of not a cruel and sort of, not a cruel for us also has the two, the two different buckets, you know, stuff that's on pure cost recovery where we're actually reducing the basis. And then the other income where, like Mike mentioned before, we're not accruing, but we're recognizing the cash interest income as received. So it's roughly a $4 million difference in terms of the drag that puts on the portfolio.

Jerome Baglien: So even with all the portfolio growth, there is a little built-in drag there from what I would call the friction of turning over some of these assets as we kind of work through them.

Michael Comparato: Great, and on that, you know, working through them might kind of thoughts on which ones can get resolved in the back half of this year. Yeah, so Stephen, obviously, yeah, we're subject to market and what we can do. As I said in the prepared remarks, we think it's far more important to stabilize these assets before liquidating them. And I think the team is, you know, on-site regularly doing what needs to be done to get them in those positions.

Michael Comparato: And on that, you know, working through them, my kind thoughts on which ones can get resolved in the back half of this year? Yeah. So, Steven, obviously, you know, we're subject to the market and what we can do. As I said in the prepared remarks, we think it's far more important to stabilize these assets before liquidating them. And I think the team is, you know, on site regularly doing what needs to be done to get them in those positions. I would hope that the issues in Mooresville and Lubbock are resolved by year end. I think there's a chance that Raleigh and Chapel Hill could be resolved as well by year end.

Speaker Change: Yeah, so, Steven, obviously, you know, we're subject to market and what we can do, as I said in the prepared remarks, we think it's

Michael Comparato: I would hope that the asset in Mooresville and Lubbock are resolved by year end. I think there's a chance that Raleigh and Chapel Hill could be resolved as well by year end. And then the watch list loans, you know, we just continue to work through those, right? The large portfolio, the 102 million outstanding today, you know, they've got five under contract, they've got the other five in various stages of LLI or contract negotiation. So hopefully that loan will be lower next quarter than it was this quarter. And we just keep chopping away, kind of on all of these things.

Speaker Change: I would hope that the asset in Mooresville and Lubbock are resolved by year-end.

Speaker Change: I think there's a chance that Raleigh and Chapel Hill could be resolved as well by year-end.

Michael Comparato: And then the watch list loans, you know, we just continue to work through those, right? The large portfolio, the $102 million outstanding today, you know, they've got five under contract. They've got the other five in various stages of LOI or contract negotiation. So, hopefully, that loan will be lower next quarter than it was this quarter. And we just keep chopping away kind of on all of these things. You know, it's an active part of our every day.

Speaker Change: And then the watch list loans, you know, we just continue to work through those, right?

Michael Comparato: You know, it's an active part of our every day. And, you know, as we said here, there's seven loans that we put on the watch list, but just from quarter end to this call, we have resolutions on almost half the watch list.

Michael Comparato: And, you know, as we said here, there are seven loans that we put on the watch list. But just from quarter end to this call, we have resolutions on almost half the watch list. So, it's just one of those things that this is going to require a lot of communication with everybody because it's moving and changing literally on a daily basis as we make progress through the watch. Thanks, Mike.

Michael Comparato: So it's just one of those things that this is going to be, you know, a very, very requires a lot of communication with everybody because it's moving and changing literally on a daily basis as we make progress through the watch list.

Speaker Change: So, it's just one of those things that this is going to be, you know, a very, very, requires a lot of communication with everybody because it's moving and changing literally on a daily basis as we make progress through the watch list.

Stephen Laws: Thanks, Monica. I think that certainly highlights the liquidity around multi-family that you mentioned in your prepared remarks.

Michael Comparato: I think that certainly highlights the liquidity around multifamily that you mentioned in your prepared remarks. You know, one last question more on the offense side of new originations. Can you talk about, you guys have done a ton of originations this year and continue to be active. What's really separating you from winning those deals? There's not a lot of transactions out there. It's pretty competitive.

Stephen Laws: You know, one last question, more on the office side of new originations. Can you talk about, you know, you guys have done a ton of originations this year, continue to be active, you know, what's really separating you, winning those deals is not a lot of transactions out there. It's pretty competitive. You know, so can you talk about your positioning against peers in the lending market today?

Speaker Change: a ton of originations this year, continue to be active.

Speaker Change: You know, what's really separating you from winning those deals? There's not a lot of transactions out there, it's pretty competitive. You know, so can you talk about your positioning against peers in the lending market today? And then what's your...

Michael Comparato: You know, so can you talk about your positioning against peers in the lending market today? And then what's your, you know, capacity for continued growth as you think about what leverage levels you'd like to operate and kind of how much more capacity do you have to bring on new originations? Yeah, so I think, you know, the banking sector historically has provided about half of the market for credit and CRE.

Stephen Laws: And then what's your capacity for continued growth as you think about, you know, what leverage levels you'd like to operate and kind of how much more capacity you have to bring on new originations?

Speaker Change: you know capacity for continued growth as you think about you know what leverage levels you'd like to operate and kind of how much more capacity do you have to bring on new originations.

Michael Comparato: Yeah, so I think, you know, the banking sector historically has provided about half of the market for credit and CRE, and the banks are largely on the sidelines. We continue to think that they will be on the sidelines for the next 12 to 24 months, and even when they, you know, come back into the pool, it's never a can involved for the banks, right? It's dipping a toe and getting to the ankle and then the knee. So I don't think banks are coming back as a meaningful competitor anytime soon. You know, the balance of the mortgage sector is, I think, a few of them might start slowly originating again, but the reality, as we all know, is a lot of industry peers have.

Michael Comparato: And the banks are largely on the sidelines. And we continue to think that they will be on the sidelines for the next 12 to 24 months. And even when they do, you know, come back into the pool, it's never a cannonball for the banks, right? It's dipping a toe and getting to the ankle and then the knee.

Speaker Change: Yeah, so I think, you know, the banking sector historically has provided about half of the market for credit and CRE, and the banks are largely on the sidelines, and we continue to think that they will be on the sidelines for

Speaker Change: The next 12 to 24 months and even when they you know come back into the pool It's never a cannonball for the banks, right? It's dipping a toe and getting to the ankle and then the knee so I don't think banks are coming back as a meaningful competitor anytime soon

Michael Comparato: So I don't think banks are coming back as a meaningful competitors anytime soon. You know, the balance of the mortgage REIT sector is, I think a few of them might start slowly originating again. But the reality, as we all know, is that a lot of industry peers have, you know, 30-40% exposure to legacy office loans. And that's just really difficult to originate in the face of that.

Speaker Change: you know the balance of the mortgage REIT sector is is I think a few of them might start slowly originating again but the reality as we all know is a lot of industry peers have

Michael Comparato: 30-40% exposure to legacy office loans, and that's just really difficult to originate in the face of that. I think they're having to hold capital to solve those issues in the future. So the competitive landscape today is meaningfully less than what it was in 2021. But then again, it only takes three or four competitors to create a fairly competitive market. So I'm not going to sit here and say that, yeah, it's us and nobody else. Clearly, that's not the case.

Speaker Change: 30-40% exposure to legacy office loans.

Speaker Change: And that's just really difficult to, you know, originate in the face of that. And I think they're having to hold capital to solve those issues in the future.

Michael Comparato: And I think they're having to hold capital to solve those issues in the future. So the competitive landscape today is meaningfully less than what it will be in 2021. But then again, it only takes three or four competitors to create, you know, a fairly competitive market. So I'm not going to sit here and say that, you know, it's us and nobody else. Clearly, that's not the case.

Speaker Change: The competitive landscape today is meaningfully less than what it was in 2021, but then again, it only takes three or four competitors to create, you know, a fairly competitive market. So I'm not going to sit here and say that, you know, it's us and nobody else, clearly that's not the case.

Michael Comparato: Where I do think that our platform is meaningfully differentiated from others is that we do everything. And I think if you look at the middle market, which is clearly where we're looking to compete, kind of in that $25 to $100 million loan range, the middle market is generally populated with a bunch of monoline lenders, right? They do one thing.

Michael Comparato: What I do think that our platform is is meaningfully differentiated from others is we do everything. And I think if you look at the middle market, which clearly that's where we're looking to compete kind of in that $25 to $100 million loan range, that the middle market is generally populated with a bunch of monoline lenders, right? They do one thing. They're a mess lender only. Are there bridge lending? Or are there a construction lender only, or some of them only focus on one asset class? Yeah, we do everything. And I think that all of those products really has been driving our origination because it's a few hundred million in all of those different categories.

Speaker Change: And I think if you look at the middle market, which clearly that's where we're looking to compete, kind of in that $25 million to $100 million loan range,

Michael Comparato: They're a MES lender only, or they're a bridge lender only, or they're a construction lender only, or some of them only focus on one asset class. Yeah, we do everything. And I think that all of those products really have been driving our origination because there are a few hundred million in all of those different categories. So as I said, last quarter, I believe, it was the first quarter in a long time where all of the cylinders were hitting from the construction loan business, the bridge loan business, and the conduit business. And I just think we're slightly differentiated given the breadth of our products, and that's been driving our origination. I appreciate the comments this morning. Thank you.

Speaker Change: that the middle market is generally populated with a bunch of monoline lenders, right? They do one thing, they're a MES lender only, or they're a bridge lender only, or they're a construction lender only, or some of them only focus on one asset class. Yeah, we do everything. And I think that all of those...

Michael Comparato: So, as I said last quarter, I believe, you know, it was the first quarter in a long time where all of the cylinders were hitting from the construction loan business, the bridge loan business to the conduit business. And I just think we're slightly differentiated given the breadth of our products. And that's been driving our origination.

Speaker Change: It was the first quarter in a long time where all of the cylinders were hitting, from the construction loan business, the bridge loan business, to the conduit business. And I just think we're slightly differentiated, given the breadth of our products, and that's been driving our origination.

Stephen Laws: Great.

Stephen Laws: Appreciate the comments this morning. Thank you.

Tom Kofferwood: And our next question will come from Tom Kofferwood with BTIG. Please go ahead.

Speaker Change: And our next question will come from Tom Catherwood with BTIG. Please go ahead.

Tom Kofferwood: Thank you.

Tom Kofferwood: Good morning, everybody.

Tom Kofferwood: Maybe certain with Rich, you mentioned how 25% of the loan portfolio has been originated within the last year. When do you think the portfolio reaches an earnings inflection point, where contributions from these new originations fully offset any drag from none of cruel and Oreo migrations?

Rich Furns: Thanks, Tom.

Rich Furns: Good question. Yeah, I mean, we're going to start tracking our post-sort of rate increase portfolio exposure. Obviously, it's going to be a function of two ends. One is, you know, new loans that we originate, as well as resolutions on the existing portfolio. Just simply put, you know, the vast majority of hours and probably most of our peers, portfolios, you know, reach final maturity over, you know, the vast majority of the loans, if they haven't already, over the next handful of quarters. Of course, some modifications or extensions that will, you know, have that play out over most likely over a longer period of time for all of us.

Speaker Change: sort of rate increase portfolio exposure on an ongoing basis.

Jerome Baglien: Obviously, it's going to be a function of two ends. One is, you know, new loans that we originate as well as resolutions on the existing portfolio. Just simply put, you know, the vast majority of ours and probably most of our peers' portfolios will reach final maturity over, you know, the vast majority of the loans, if they haven't already, over the next handful of quarters. But, you know, as Mike said, we just continue to chip away at the watchlist scenario.

Speaker Change: Obviously it's going to be a function of two ends. One is, you know, new loans that we originate as well as resolutions on the existing portfolio.

Rich Furns: But, you know, as Mike said, we just continue to chip away at the watch list in our, you know, portfolios. You know, we sort of think of it as work in progress. You know, you have raw material; you have finished goods is what gets out the other side. And then in the middle is just, is just the work to take. So, sort of artificially, at the end of every quarter, in this case, 630, you know, we'll always have things drop into that spot.

Speaker Change: But, you know, as Mike said, we just continue to chip away

Jerome Baglien: You know, we sort of think of it as work in progress. You have raw material, you have finished goods, what gets out the other side, and then in the middle is just the work it takes. So, sort of artificially at the end of every quarter, in this case, 630, you know, we'll always have things drop into that spot.

Speaker Change: portfolios.

Jerome Baglien: So, the long way of saying that it's going to take a few quarters, and you'll see meaningful improvement, but to get to the other end of getting, you know, out of all your, you know, 2021 vintage exposure, it might obviously take longer than that. Understood. Thank you. Thank you for that, Rich.

Rich Furns: So, long way of saying that it's going to take a few quarters to, and you'll see meaningful improvement, but to get to the other end of getting, you know, out of all your, you know, 2021 vintage exposure, you know, might take obviously longer than that.

Michael Comparato: And then, Mike, I appreciated all the color on the watch list and REO assets and commentary about which ones we could see some kind of sales activity on through the end of the year, specifically on the Raleigh and Chapel Hill assets. How much more needs to be done to get to stabilization there? Is it just blocking and tackling on the leasing front, or is there more work to be done on the assets themselves and more capital that needs to be put to work? Uh, we were on site yesterday. Uh, and I would say the feedback is generally blocking and tackling.

Tom Kofferwood: Thank you.

Tom Kofferwood: Thank you for that rich.

Tom Kofferwood: And Mike, I appreciate all the color on these, the watchlist and Aureo assets and commentary about which one we could see kind of sales activity on through the end of the year, specifically on the Rally and Chapel Hill assets. How much more needs to be done to get to stabilization there? Is it just blocking and tackling on the leasing front, or is there more work to be done on the assets themselves and more capital that needs to be put to work?

Speaker Change: Understood. Thank you. Thank you for that, Rich. And then, Mike, appreciated all the color on the watch list and REO assets and commentary about which ones we could see kind of sales activity on through the end of the year, specifically on the Raleigh and Chapel Hill assets.

Speaker Change: How much more needs to be done to get to stabilization there? Is it just blocking and tackling on the leasing front, or is there more work to be done on the assets themselves? More capital that needs to be put to work?

Michael Comparato: We were on site yesterday, and I would say the feedback is generally blocking and tackling. I think the better question, and Tom, I've been doing this for 30 years, and I've been on the equity side of the business and the credit side of the business. I think the question that we're also asking ourselves: does it make sense to own some of these for a little bit? Going back to my prepared remarks, if Blackstone and Brookfield and KKR are backing up the truck buying multi-family, maybe these things are going to be worth meaningfully more 12, 18, 24 months from now.

Michael Comparato: Um, I think the better question and, and Tom, I've been doing this for 30 years, and I've been on the equity side of the business and the credit side of the business. I think the question that we're also asking ourselves is, does it make sense to own some of these for a little bit? I mean, you know, going back to my prepared remark. I appreciate those answers.

Speaker Change: Maybe these things are going to be worth meaningfully more, you know, 12, 18, 24 months from now. So it's not just a matter of...

Michael Comparato: It's not just a matter of, let's fill it and sell it as fast as humanly possible. We are looking at this through a lens of opportunity. Are there chances to make money on some of these assets? I think we're in the process of figuring that out now. We certainly want to get to stabilization as fast as we possibly can, and then we're going to evaluate, does it make sense to liquidate today? Or do we think that these could be worth meaningfully more in the future?

Speaker Change: You know, let's fill it and sell it as fast as humanly possible. You know, we are looking at this through a lens of opportunity. You know, are there chances to make money on some of these assets? And so I think we're in that.

Speaker Change: We're in the process of figuring that out now. We certainly want to get the stabilization as fast as we possibly can. And then we're going to evaluate, you know, does it make sense to liquidate today?

Speaker Change: Or do we think that these could be worth, you know, meaningfully more in the future? And the reality is, while we're dealing with this wave of supply, it is not only coming to a screeching halt in the multifamily sector, it is falling off a cliff.

Michael Comparato: The reality is, while we're dealing with this wave of supply, it is not only coming to a screeching halt in the multi-family sector, it is falling off a cliff. I think we are going to be grossly under-supplied in multi-family in 2026, 2027, and 2028. I think there's a very reasonable chance that you could go back to very strong rank growth, see a lot of NOI growth. We're going to always do what we think is best for shareholders. That could be fill it and sell it as fast as possible, but in certain instances, if we see a real opportunity to make dollars, we're not going to just hand those profit opportunities to other parties.

Speaker Change: And I think we are going to be grossly undersupplied in multifamily in 2026, 2027, and 2028. So I think there's a very reasonable chance that you could go back to very strong rent growth, see a lot of NOI growth.

Tom Kofferwood: Appreciate those answers. Very much looking forward to see how that all comes together.

Speaker Change: Appreciate those answers. Very much looking forward to see how that all comes together.

Jerome Baglien: Very much looking forward to see how that all comes together. And then, maybe last one for me, Jerry, on the funding side, what are your thoughts about putting the newer JNations on the repo line at this point versus tapping the CLO market, and kind of how wide is the gap in the spread between the two, maybe before you would be more willing to pursue more CLOs? Great question and something we keep a very close eye on, as I'm sure you're not surprised to hear.

Jerome Baglien: And then maybe the last one for me, Jerry, on the funding side, what are your thoughts about putting the newer Jaynations on the repo line at this point, versus tapping the CLO market, and kind of how wide is the gap in the spread between the two, maybe before you would be more willing to pursue more CLOs? Great question, and something we keep a very close eye on. I'm sure you're not surprised to hear. Right now, what we're seeing in terms of pricing on bank lines is extremely accretive. I think, and I believe I've said this before: loans that are recently originated, kind of.

Speaker Change: And then maybe last one for me, Jerry, on the funding side.

Jerry: What are your thoughts about putting the newer JNations on the repo line at this point versus tapping the CLO market and kind of how wide is the gap in the spread between the two? Maybe before you would be more willing to pursue more CLOs.

Jerry: Great question and something we keep a very close eye on, as I'm sure you're not surprised to hear.

Jerome Baglien: Right now, what we're seeing in terms of pricing on bank lines is extremely accretive. I think, and I believe I've said this before, loans that are recently originated kind of, in terms of the differential, I think it's a little hard to say, it's probably slightly wider on the CLO side than the bank side on a combined cost of funds. But the differential you have to consider is the amount of leverage you can get, obviously get the non-mark to mark reinvest in some ramp. So I think you have to look through the concept in its totality.

Speaker Change: Right now, what we're seeing in terms of pricing on bank lines is extremely accretive. I think, and I believe I've said this before, you know, loans that are recently originated kind of

Jerome Baglien: on a adjusted basis that we're lending on, you know, with prices down where they are, the attachment points are pretty phenomenal. So the pricing we're getting on the bank side is really good.

Jerome Baglien: So, I think we have the luxury of being a little patient in terms of waiting to get a deal together, looking for the right point in the market, and being particular about when we go out and getting all the structure points that we want. You know, in terms of differential, I think it's a little hard to say. It's probably slightly wider on the CLO side than the bank side, on a combined cost of funds, but the differential you have to consider is the, you know, the amount of leverage you can get. Obviously, you get the nonmarked to mark, reinvest, and some ramp.

Speaker Change: So, I think we have the luxury of being a little patient in terms of waiting to get a deal together, looking for the right point in the market, and being particular about when we go out and getting all the structure points that we want.

Speaker Change: You know, in terms of differential, I think it's a little hard to say. It's probably slightly whiter.

Speaker Change: on the CLO side than the bank side on a combined cost of funds. But the differential you have to consider is the, you know, the amount of leverage you can get, obviously get the non-mark to mark, reinvest and some ramp. So I think

Jerome Baglien: So I think you have to look through, you know, the concept and its totality, and I think it's getting closer to the point where it probably makes sense. So I would guess, you know, at some point later this year, we're probably active in that market. Understood. I appreciate those thoughts.

Speaker Change: You have to look through, you know, the concept in its totality, and I think it's getting closer to the point where it probably makes sense. So I would guess, you know, at some point later this year, we're probably active in that market.

Jerome Baglien: And I think it's getting closer to the point where it probably makes sense. So I would guess, at some point later this year, we'll probably be active in that market. Understandable. I appreciate those thoughts. That's it for me.

Jerome Baglien: That's a train.

Chris Mueller: Thanks everyone. And our next question will come from Chris Mueller with Citizens' JMP.

Speaker Change: Understood. I appreciate those thoughts. That's it for me. Thanks everyone.

Operator: Thanks, everyone. And our next question will come from Chris Mueller with Citizens JMP. Please go ahead.

Chris Mueller: Please go ahead. Yes, thanks for taking the questions.

Michael Comparato: Hey guys, thanks for taking the questions. So I guess given the pullback in rates recently and the likelihood of rate cuts starting in September, how are you thinking about volumes in the conduit business in the coming quarters? And do you have any expectations for margins there going forward? Uh, thanks for the question, Chris.

Chris Mueller: So I guess, given the pullback and rate recently and likelihood of rate cuts starting in September, how are you thinking about volumes in the conduit business in the coming quarters? And do you have any expectations from margins that are going forward?

Speaker Change: Hey guys, thanks for taking the questions. So I guess given the pullback in rates recently and likelihood of rate cuts starting in September , how are you thinking about volumes in the conduit business in the coming quarters and do you have any expectations for margins there going forward?

Michael Comparato: Uh, look, I think, you know, Conduit has become a low cost of capital option again. And so people are gravitating back to it. The reality is that the volume that we're seeing today is multiples of what we saw in 2021 and 2022 and 2023. So we are going to continue to be as active and as aggressive as we can in that space, right? It's kind of the one business, as I said again in the prepared remarks, where we can make meaningful millions of dollars in any given quarter that's either an earnings enhancer in the good times but also can offset losses in the tough times as we get through kind of the rest of this repricing cycle. Historically, we have made anywhere from, you know, two to five points on our conduit business. I think we're clearly not a volume-focused originator.

Michael Comparato: Thanks for the question, Chris. Look, I think, you know, conduit has become a low cost of capital option again, and so people are gravitating back to it. The reality is the volume that we're seeing today is multiples of what we saw in 2021 and 2022 and 2023. So we are going to continue to be as active and as aggressive as we can in that space, right? It's kind of the one business, as I said again, in the prepared remarks where, you know, we can make, you know, meaningful millions of dollars in any given order. That's either an earnings enhancer in the good times, but also can offset losses in the tough times as we get through kind of the rest of this repricing cycle.

Speaker Change: Thanks for the question, Chris. Look, I think, you know, conduit has become a low cost of capital option again, and

Speaker Change: So people are gravitating back to it.

Speaker Change: be as active and as aggressive as we can in that space, right? It's kind of the one business, as I said again in the prepared remarks, where, you know, we can make

Speaker Change: you know, meaningful millions of dollars in any given quarter that's either an earnings enhancer in the good times, but also can offset losses in the tough times as we get through kind of the the rest of this repricing cycle.

Michael Comparato: We historically have made anywhere from, you know, two to five points on our conduit business. I think we're clearly not a volume-focused originator. We're a margin and P&L focused originator, and I would suggest that, you know, we will continue to target that kind of margin going forward. We're just not in the business of writing conduit loans to make a half a point. That's not the best use of our capital. Got it. It's helpful.

Speaker Change: [inaudible]

Speaker Change: have made anywhere from, you know, two to five points on our conduit business. I think we're...

Michael Comparato: We're a margin and P&L-focused originator, and I would suggest that, you know, we will continue to target that kind of margin going forward. We're just not in the business of writing conduit loans to make half a point that that's not the best use of our capital.

Speaker Change: Clearly not a volume-focused originator. We're a margin and P&L-focused originator. And I would suggest that we will continue to target that kind of margin going forward.

Michael Comparato: And then I guess the follow-up question I have. So on the multifamily North Carolina foreclosures, were those all with the same sponsor? And if so, do you have any other exposure to that sponsor?

Michael Comparato: And then I guess the follow-up I have. So I'm the multi-family North Carolina foreclosures. Were those all with the same sponsor? And if so, do you have any other exposure to that sponsor? They all were with the same sponsor, and we do have additional exposure to that sponsor. I will say we've been in very active dialogue with them on all of the loans that we have with them. And, you know, some will be repaid in full. Some will be repaid a little bit less than full. Some will take back in RIO. It just kind of stretches across the gamut.

Speaker Change: Got it. That's helpful. And then I guess the follow-up I have, so on the multifamily North Carolina foreclosures, were those all with the same sponsor? And if so, do you have any other exposure to that sponsor?

Michael Comparato: They were all with the same sponsor, and we do have additional exposure to that sponsor. I will say we've been in very active dialogue with them on all of the loans that we have with them, and, you know, some will be repaid in full, some will be, you know, repaid a little bit less than full, some we will take back in REO. It just kind of stretches across the gamut.

Michael Comparato: But look, at the end of the day, you know, I would rather have almost any multi-family asset versus an office asset today, so we continue to like where we're positioned overall, you know, compared to the balance of the industry.

Michael Comparato: But look, at the end of the day, you know, I would rather have almost any multifamily asset versus an office asset today. So we continue to like where we're positioned overall, you know, compared to the balance of the industry. And once again, if you would like to ask a question, please press stars and 1. Our next question will come from Matthew Howlett with B Reilly. Please go ahead.

Speaker Change: But look, at the end of the day, I would rather have almost any multifamily asset versus an office asset today so we continue to like where we're positioned overall compared to the balance of the industry.

Michael Comparato: Thank you.

Operator: That's very helpful. Thanks for taking questions. And once again, if you would like to ask a question, please press stars and one.

Speaker Change: That's very helpful. Thanks for taking the questions.

Speaker Change: And once again, if you would like to ask a question, please press star then 1. Our next question will come from Matthew Howlett with B. Reilly. Please go ahead.

Matthew Howlett: My next question will come from Matthew Howlett with B. Riley.

Matthew Howlett: Please go ahead. Hey, just, they should take my question.

Michael Comparato: Hey, thanks for taking my question. Just on pricing, I mean, you originated a little over 300 basis points. I mean, just what are you seeing between the various asset classes in terms of we're hearing multi, new multi, now it's under 300. Talk a little bit about that. Talk a little bit about where the floors are that you're originating.

Matthew Howlett: Just an unpricing. I mean, you originated a little over 300 basis points. But just what are you seeing between the various asset classes, you know, the terms of we're hearing multi new multi now is under 300. Talk a little bit about that. Talk a little bit about where the floors are that you're originating.

Matthew Hallett: Hey, thanks for taking my question. Just on pricing, I mean...

Matthew Hallett: You originated a little over 300 basis points, but just what are you seeing between...

Michael Comparato: Hey, Matt, good morning.

Michael Comparato: Yeah, I would say, you know, very middle of the fairway multi-family origination today is probably in the sub 300 pricing range. And I would say, you know, construction lending on multi-families probably 200 to 250 basis points wider than that at lower attachment points. We continue to think the construction lending business is probably the best risk-return of anything out there.

Speaker Change: Hey, Matt. Good morning. Yeah, I would say, you know,

Speaker Change: Very middle-of-the-fairway multifamily origination today is probably in the sub-300 pricing range. And I would say, you know, construction lending on multifamilies probably

Speaker Change: 200 to 250 basis points wider than that at lower attachment points. We continue to think the construction lending business

Michael Comparato: Unfortunately, it's just not an efficient asset, right? We don't get to put the capital to work all right away. It kind of dribs and drabs over the 18-month construction period. And then I would say hospitality is probably 150 basis points. It's 100 basis points wide of where multifamily is pricing, depending on the specifics. You know, industrial largely pricing very close to multi family. In terms of sofa floors, I would say we're generally getting sofa floors anywhere between three and 4% on new origination, you know, with the occasional outlier in either direction.

Speaker Change: is probably the best risk return of anything out there. Unfortunately, it's just not an efficient asset, right? We don't get to put the capital to work right away. It kind of dribs and drabs over the 18-month construction period.

Speaker Change: 150 basis points to 200 basis points wide of where multifamily is pricing, depending on the specifics. You know, industrial largely pricing very close to multifamily. In terms of sofa floors, I would say we're generally...

Michael Comparato: And when you see the attachment points, we're talking, where we talk at 40% for, I mean, we on the construction side.

Michael Comparato: No, I mean, I think the generic market today, again, for an existing multi-family asset, you know, that's a, you know, light touch transitional or a TCO takeout just to fill it up. Generally, a senior loan today is about a 70% loan to cost.

Michael Comparato: And when you see attachment points for retabling, were we talking 40% for a minute? No, I mean, I think the generic market today, again, for an existing multifamily asset, you know, that's a light touch transitional or a TCO takeout, just to fill it up. Generally, a senior loan today is about a 70% loan to cost.

Speaker Change: No, I mean, I think the generic market today, again, for an existing multifamily asset that's a light-touch transitional or a TCO takeout, just to fill it up.

Michael Comparato: And on construction, you're seeing kind of low to mid 60s loan to cost, so maybe five to 10 points lower in loan to cost attachment, but a 250 basis point premium on pricing, which is, you know, again, when you're, when you're focused on three stories, we stick build multi family and suburbia anywhere in USA, we just believe that that pricing premium for the construction risk is outstanding, right? This is in complicated construction. This is construction that any GC can complete. And, and we really like this space, but again, it's just not an efficient asset for a mortgage read.

Michael Comparato: And on construction, you're seeing kind of a low to mid-60s loan to cost, so maybe 5 to 10 points lower in loan to cost attachment, but a 250 basis point premium on pricing, which is, you know, again, when you're focused on three story stick built multifamily and suburbia anywhere in the USA. We just believe that that pricing premium for the construction risk is outstanding, right? This isn't complicated construction. This is construction that any GC can complete.

Speaker Change: And on construction, you're seeing kind of low to mid-60s loan-to-cost, so maybe 5 to 10 points lower in loan-to-cost attachment, but a 250 basis point premium on pricing, which is, you know, again,

Speaker Change: When you're focused on three-story, stick-build, multifamily and suburbia anywhere in the USA,

Michael Comparato: And we really like the space. But again, it's just not an efficient asset for a mortgage rate. So we kind of limit the overall exposure that we have there. But the banks must have really backed away from that. Well, they went from probably 90 to 95% market share to completely out of the business, I would say, from March or April of 23 to maybe six months ago.

Michael Comparato: So we kind of limit the overall exposure that we have there.

Michael Comparato: But the banks must have really backed away from that in that construction lending segment recently.

Michael Comparato: Well, they went from, from, you know, probably 90 to 95% market share to completely out of the business, I would say from March or April of 23 to maybe six months ago. You know, we've anecdotally heard about a few of them stepping back into the market. We get closer to like the 50% loan to cost range, and then borrowers are still going out looking for for meds and or prefect equity to kind of get the debt stack to the mid 60s in terms of construction loans, but look, the reality is. as you can buy almost any asset across the country for less than what you can build it for today.

Michael Comparato: We've anecdotally heard about a few of them stepping back into the market closer to like the 50% loan-to-cost range, and then borrowers are still going out looking for MES and PREF equity to kind of get the debt stack to the mid-60s in terms of construction loans. But look, the reality is... you can buy almost any asset across the country for less than what you can build it for today. So putting a shovel in the ground from an economic standpoint on building a new multifamily asset, it's really, really difficult to make those numbers work.

Speaker Change: To maybe six months ago, you know, we've anecdotally heard about a few of them stepping back into the market

Speaker Change: closer to like the 50% loan-to-cost range and then borrowers are still going out looking for for MES and or PREF equity to kind of get the debt stack to the mid-60s in terms of construction loans, but look the reality is

Michael Comparato: So putting a shovel in the ground from an economic standpoint on building a new multi-family asset, it's really, really difficult to make those numbers work. You know, does that dynamic change over the next few years? You know, obviously, it remains to be seen, but when it's cheaper to buy than it is to build, you don't typically see a lot of shovels going into the ground. Right.

Speaker Change: So, putting a shovel in the ground from an economic standpoint on building a new multifamily asset?

Speaker Change: It's really, really difficult to make those numbers work. You know, does that dynamic change over the next few years? You know, obviously remains to be seen. But when it's cheaper to buy than it is to build, you don't typically see a lot of shovels going into the ground.

Michael Comparato: You know, does that dynamic change over the next few years? It obviously remains to be seen. But when it's cheaper to buy than it is to build, you don't typically see a lot of shovels going into the ground.

Michael Comparato: Right. Well, it's a great opportunity for you guys. I look forward to growth on the platform. Turning to funding, I know you've addressed the bank lines and the CLOs. We keep hearing from the calls.

Michael Comparato: What's a great opportunity for you guys and look forward to growth in the platform.

Speaker Change: It's a great opportunity for you guys, and we look forward to growth in the platform. Turning to funding, I know you've addressed the bank lines and the CLOs. We keep hearing from the calls, people are buying AAA, how great that market is, and are looking at the CLO market.

Michael Comparato: Turning to funding, I know you've addressed the bank lines and the CLOs. We keep hearing from the calls people are buying AAA, you know, how great that market is and are looking at the, you know, the CLO market and, you know, 190, 200 over. I don't know what the latest deal priced at, but I mean, you know, is that market going to tighten? When you look at it and say, hey, well, this is market is going to tighten significantly at some point. And we're going to do a CLO deal. We've heard maybe could comment on, you know, advance rates like 85%. We've heard on that.

Michael Comparato: People are buying AAA, you know, how great that market is. And they're looking at the, you know, the CLO. 190, 200 and over.

Michael Comparato: I don't know what the latest deal was priced at, but I mean, is that market going to tighten? Do you look at it and say, hey, well, this market's going to tighten significantly at some point, and we're going to do a CLO deal. We've heard, maybe you could comment on, you know, advance rates, like 85% we've heard on that.

Speaker Change: 190, 200 and over. I don't know what the latest deal priced at, but I mean...

Michael Comparato: And will you refinance some of your, you know, if you can get great execution, will you refinance some of the CLOs that are out of the reinvestment period that are deleveraging? Just walk me through that market, because you guys have been great at it. And the execution over the years has just been tremendous.

Michael Comparato: And will you refinance some of your, you know, if you can get great execution, will you refinance some of the CLOs that are out of the reinvesting period that are de-leveraging? Just, just let me do that market because you guys have been, you've been great at it and the execution over the years has just been tremendous. Just comment on where the market is and what you'll do to tap it. Yeah, I mean, I think we're one of the most active players in the market from all sides, right? We're active buyers of bonds, and we're also a very active issuer.

Speaker Change: Just walk me through that market, because you guys have been great at it, and the execution over the years has just been tremendous. Just comment on where the market is and what you'll do to tap it.

Michael Comparato: Just comment on where the market is and what you'll do to tap it. Yeah, I mean, I think we're one of the most active players in the market from all sides, right? We're active buyers of bonds, and we're also a very active issuer. And, you know, while we have bought AAA bonds in the past, if you believe that values are at least troughing or close to troughing today, you know, from a relative value standpoint, I think we find more value in buying the credit bonds and the bottom part of the stack, right? You're achieving nine handle coupons on investment grade bonds, you know, single A or triple B bonds. And, you know, maybe SOFR tightens a little bit, but, you know, still an eight handle on that.

Michael Comparato: And, you know, while we have bought AAA in the past, you know, if you believe that values are at least trapping or close to trapping today, you know, from a relative value standpoint, I think we find more value in buying the credit bonds and the bottom part of this back, right? You're achieving nine handle coupons on investment grade bonds, you know, single A or triple B bonds and, you know, maybe so for tightens a little bit, but, you know, still an eight handle on that is a really nice investment. You know, clearly you're giving up some liquidity versus the liquidity and the triple A charge, but, you know, we don't view them as trading instruments.

Speaker Change: You know, from a relative value standpoint, I think we find more value in buying the credit bonds and the bottom part of the stack, right? You're achieving nine-handle coupons on investment-grade bonds, you know, single-A or triple-B bonds.

Speaker Change: And, you know, maybe SOFR tightens a little bit, but, you know, still an eight handle on that. It's a really nice...

Michael Comparato: It's a really nice investment. You know, clearly, you're giving up some liquidity versus the liquidity in the AAA tranche, but, you know, we don't view them as, you know, trading instruments. Yeah, they have a QCIP. Yeah, they're liquid.

Speaker Change: investment. You know, clearly you're giving up some liquidity versus the liquidity in the AAA tranche, but

Michael Comparato: But when we buy these, they typically go to bond heaven, and we just hold them until maturity. In terms of issuance, it's a conversation that we have with the Capital Markets Desk and Jerry multiple times a month. And the analysis is actually very simple, right?

Michael Comparato: Yeah, they have a QCF, yeah, they're liquid, but when we buy these, they typically go to bond heaven, and we just hold them till maturity. In terms of issuance, it's a conversation that we have with the capital markets desk and Jerry multiple times a month. And the analysis is actually very simple, right? Because the non-economic benefits of the CRECO low just massively outweigh the non-economic benefits of warehouse financing, right? You take a non-recourse, non-market market, match term funded liability; you know, that we're going to take that every time. So then it really just comes down to economics.

Speaker Change: Yeah, we don't view them as, you know, trading instruments. Yeah, they have a QCIP. Yeah, they're liquid.

Speaker Change: But when we buy these, they typically go to bond heaven, and we just hold them until maturity. In terms of issuance...

Speaker Change: It's a conversation that we have with the Capital Markets Desk and Jerry multiple times a month.

Michael Comparato: Because the non-economic benefits of the CRE CLO just massively outweigh the non-economic benefits of warehouse financing, right? You take a non-recourse, non-mark-to-market, match-term funded liability, you know, we're going to pick that every time. So then it really just comes down to economics. So if the economics are equal to a warehouse facility, you issue the CRE CLO as fast as you can. If they're better, you can run even faster.

Speaker Change: of the CRE-CLO just massively outweigh the non-economic benefits of warehouse financing, right? You take a non-recourse, non-mark-to-market, match-term-funded liability, you know, we're going to pick that every time. So then it really just comes down to economics.

Michael Comparato: So if the economics are equal to a warehouse facility, you issue the CRECO as fast as you can. If they're better, you run even faster. Really, the only analysis is when the economics of keeping alone on warehouse for outweigh the economics of the CRECO execution. That's where you have to think about, you know, the non loan specific things. Do we want extra cash? Do we want this? Do we want, so, you know, it's a constant conversation that we have. I think the market is incredibly under supply at the moment. You know, almost any SaaS BDO CRE CLO that's coming to the market is getting gobbled up very, very quickly.

Speaker Change: So, if the economics are equal to a warehouse facility, you issue the CRE CLO as fast as you can. If they're better, you run even faster. Really, the only analysis is when the economics of keeping a loan on warehouse

Michael Comparato: Really, the only analysis is when the economics of keeping a loan on the warehouse far outweigh the economics of the CRE CLO execution. That's where you have to think about, you know, the non-loan specific things. Do we want extra cash? Do we want this? Do we want... So, it's a constant conversation that we have.

Speaker Change: far outweigh the economics of the CRE CLO execution.

Speaker Change: the non-loan specific things. Do we want extra cash? Do we want this? So, you know, it's a constant conversation that we have.

Michael Comparato: I think the market is incredibly undersupplied at the moment. Almost any SASB deal, CRE, CLO, that's coming to the market is getting gobbled up very, very quickly. So, we're looking at it today, we're looking at it constantly, and we're always gonna execute where we think is best for shareholders. We're trying to read between the lines. So, when you get ready, would you be running to that market today? Things are getting gobbled up, and maybe more supply will help tighten those spreads, but it sounds like the agency advance rates are just... Yeah, I mean, we're not now. We're getting into the weeds, which, which I love.

Speaker Change: I think the market is incredibly undersupplied at the moment. You know, almost any SASB deal, CRE, CLO, that's coming to the market is getting gobbled up very, very quickly. So …

Michael Comparato: So we're looking at it today; we're looking at it constantly, and we're always going to execute where we think is best for shareholders. I mean, I'm trying to read between a lot. So would you, when you get ready, would you be running to that market today?

Speaker Change: We're looking at it today, we're looking at it constantly, and we're always going to execute where we think is best for shareholders.

Speaker Change: I'm trying to read between the lines, so would you, when you get ready, would you be running to that market today given, you know, what you said to me?

Michael Comparato: I mean, given, you know, what you said to me, things are getting gobbled up and maybe more supply will help tighten those spreads, but it sounds like radiancy advanced rates are just like incredibly 85%, and obviously the downward recourse features sort of why wouldn't you just tap that market, you know, whenever you can now. Yeah, I mean, we're not now we're getting into the weeds, which I love, but look, I think while cap rates are widening, I don't want to get into the agency underwriting business, but you know, as cap rates widen, you know, agency kind of stress cap rates have stayed constant for 30 years.

Speaker Change: things are getting gobbled up and maybe more supply will help tighten those spreads but it sounds like the Radiancy Advance rates are just like incredibly 85% and obviously the non-recourse features so why wouldn't you just tap that market you know whenever you can now?

Michael Comparato: But look, I think while cap rates have widened, and I don't want to get into the agency underwriting business, but, you know, as cap rates widen, agency stress cap rates have stayed constant for 30 years, so leverage available in these CRE CLOs is going up. And while that's available, I'm not sure that we want to use all of that, right? I'm not sure that we want to be, you know, five times levered on a CRE CLO. In fact, I can tell you definitively that we don't want to be five times levered on a CRE CLO.

Speaker Change: Yeah, I mean, now we're getting into the weeds, which I love, but look, I think while

Speaker Change: Cap rates have widened, and I don't want to get into the agency underwriting business, but as cap rates widen, agency stress cap rates have stayed constant for 30 years, so leverage available in these CRA CLOs is going up.

Michael Comparato: So leverage available in the CREC lows is going up. And while that's available, I'm not sure that we want to use all of that, right? I'm not sure that we want to be, you know, five times levered on a CREC low. And in fact, I can tell you definitively, we don't want to be five times levered on the CREC low. So, you know, regardless of those leverage points, I think we always typically want to be holding the bottom 20 to 25% of any CREC low that we issue. The market is open; the market is liquid.

Speaker Change: And while that's available, I'm not sure that we want to use all of that, right? I'm not sure that we want to be, you know, five times levered on a CRE CLO. In fact, I can tell you definitively we don't want to be five times levered on a CRE CLO.

Michael Comparato: So, you know, regardless of those leverage points, I think we always typically want to be holding the bottom 20 to 25% of any CRE CLO that we issue. The market is open, the market is liquid. I think we get, probably today, a little bit better leverage than than warehouse, a little bit less pricing than warehouse. But net net, the economics are probably very close to each other.

Speaker Change: So, you know, regardless of those leverage points, I think we always typically want to be holding the bottom 20 to 25% of any CRA CLO that we issue.

Michael Comparato: You know, I think we get probably today a little bit better leverage than then warehouse, a little bit lesser pricing. Then warehouse, but net net, the economics are probably very close to each other. So, yeah, I wouldn't, you know, we're actively looking at, you know, the opportunity to issue today.

Speaker Change: The market is open, the market is liquid, you know, I think we get probably today a little bit better leverage than warehouse, a little bit lesser pricing than warehouse.

Michael Comparato: So yeah, I wouldn't, you know, we're actively looking at, you know, the opportunity to issue today. Yeah, well, I'll just say equity investors get very excited when you start creating, you know, the CLO deals that have double-digit, you know, ROEs, and you guys have done a great job of doing that. So look forward to continued success, and thanks for your participation.

Speaker Change: But net-net, the economics are probably very close to each other. So, yeah, I wouldn't, you know, we're actively looking at, you know, the opportunity to issue today.

Michael Comparato: Yeah, well, I'll just say equity investors get very excited when you start creating, you know, these hellow deals at, you know, double digit, you know, are we and he doesn't done a great job track record of doing that. So look forward to continue success. And thanks for taking my question.

Speaker Change: Yeah, well, I'll just say equity investors get very excited when you start creating, you know, these CLO deals that, you know, double-digit, you know, ROEs, and you guys have done a great job track record of doing that. So, look forward to continued success, and thanks for taking my questions.

Lindsey Crabbe: And this will conclude our question-and-answer session. I'd like to turn the conference back over to Lindsey Grabb for any closing remarks. We really appreciate you joining us today. Please reach out with you have any further questions. We look forward to speaking with you soon. Thanks and have a great day.

Michael Comparato: I'd like to turn the conference back over to Lindsey Crabbe for any closing remarks. We really appreciate you joining us today. Please reach out if you have any further questions. We look forward to speaking with you soon. Thanks, and have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Speaker Change: And this will conclude our question and answer session. I'd like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Lindsey Crabbe: We really appreciate you joining us today. Please reach out if you have any further questions. We look forward to speaking with you soon. Thanks and have a great day.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect your lines at this time.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.