Q4 2024 KKR Real Estate Finance Trust Inc Earnings Call
Speaker Change: Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Fourth Quarter 2024 Financial Results Conference Call.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad.
Speaker Change: To withdraw your question, please press star then 2. Please note this event is being recorded and I would now like to turn the conference over to Jack Switala of Investor Relations. Please go ahead.
Jack Switala: Great, thanks operator and welcome to the KKR Real Estate Finance Trust earnings call for the fourth quarter of 2024.
Jack Switala: As the operator mentioned, this is Jack Switala. This morning, I'm joined on the call by our CEO, Matt Salem, our President and COO, Patrick Mattson, and our CFO, Kendra Decious.
Jack Switala: I'd like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor Relations portion of our website.
Jack Switala: This call will also contain certain forward-looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10-K for cautionary factors related to these statements.
Jack Switala: Before I turn the call over to Matt, I will go through our results. For the fourth quarter of 2024, we reported gap net income of $14.6 million, or 21 cents per share.
Jack Switala: Book value as of December 31st, 2024 is $14.76 per share, which is relatively flat quarter-over-quarter.
Jack Switala: Distributable loss this quarter was negative 14.7 million dollars or negative 21 cents per share.
Jack Switala: We have a $0.25 per share dividend, which yields 10% as of yesterday's closing price.
Matt Salem: With that, I'd now like to turn the call over to Matt.
Matt Salem: Thank you, Jack. Good morning, everyone, and thank you for joining today.
Matt Salem: Before we begin, we first wanted to acknowledge the devastating wildfires in California.
Our thoughts are with everyone that has been impacted.
And our heartfelt thanks to all the first responders.
Matt Salem: Before going into our results, I thought I would discuss our 2024 achievements.
Matt Salem: First, I wanted to highlight CARES' ability to leverage KKR's significant resources and information.
KKR manages approximately 80 billion of real estate assets globally.
with approximately 140 professionals.
Matt Salem: We have been able to utilize all our resources across asset management, sourcing,
underwriting and capital markets.
Matt Salem: Just within real estate credit at KKR, we are active across the United States and Europe.
and transitional pools of capital.
Matt Salem: Our dedicated KSTAR asset management platform now has over 55 individuals with expertise in asset management, special servicing.
underwriting, and REO.
Matt Salem: This team manages a portfolio of over $36 billion in loans and is named special servicer on an additional $45 billion.
of CMBS.
Burning the KRES
This was the year of transition.
Our posture during this challenging environment for real estate
Matt Salem: has been to transparently and proactively address issues, and we think this approach has led to better asset management outcomes.
Matt Salem: Over the course of the year, we have decreased our watchlist percentage from 13% as a fourth quarter of 2023 to 8% today.
As for our REO assets...
Matt Salem: We've begun to see green shoots in the office and life science sectors.
Matt Salem: and it's a re-entering the market and we have responded to a number of RFPs.
Matt Salem: Investor sentiment is slowly rebounding and liquidity is beginning to return for the highest quality assets.
Matt Salem: The CMBS market has seen a number of large office transactions with over three and a half billion of office SASB issuance in 2024 and a healthy 2025 pipeline.
Matt Salem: We think our patience on these high quality assets will optimize shareholder value.
Matt Salem: As a reminder, as we repatriate the equity in the REO portfolio, we believe we could generate an additional 12 cents per share on our distributable earnings per quarter.
Matt Salem: With the assistance of our KKR Capital Markets team, our liability structure remains a differentiator for the company.
Matt Salem: We have diversified financing, and 79% of our financing is non-mark-to-market.
Matt Salem: We have strong levels of liquidity with $685 million available at the end of the fourth quarter.
Although we don't have any corporate maturities until 2027.
Matt Salem: The debt capital markets are healthy, and we continue to watch for opportunities to optimize our capital structure and further extend maturities.
and transaction volumes are increasing quarter over quarter.
Matt Salem: The higher U.S. Treasury market may dampen some acquisition activity but we have a robust pipeline and there should be ample opportunity to lend on reset values.
In January, we closed two loans for approximately $225 million.
looking ahead
Matt Salem: that while we are not fully out of the woods and anticipate further credit migration
Matt Salem: We think we have dealt with the majority of the issues in the portfolio.
Before I turn the call over to Patrick
I want to reiterate our optimism heading into 2025.
Matt Salem: We continue to feel confident in our offensive positioning and look forward to the opportunity that we have in front of us. With that, Patrick can take it from here.
Patrick Mattson: Thanks, Matt. Good morning, everyone. Fourth quarter repayments exceeded $450 million, comprised of six loans secured by Multifamily and Industrial Properties.
Patrick Mattson: as well as the par sale of a Dallas office loan.
Patrick Mattson: Full year repayments totaled $1.5 billion, representing approximately 19% of our portfolio.
Patrick Mattson: We reported fourth quarter distributable earnings prior to realized losses of $0.31.
Patrick Mattson: and DE of negative 21 cents per share, which includes the realized loss on the San Carlos Life Science Loan.
Patrick Mattson: We now have four watch list loans in the portfolio, representing 8% of the loan portfolio compared to 13% a year ago.
Patrick Mattson: While additional watchlist loans would not be surprising over the course of this year, we remain confident that we are well beyond the peak stress.
Patrick Mattson: With excess liquidity, a stabilizing portfolio, and leverage at the low end of our target, we are actively looking to invest repayments into new loans.
Repayments are expected to exceed $1 billion again this year.
Patrick Mattson: And given our current leverage levels, we anticipate originations to outpace repayments in the near term.
Patrick Mattson: We closed two loans for a total of $225 million last month.
Patrick Mattson: including a four-property multifamily portfolio of newer vintage and recently renovated assets
Patrick Mattson: with a business plan to improve physical occupancy and burn off current concessions.
Turning to our CECL allowance and watch list.
Patrick Mattson: As we suggested in the previous earnings call, in fourth quarter we modified the San Carlos Life Science Loan.
Patrick Mattson: and subordinated a portion of the loan to new sponsor equity.
Patrick Mattson: The $36 million dollar subordinated note was written off and the corresponding CECL reserve was released.
Patrick Mattson: Subsequently, the restructured and reduced senior loan was upgraded to a risk rating of 3.
Our total CECL reserve decreased to $120 million.
Patrick Mattson: and 92% of the portfolio is risk rated three or better.
Patrick Mattson: On our watch list, we continue to make progress on our West Hollywood multifamily loan.
Patrick Mattson: and we are continuing down a path to ownership and subsequent condo sellout.
Patrick Mattson: We will keep you updated on the progress in the coming quarters.
Patrick Mattson: As of the fourth quarter, our debt-to-equity ratio is 1.6 times.
and total leverage ratio is 3.6 times.
Patrick Mattson: KREF's leverage at this point is on the lower end of our target zone, so we are actively originating loans.
as part of our investment allocation.
We've continually looked to evaluate share repurchase opportunities.
Patrick Mattson: Prior to the fourth quarter, we bought back almost $100 million of stock since inception of the company.
Patrick Mattson: In the fourth quarter, we added to that total, repurchasing $10 million of KREP stock.
Patrick Mattson: We've made great progress on our watch list over the last 12 months and remain excited about the current market opportunity.
Patrick Mattson: This should be a strong repayment and origination year for KREF.
Patrick Mattson: The lending market is attractive and we plan to be active.
Patrick Mattson: We feel confident in our positioning from a portfolio quality, liability structure, and leverage perspective.
and look forward to the opportunity ahead in 2025.
Thank you again for joining us this morning.
And now, we're happy to take your questions.
Patrick Mattson: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Patrick Mattson: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Tom Catherwood with BTIG. Please go ahead.
Tom Catherwood: Thanks and good morning everybody. Maybe starting with repayments. Obviously, you know, huge jump in in 4Q. You had alluded to that obviously with 3Q earnings, just that you expected the pace to be accelerated.
How has that paced
Tom Catherwood: trended with the steepening of the yield curve kind of has that slowed as we've begun 2025 and you know how much of that do you kind of expect that you know billion plus dollars of repayments do you think that that's likely early you know 25 event or should it come in kind of evenly throughout the year
Tom Catherwood: Tom, good morning. It's Patrick. I'll take that question. So, you're right, we did have a pretty meaningful acceleration in the fourth quarter. As you know, our loans are pretty chunky, so we get a few more repayments in any one quarter, and that can sort of drive the numbers.
Obviously, that was at a time when we saw...
Tom Catherwood: you know, rates back up and, you know, there wasn't a meaningful impact in repayments.
Tom Catherwood: I don't see that as a main driver for the repayments. A lot of these loans have reached their business plans, and it's about optimizing the refinance for our counterparties, so I don't see a material impact there.
Tom Catherwood: In terms of the forecast this year, again, difficult sort of quarter by quarter. We certainly think it's over a billion dollars this year.
Tom Catherwood: We had forecasted through pay in 2026 and obviously came early.
Patrick Mattson: God, I appreciate that and Patrick, I just want to make sure I heard you right, did you say you expect originations to exceed repayments in the near term in your prepared remarks?
Patrick Mattson: That's right, and that really stems from the fact that we're at the low end of our leverage target here.
Patrick Mattson: So, as we start to redeploy the capital, we think there's an opportunity for us to get ahead of some of these repayments, but also get back into the mid-range of our leverage ratio.
Patrick Mattson: You know, out of the gates, we had a pretty strong January to start with. There were no repayments that came in that month. So, you know, already in the first quarter, we're seeing the trend that I was discussing.
Great, and then along those lines...
Speaker Change: Can you talk about the kind of, I mean obviously we, you know...
Patrick Mattson: appreciate the color on the hospitality loan in Tennessee and the multifamily loans in various locations. But as far as your pipeline looking forward, can you talk a bit about the asset classes that you're targeting and maybe how the scope of that pipeline might compare to, you know,
pre-pre-pandemic or kind of early 2020 times.
Patrick Mattson: student housing. Obviously we did a hotel deal this this quarter that's always been a little bit smaller part of of what we've done but you know an important an important piece of the portfolio. In terms of just what's different I would say a couple things. Number one for us
Patrick Mattson: Europe, we'd hope to, we've built a business in Europe over the last few years and we've been actively lending there so we'd like to add that to the portfolio from a
Patrick Mattson: perspective. Again, similar property types and sponsors, but we will get that geographic diversity in the portfolio. And then secondly, I would say, from a business plan perspective,
Patrick Mattson: things tend to be a little bit more stabilized and I think the multifamily deal that we you know that we did this this January is a good illustration of that where
you know, kind of before the rate increase.
We were doing a lot of
Kind of newly built construction takeout lending
Patrick Mattson: and providing that bridge to lease the asset up. And we still like that, and we'll still do that.
Patrick Mattson: it's mostly leased assets. It may be burnt off some concessions over time.
Patrick Mattson: but our loan is really just providing the sponsor with just a little bit more time to get into a little bit better rate environment.
Patrick Mattson: and grow revenues a little bit but not the same kind of dramatic increase in occupancy that we were lending on a few years back.
Patrick Mattson: So, the underlying business plans have changed, and then from a property type perspective, the only thing I would add is just the data center sector continues to, we continue to see a lot of demand for financing there, and so I think that would be a new area that we could potentially introduce into the portfolio.
Speaker Change: I appreciate that, Matt. Last one for me, kind of sticking with you, you know for office we would usually speak about the sector in hushed tones. Obviously you mentioned in your prepared remarks some positive shifts recently in the sector, albeit off of a very low base, but kind of how are you thinking of your office loans right now, both you know the ones on your on you know in your loan book and the REO assets on your balance sheet?
Speaker Change: Yeah I think there's there's three segments there probably I would highlight. On the REO
Speaker Change: The green shoots that we're beginning to see in the sector are encouraging. It's early still and I think we have to be patient but...
There's leasing activity and I think what we own...
Speaker Change: It's really high quality real estate and the reason that we went to Tidal on it
Speaker Change: And it's not without cost, let's be clear, but the reason that we did that was because we thought we had really good assets that would lease over time, and now we're beginning to see some of those tenants come back into the market.
Speaker Change: Again early, but it's got to start somewhere and so that it's nice to kind of see that begin
Speaker Change: The financing markets are back So these are our three letter office loans tend to have a long term. Yeah, they're well leased they have long remaining lease terms
Speaker Change: and our leverage point is reasonable, so as the financing markets come back, you know, you can see, you can start to see some liquidity in those positions, so I'd say that's pretty encouraging on that component, and I think on the watch list...
Speaker Change: side, it's, you know, it'll still be, you know, we've got a risk-based office loan in Minneapolis, and, you know, it's still probably a little bit of a wait-and-see, and let's keep working through it, and we've modified that and have big reserves already, but
Speaker Change: Again, we're not out of that asset yet either, so a little bit of a mix depending on which group you're looking at.
Got it. Appreciate all your thoughts. Thanks everyone.
Thank you.
Don Fendetti: The next question will come from Don Fendetti with Wells Fargo. Please go ahead.
Yeah, Matt, so
Don Fendetti: You know, it seems like there's some cross-currents in your business. You've got office getting a little bit better, but hire for longer might not be so great for apartments.
Speaker Change: multifamily. As you think about book value, you know, should ambassadors sort of view
Don Fendetti: This is a more stable environment, maybe a little bit of migration from three to four, but nothing too significant to worry about.
Speaker Change: you're doing very large reserve builds and eating into that book, or is that a reasonable kind of base case over the next 12 months?
Don Fendetti: I mean it's hard to look out, I'd say hard to look out into the future. I think we've like we try to make these comments that
you know, we're largely through.
You know it's hard to
Don Fendetti: You know look out a couple quarters and and project what might happen and I would say it's a pretty volatile macro environment
Don Fendetti: rate complex in the economy as well. So it's hard. I think we're entering this phase where we're going to see much more book value stability, but again, hard to project over a few quarters or a handful of quarters like what else might come down the road.
Speaker Change: Got it. And what's your sense on multifamily in your portfolio? You've had a couple rate cuts, but now it looks like maybe fewer. What are you hearing from borrowers? Are they sort of willing to hang in there? Is there still some hope?
Speaker Change: And if you do take real estate back, do you still feel like you can still monetize the value because there's liquidity and multifamily?
Speaker Change: With the multifamily, I'll kind of start where you ended, which is there's a tremendous amount of liquidity across the capital structure. Senior loans,
Speaker Change: Mezzanine preferred equity there is a lot of a lot of demand for it and if you if you just do the math
of the change in kind of the forward curve.
Speaker Change: It would imply that you know values are down a little bit more But there's a few things that are like offsetting that I would say number one Spreads have compressed so the cost of capital has come in a little bit To offset some of that interest rate increase
Speaker Change: Number two, we're further down the road, the supply pipeline road, which means we're closer to that moment in time where, good or bad, these markets are gonna be undersupplied again.
Speaker Change: We're not there yet, but we're closer to it, and that impacts just your projections as it relates to rents over time.
more
a higher degree of growth in the market.
Speaker Change: So, you know, perhaps investors are going to put a little bit more weight behind their rent assumptions or rent growth assumptions going forward. So there's there's kind of some puts and takes, I would say, as it relates to our portfolio.
Speaker Change: I honestly don't think we have like a lot of like rate sensitivity in our multifamily portfolio. We've got a couple of watchlist loans I don't think those are really rate sensitive and then our overall portfolio
Speaker Change: I don't think it really is. I think there's still equity cushion there, and for the most part, I don't think this rate move is really going to impact us that much. There were a lot of borrowers that...
Speaker Change: Elongated capital structures paid down loans to try to get to a lower interest rate environment and clearly they're going to have to wait a little bit longer. My guess is within our portfolio and our
Speaker Change: You know to do that so as you start to get into smaller sponsors that that's where I think you could see a little bit more of delinquencies and But I don't think values have changed, you know that much over the last couple quarters in multifamily
Thanks.
Speaker Change: And our next question will come from Steven Laws with Raymond James. Please go ahead.
Hi, good morning.
You guys provided some color on the West Hollywood
multi-deal
Speaker Change: But as you think about that Minneapolis office asset, five-rated, it looks like the maturity date sometime in the first half this year, you know, how do you expect to, you know, any color you can provide on kind of the resolution path there, do you think that's something that moves into
Speaker Change: The real estate portfolio, do you expect something more along the lines of the San Carlos resolution? How do you anticipate that moving in the first half of this year?
Speaker Change: I think we have a little bit more time on an asset like that as well because it continues to be pretty well leased.
Speaker Change: It's similar occupancy from over the last few years. It hasn't, we've lost some tenants, we've got some tenants. So it's relatively well leased and cash flowing well, and it competes well in the market. And it's a, Minneapolis is a really difficult market, but that asset competes.
Speaker Change: fine, competes well in the market for tenants. So I'm not exactly sure what the path is but there's probably more options there just given the cash flow and we could potentially just try to push that forward again and see if we can buy some more time.
Speaker Change: Great, appreciate that color. You know, as you think about originations and use of capital, you know, how do you view additional stock repurchases in the current market, you know, especially given kind of the sell-off year to date? I guess I assume that's a quiet period, but how do you think about repurchase activity versus new originations going forward?
Um
Speaker Change: Well, Patrick did a nice job of highlighting on the remarks that we've been very consistent buyers of our stock when we thought it was undervalued.
Speaker Change: and I think we'll you know we'll obviously continue to evaluate that that opportunity here.
But
Speaker Change: You know, there needs to be a balance in my mind as well.
our businesses to invest capital and make loans and
I think it's important for us to
Speaker Change: to make sure that we're turned back on and making new loans. So it's, I don't like to think about it as like one or the other, but I think as you saw us do over the course of the last few months, a balanced approach is kind of what we've taken in the past.
Speaker Change: Great. And Patrick, one for you on Cecil. You know, as you think about the new originations coming on that originated, you know...
Speaker Change: current environment, current cap rates, new underwriting standards versus a few years ago. You know, how do you think about the right level of reserves on the new originations this year? I mean, is it 75 dubs, 100 dubs? Like, how do we think about
Speaker Change: the normalized return level as we move back to a portfolio that's, you know, that is increasingly You know originated in this current environment
Speaker Change: It's model-driven for these three-rated loans, and the model for, you know, a short-duration loan, like many of the loans on the book today, have a lower CECL than a newly-originated
you know, five-year loan.
Speaker Change: so I would expect that marginally we'd sort of go up.
Speaker Change: Certainly that's something that we're going to be evaluating as we're making new loans and I think part of your question is
Speaker Change: you know, what's a minimum CECL that should be expected, and I think that's something that we continue to do work around. But I do think at the margin over the course of this year, absent any other movement, we would expect that, you know, there's slightly greater CECL.
Speaker Change: But to clarify, that says an absolute number, right? And that's largely driven by the portfolio growth because of the new originations? Or are you referring to some basis points of the portfolio? A little bit of both. One, because I think from a portfolio growth...
Speaker Change: There's a growth opportunity here just where we've got capital and where we're at a leverage level and then at the margin
Speaker Change: Putting aside resolutions, clearly if we resolve some of the 4s and the 5s, we'd expect CECL as a percentage to come down, but as I think about our 3-rated assets,
Speaker Change: and think about the percentage of CECL against those, I would expect that to go up, not only in nominal dollars, but in percentage terms.
Speaker Change: okay great that's helpful color appreciate that Patrick appreciate your time today thanks
Thank you. Thank you.
Speaker Change: Question will come from Steve Delaney with Citizens JMP. Please go ahead.
Speaker Change: Thanks, good morning everyone. Look, first we just want to applaud the buyback activity. It's very shareholder friendly and it's something frankly that it's not always seen among the externally managed companies.
Speaker Change: Your average price was $11.64. We're down to 14% to about $10.05 now, or around the $10 range, and so we should assume that...
Speaker Change: you continue to view that regardless of the volume and the leverage. I mean, I assume you still look at buybacks as being a very attractive opportunity. Is that correct?
Speaker Change: Hey Steve, thanks for the questions Matt. I think like I said, like I said earlier like we're evaluating both buybacks and new loans and I think like we've done in the past we'll
we really go down a balanced approach.
Thank you. Bye-bye.
Speaker Change: Okay, and to that point Matt about the portfolio, just curious looking at the portfolio at 5.9 billion obviously Activities been a little slow over the last year or two It's been more a credit issue the high was like 7.6 billion at the end of an early 23
Speaker Change: You've got $1.4 billion of equity at year-end 24. Do you have in mind sort of a round number or a range for where you think the portfolio could grow over the next year?
Steve, it's Patrick. I'm happy to take that. Thank you.
Speaker Change: Welcome. So as we think about the portfolio and think about our target leverage range
Speaker Change: This is absent, you know, resolution of, you know, some of the REO assets because that changes a little bit of that number, but just on the current portfolio, we think that number is in the kind of 6.6, the 6.7 billion dollar range.
Speaker Change: Very helpful. Well, thanks for the comments. A lot's been covered and I think I'm good.
Rick Shane: The next question will come from Rick Shane with J.P. Morgan. Please go ahead.
Speaker Change: Morning everybody. Hey look a lot's been covered here but I guess I really have
Speaker Change: we've seen movement in rates. I am curious, the comment was made implicitly that puts a little bit of downward pressure on valuations.
when you look at what is transacting in the market
Speaker Change: or is it a function of buyers and sellers developing greater confidence about
Where we
Speaker Change: are, it's sort of at the end of the cycle. Like, are people less concerned about, hey, we spent $100 million on this and, yeah, it's going to be miserable to trade out at $50 million, or is it, hey, we're now trading out at $50 million and we're a lot less worried about it being worth $40 million next week?
Hey Rick, it's Matt. Thanks for the question.
let me answer it this way and hopefully
What you're looking for comes through.
Speaker Change: I think it's a function of like over the last few years a couple years it's been a function of who are the sellers
because a lot of these assets are
Speaker Change: They're well leased, they're cash flowing, and they have a valuation issue around cost of capital.
Speaker Change: It's really they may have to sell to repatriate capital. You know, that's been where most of the sales have been Now as we start to enter this next phase
Speaker Change: You know you have I think there's more certainty within locally with it where values are so there's the bid offer has definitely compressed
and then it's just a question of like
Speaker Change: Okay, do the existing owners, do they just want to keep buying a little bit more time and playing it forward?
burn off and get into a larger rent increase dynamic.
Speaker Change: So that's really what I think is happening. And then the overlay again, it's like this capital structures are becoming.
Speaker Change: short because you think about all the acquisitions that happened in 21 and 22. A lot of those were financed with five-year loans, so people are just like running a little bit short on time and there's a little bit more acute
Speaker Change: decision I think that they have to make. So that that's you know how I see it and quarter over quarter for the last
Speaker Change: four or five quarters, like we've seen volumes build, transaction volumes continue to increase. And I think it's a function of just what I described, like reality setting in, capital structures.
Speaker Change: you know getting maturing and people needing liquidity. So I personally think it'll be a little bit more of a continuation of that. I don't think there's gonna be a huge change in transaction volumes this year. We're just in this very slow deleveraging process for the industry.
Speaker Change: Hey Matt, first of all thank you. I know it's a little bit of an amorphous question and thank you for swinging at the pitch. I appreciate that. I said one more question but I'm actually going to follow up and then ask the second question. Is what you just described
Speaker Change: The explanation for the Minneapolis office loan, you've described it as well leased and alluded to the possibility of extending that a little bit longer. Is it just
Well I put, I would put
Speaker Change: There's been liquidity for all these other sectors throughout the last couple years. Nobody really wanted to sell at the price that there was liquidity. People just would rather hold out. I think with Office there was, in my mind, like very little to zero liquidity.
Speaker Change: Now you're starting to see some of that liquidity come back into the market. So it's a little bit different dynamic there where.
Speaker Change: More buyers in the market and some level of interest in owning office You know can could really help that I just don't think office was a liquid asset class over the last couple couple years And now you're starting you're starting with the best like I'm not I don't want to like overstate it like
Speaker Change: The highest quality stuff first, but of course that's where it's going to start, and I think that's the gun.
Speaker Change: Got it, thank you. And then the other question I had is this
Speaker Change: We tend to take a pretty high-level top-down view of the space and one of the observations I would make is that you guys make three-year loans that never last three years. When times are good
Speaker Change: these three-year loans that have five-year terms, or five-year extensions go six or seven years. And we saw the pendulum swing wildly in the last three years or four years on that.
Speaker Change: You talked about a repayment in the fourth quarter that was something you didn't expect until 2026.
Speaker Change: I realize it's just one loan and everything is super idiosyncratic. Is there any indication that some of the newer loans, that things are swinging a little bit back in the other direction?
Speaker Change: in terms of the portfolio? We went from two years to seven years. Is there anything that we're starting to see stuff, anything out there execute a lot faster than we've been seeing over the last three or four years?
Speaker Change: Yes, I think there's more liquidity in the debt markets today than there has been, which is allowing...
Speaker Change: I think the new loans that we're making now, I hear your point. I mean, I think the new loans we're making now are pretty strong. I mean, we have reset basis.
Speaker Change: Good terms. And I think I agree with you. I think those are Likely going to be on the on the shorter end as people getting good goodbyes today and and
Speaker Change: or if it's a refinance, then they probably don't want all five years. They probably only want a couple years before they repatriate capital.
Speaker Change: and then part of it is just a function of life.
Speaker Change: Where we are today is like they've had our sponsors have largely had a few years to implement their business plan so they've executed on it and And now they can they have the cash flows that they can either sell or or go refinance. So
Speaker Change: And we've been thinking more about duration to your point around, you know, just always on the treadmill and on short duration loans and, you know, the portfolio exposure that can create. So it's something that's on our mind as well.
Speaker Change: Okay, really really appreciate it and sorry for all the questions, but I realize we're sort of the end of this and hopefully
That's okay. Thank you guys
Speaker Change: Again, if you have a question, please press star, then 1. Our next question will come from Jason Sapshon with KBW. Please go ahead.
Jason Sapshon: Hi, good morning. Could you please give an update on KRF's life science deals and the outlook for leasing and ultimately value in those assets? That's probably the number one area of pushback that we hear, so addressing that would be helpful. And is that where you could see the potential credit migration in the portfolio that you alluded to previously?
Thanks.
um
Jason Sapshon: Yeah, I'll try to cover some of that without going into too much detail.
Thank you.
Jason Sapshon: First of all, we've made some, you know, we've made some progress on the live science piece of it.
Jason Sapshon: We foreclosed on an asset, we modified, you know, last quarter we had that big modification which, you know, hopefully dealt with that.
And then a lot of our remaining exposure.
is on
Jason Sapshon: There were construction loans, so these are really high quality, very well located.
trophy-like, in some cases, assets.
Jason Sapshon: We think the tenants are coming back into these markets and they're really looking for the best assets in the market and we have our exposure is
Jason Sapshon: not 100% but largely in that type of space and that type of quality.
Jason Sapshon: You know our sponsors I think are You know excited about what they're seeing in terms of just the tenants coming back into the market
Why don't I stop there, without going loan by loan.
Speaker Change: Great, thank you. And on the multifamily watch list assets, it would be helpful to hear about what the issues there are. Is it basis, rent, supplier, or something else? Thanks.
Yeah, I think it's.
Speaker Change: So a little bit of a mix depending on which asset we're looking at.
Thanks.
Thank you. Bye-bye. Bye-bye.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Jack Switala for any closing remarks. Well, great. Thanks, Operator, and thanks, everyone, for joining today. Please feel free to reach out to me or the team here if you have any questions. Take care.
Speaker Change: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.