Q4 2024 BrightSpire Capital Inc Earnings Call
Speaker Change: Good day and welcome to the Bright Spire Capital Inc. fourth quarter and full year 2024 earnings 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.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. And to withdraw your question, please press star and then 2. Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to David Palam, General Counsel. Please go ahead.
Speaker Change: Good morning and welcome to Brightspire Capital's fourth quarter and full year 2024 earnings conference call. We will refer to Brightspire Capital as Brightspire BRSP or the company throughout this call.
Speaker Change: Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei, President and Chief Operating Officer, Andy Witt, and Chief Financial Officer, Frank Saracino.
Speaker Change: Potential risks and uncertainties could cause the company's business and financial results to differ materially.
Speaker Change: For a discussion of risks that could affect results, please see the risk factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time.
Speaker Change: All information discussed on this call is as of today, February 19, 2025, and the company does not intend and undertakes no duty to update for future events or circumstances.
Speaker Change: In addition, certain financial information presented on this poll represents non-GAAP financial measures.
Speaker Change: The company's earnings release and supplemental presentation, which was released yesterday afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors.
Speaker Change: Before I turn the call over to Mike, I will provide a brief recap on our results.
Speaker Change: The company reported fourth quarter GAAP net loss attributable to common stockholders of $19.7 million, or $0.16 per share.
Speaker Change: Distributable earnings of $13.7 million or $0.11 per share and adjusted distributable earnings of $23.7 million or $0.18 per share.
Speaker Change: Current liquidity stands at $418 million, of which $253 million is unrestricted cash.
Speaker Change: The company also reported GAAP net book value of $8.08 per share and undepreciated book value of $8.89 per share as of December 31, 2024.
Mike Mazzei: Finally, during this call, management may refer to Distributable Earnings as DE. With that, I would now like to turn the call over to Mike.
Mike Mazzei: Thank you, David. Welcome to our fourth quarter and full year 2024 earnings call.
Mike Mazzei: The fourth quarter capped off a very active year, during which we made significant progress to strengthen the loan book by reducing our watch list and commencing new loan originations.
Mike Mazzei: Before I delve into this quarter's performance, I would like to briefly highlight the various dynamics affecting the lending markets.
Mike Mazzei: The commercial real estate debt markets have continued to improve. CLO issuance has steadily increased and AAA spreads have experienced a significant tightening of roughly 50 basis points during the quarter.
Mike Mazzei: In addition, bank warehouse lenders have continued to tighten their lending spreads, resulting in ROEs in line with targeted levels.
Mike Mazzei: Higher interest rates, along with a continued surge of insurance company annuity sales, have become main drivers behind this compression in credit spreads.
Mike Mazzei: Albeit more gradually, there is still room for further spread tightening.
Mike Mazzei: Allow me to remind you that in 2021, when the Benchmark SOFR Index was close to zero, CLO AAA spreads were 30 basis points tighter than today.
Mike Mazzei: And this was despite a market where there was a far greater supply of CLO securities.
Mike Mazzei: On the origination side, while there are billions of upcoming debt maturities that will drive an increase in refinancing demand, the amount of actionable transactions are facing some headwinds.
Mike Mazzei: The Fed is taking a pause in rate cuts, with perhaps only one more cut later this year.
Mike Mazzei: Also of note, the 10-year Treasury is about 65 basis points higher today than at the end of the third quarter.
Mike Mazzei: These higher rates are causing negative equity leverage for all types of investments, including real estate.
Mike Mazzei: All in, this has been a significant but not unsurprising shift in the integrated environment in just one quarter.
Mike Mazzei: So while the tightening of credit spreads is a sure positive, all-in lending rates remain elevated enough to keep many properties in a state of transaction limbo.
Mike Mazzei: However, on the fundamental side, these same factors also continue to put limits on new construction. This bodes well for new supply absorption, especially in multifamily, where higher mortgage rates and home prices are favoring renting versus buying.
Therefore, top-line rent growth should become positive.
Mike Mazzei: Now turning to Brightspire, we went on offense during the quarter and continued to build our origination pipeline. To date, we have funded five new loans totaling $119 million with another $59 million in closing.
Mike Mazzei: Thus far, all of our new loan originations have been multifamily.
Mike Mazzei: However, we are actively quoting all property types with the exception of office.
Mike Mazzei: Despite the competitive market, our experienced team, with strong industry relationships, has enabled us to select our opportunities, often with repeat borrowers.
Mike Mazzei: For the year ahead, our primary focus is now pivoted to rebuilding our loan book and ultimately executing our fourth CLO.
Mike Mazzei: In addition, during the quarter we continued to make meaningful progress on the resolution of watchlist loans and we made even further progress subsequent to quarter end.
Mike Mazzei: Specifically, this is regarding our largest loan, the San Jose Hotel, which comprises one-third of the year-end watch list.
Mike Mazzei: This month, we received a summary judgment granting a dismissal of the borrower's attempted bankruptcy process.
Mike Mazzei: I would also like to add that on our St. Louis office equity investment, which was written down to zero, we have successfully negotiated a three-year maturity extension.
Mike Mazzei: While this will not impact earnings, we now have the time to potentially recoup some of our capital.
Mike Mazzei: As we continue to resolve watchlist loans, there will be an increase in REO in the short term. This segment of our assets will serve as one of our sources of capital for growth in our loan portfolio and earnings.
Mike Mazzei: Therefore, it goes without saying, we intend to make considerable progress on REO dispositions in 2025.
Mike Mazzei: Lastly, for the fourth quarter, we covered our dividend with an adjusted DE of 18 cents.
Mike Mazzei: I want to highlight again that when we resized our dividend, we anticipated a modest amount of negative coverage while we redeploy capital.
Mike Mazzei: Our plan is to reach sustained positive dividend coverage by turning over under-earning assets and executing on REO sales.
In closing, I want to thank our team.
Mike Mazzei: and all of our clients and partners for this past year.
Mike Mazzei: This was a very active and productive fourth quarter, and our momentum continues into 2025. Going forward, we are optimistic about our ability to grow the loan portfolio and earnings.
Mike Mazzei: With that, I will now turn the call over to our President, Andy Witt. Andy?
Andy Witt: Thank you, Mike. The focus of my prepared remarks will be primarily on events that have occurred in the fourth quarter and subsequently.
Andy Witt: During the fourth quarter, we received $93 million in repayments across four loans. Subsequent to quarter end, we received repayments across six loans for a total of $100 million.
Andy Witt: In addition, we sold one REO office property for $5 million, resulting in total aggregate repayments and resolution proceeds of $198 million.
Andy Witt: New loan commitments during the quarter and subsequent to quarter end total $119 million across five new originations.
Andy Witt: In addition, we funded $16 million of future fundings during the fourth quarter. As of quarter end, future funding obligations stand at $106 million, or 4% of outstanding commitments. And the loan portfolio consists of 76 investments with an average loan balance of $33 million.
Andy Witt: During the quarter, we remain focused on addressing and resolving watchlist loans and REO.
Andy Witt: As a result of these efforts, the total number of washed loans on a net basis has been reduced to seven from nine loans last quarter, inclusive of one downgraded Las Vegas multifamily loan.
Andy Witt: Two loans were upgraded during the quarter as the outlook has improved, and in both cases the borrower has committed additional funds in the form of additional reserves and or a loan pay down.
Andy Witt: The decision to upgrade the Las Vegas multifamily loan is based on improved operating performance at the property level and a forthcoming capital injection from the borrower.
Andy Witt: With respect to the upgraded Richardson, Texas, office loan, the borrower has made an additional capital commitment to the property, including a principal pay down. Rounding out the watch list removables, one Fort Worth, Texas, multifamily loan was moved to REO during the reporting period.
Andy Witt: As mentioned previously, during the quarter, we downgraded a Las Vegas multifamily loan comprised of 240 units to a four.
Andy Witt: as a result of increased uncertainty around the borrower's ability to capitalize operating shortfalls required to reach stabilization.
Andy Witt: As of quarter end, watch list exposure stands at $411 million in aggregate, or 16% of the loan portfolio down from $456 million, or 18% as of Q3 2024.
Andy Witt: The San Jose hotel loan accounts for one-third of remaining aggregate watch list loan balance.
Andy Witt: As for our EO updates, we completed the sale of the Oakland office property. Additionally, in mid-November, we foreclosed on a 354-unit Fort Worth, Texas multifamily loan.
Andy Witt: The plan is to execute a value-added business plan, improve operations, achieve stabilization, and ultimately list the property for sale, similar to the plan executed on the Phoenix multifamily property.
Andy Witt: We have made substantial progress toward stabilization on the Phoenix multifamily property and recently engaged a national broker who will be marketing the property for sale imminently.
Andy Witt: In addition to the progress made both on the watch list and the REO during the quarter and beyond, we have also reduced our office exposure. During the quarter, we received two partial paydowns for a total of $51 million, including $49 million on our largest office loan.
subsequent to quarter end.
Two office loans paid off for an additional $50 million.
Andy Witt: Since last reporting, we have reduced our office loan exposure by $100 million.
Andy Witt: With that, I will turn the call over to Frank Saracino, our Chief Financial Officer.
to elaborate on the fourth quarter results. Frank.
Thank you, Andy, and good morning, everyone.
Andy Witt: For the fourth quarter, we generated just a DE of $23.7 million, or $0.18 per share.
Andy Witt: Fourth quarter DE was $13.7 million or 11 cents per share. DE includes a specific reserve on two loans of approximately $10 million.
Andy Witt: Additionally, we reported total company gap net loss of $19.7 million, or $0.16 per share. This reflects an increase in our CECL reserves, as well as impairment taken on REO assets.
Andy Witt: For the full year of 2024, we generated adjusted DE of 109.2 million or 84 cents per share, representing a return on undepreciated shareholders average equity of approximately 8.6%.
Andy Witt: Our dividend for the year of $0.72 was well covered at 1.17 times.
Andy Witt: Quarter over quarter, total company gap net book value decreased to $8.08 from $8.39 per share.
Undepreciated book value decreased to $8.89 from $9.11 per share.
Andy Witt: The change is mainly driven by impairments taken on operating real estate assets and an increase in our CSO reserves.
Andy Witt: I would like to quickly bridge the fourth quarter adjusted distributed earnings of $0.18 versus the $0.21 recorded in the third quarter. The change is primarily driven by lower interest rates, loan repayments, and foreclosure, and offset by lower borrowing costs and new originations.
Andy Witt: Looking at reserves, during the fourth quarter we recorded specific fees of reserves of approximately ten million dollars, primarily related to our taking ownership of the property underlying Fort Worth, Texas multifamily loan that Andy mentioned.
Andy Witt: We also recorded the minimus specific reserve on an office loan that paid off in one cue.
As both loans were resolved, we charged off their reserves.
Andy Witt: As a reminder, we include specific reserves and distributable earnings in the quarter that the reserve is recorded. This differs slightly to the peer group that will only do so when a loan is fully resolved and the loss is realized.
Andy Witt: Our general CECL provision stands at 166.1 million or 634 basis points on total loan commitments, an increase of $10 million from the prior quarter. The increase in the general CECL is primarily driven by updated inputs on certain loans.
Andy Witt: Turning to our dividend and earnings from cash flow, for the fourth quarter we paid a dividend of 16 cents per share and had earnings from cash flow of 15 cents.
Andy Witt: Additionally, for the full year 2024, we reported cash GNA expense of approximately $35 million. This is a reduction in GNA for 2023 of $4 million or 10%. For 2025, we expect GNA to be flat to down versus 2024.
Andy Witt: Our debt-to-assets ratio is 65%, and our total debt-to-equity ratio is 2.2 times flat to 3.2.
No corporate debt or final facility maturities due until 2027.
Andy Witt: Our debt-to-equity ratio for only our senior loan portfolio is 3.5 times, an increase from 3.4 in 3Q.
Andy Witt: Lastly, as David mentioned, our liquidity as of today says that approximately 418 million dollars is comprised of 253 million of current cash as well as 165 million under our credit facility.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two. In the interest of time, please limit yourself to one question and one follow-up. For additional questions, we ask that you please rejoin the queue. At this time, we will pause momentarily to assemble our roster.
Speaker Change: And your first question today will come from Steve Delaney with Citizens Bank. Please go ahead.
Steve DeLaney: Hey, good morning, everyone. First, just want to applaud the proactive asset management in terms of moving into REO versus five-rated loans.
There are 20 commercial morgue retreats. I think you're
Steve DeLaney: you know, pretty unique in that group in terms of that strategy. And I think it certainly
Steve DeLaney: allows you to resolve the real estate problem more quickly than just waiting for the borrower to try to figure it out. So props on that. Mike, also your outlook, you talked about CMBS.
Steve DeLaney: I suspect CLO spreads might have improved as CMDS spreads as well, or certainly the outlook for CLOs is probably pretty viable right now.
Steve DeLaney: Do you expect your you did a little bit of lending, you know, I think a hundred and eleven million or whatever in the quarter
Steve DeLaney: Should we expect that as we go the first half of 2025 that new bridge lending might pick up with the expectation that you could get a fresh CLO off maybe by the middle of this year?
Speaker Change: Hey, thanks Steve. Hello to you. Our intention, as I said in the prepared remarks, is to execute another CLO. That is going to be just part of the basic business plan. You're getting another seven or eight points of leverage in that market, and so that adds another couple of hundred basis points.
Speaker Change: to your overall ROA at this point, so we absolutely have an intention
to continue to do that. Having said that,
Speaker Change: There is a tremendous appetite, as I described in the prepared remarks, for fixed income, whether it's floating rate or fixed rate, for the various reasons I stated in that. And so while high yield is in a tenuous place, and folks are questioning whether the high yield market in the corporate bond world can widen.
Speaker Change: Right now, we see a tremendous amount of appetite for fixed income investments, so that's driving spreads down, but fortunately, the banks have been moving with us. We've been maintaining ROE, and the CLO above and beyond the warehouse line can give us an extra couple hundred basis points.
Speaker Change: of Lyft. And so, yeah, we plan on doing that. I don't know if we'll get one off in the first half of the year, but certainly it is the goal for the second half.
Speaker Change: I think we'd have to put out another $600 or $700 million in new originations to get off another CLO in addition to the $188 million that we have closed or in closing.
So you were $2.5 billion at year-end.
2024 in terms of your portfolio.
Speaker Change: It sounds like there's enough activity going on in the core local markets with, you know,
Speaker Change: investors, CRE equity coming into market, new projects starting. Any goal or expectation for how much you believe your portfolio might grow in 2025? I'm speaking about the bridge, the 2.5 billion bridge loan portfolio.
Speaker Change: We need to originate $1 billion of loans based on our anticipated...
Speaker Change: We absolutely need to do $1 billion or greater in new loans and get that portfolio well in excess.
Speaker Change: of $3 billion in order to sustain and potentially grow the dividend.
Speaker Change: As I said in the prepared remarks, we're seeing a ton of business, and you've heard this on other calls.
Speaker Change: How much of that is actionable is questionable because rates of where they are new acquisitions
Speaker Change: while sales were up 25% about 2024 over 2023. 2023 was like a 10-year low.
Speaker Change: And so with the 10-year Treasury still above 4.5%, new acquisition financing, all in cost is negative leverage to cap rates.
Speaker Change: So, that's been a slowdown. And then on the refinancing side...
Speaker Change: We're seeing a lot of bridge-to-bridge, more than we've ever seen before, which makes total sense based on where borrowers are today. We're seeing a lot of activity from construction lending, where we're looking for construction loan takeouts, where borrowers...
Speaker Change: are trying to get out of recourse at minimum and potentially paying down the loan. But out of the billions we're seeing that hit the pipeline, once you do a preliminary review, the amount that actually makes it to underwriting and quoting is a fraction of that.
Speaker Change: So we're still seeing a lot of transactions stuck in what I would call interest rate limbo. What I think will happen this year...
And this was not part of your question, but...
Speaker Change: What I think will happen this year is you'll see more lenders.
Speaker Change: pushing borrowers to sell properties. And you're seeing some of that in our own portfolio. We have a property that we did not mention in the prepared remarks that's on the watch list, a multi-family property in Denver. It's under PSA.
Speaker Change: We don't care because PSAs can fall apart, but it's under PSA and we're going to do financing.
Speaker Change: for that buy-in. And that's just another example where I think you're going to see more of lenders
pushing owners toward the market.
Speaker Change: for transaction sales. It's going to be a very lender-driven market because right now the math isn't really working for the amount of properties that need refinancing.
Speaker Change: But having to get back to your question, we need to put out over a billion dollars in new loans this year, including the almost $200 million that we've earmarked already.
Speaker Change: We want to get that portfolio as close to $3.5 billion as possible.
Speaker Change: Got it. That's great, macro caller. Thank you so much, Mike.
Thanks.
Speaker Change: Your next question today will come from Jason Weaver with Jones Trading. Please go ahead. Hey, good morning. Thanks for taking my question.
Speaker Change: Frank, I believe you mentioned about the General Seesaw Reserve increasing due to
Speaker Change: you know, inputs on certain loans. Is any of that due to, first of all, can you elaborate on that, and is any of that due to what we're seeing on the West Coast some signs of deteriorating rent growth?
Speaker Change: You know, I think that, you know, when we look at the CECO, a lot of the movement is around our Risk Rank 4 and Risk Rank 5 loans, you know, as we're, you know, seeing activity and moving around there. The risk is kind of spread across, you know, the portfolio, but nothing, you know, specific regarding the West Coast.
Speaker Change: That's fair. Okay, second of all, the San Jose Hotel, I did hear the comments, the prepared remarks about there. Can you talk a little bit about what you see as the path forward on resolving that effort?
Speaker Change: All we can really say about that is that we are pleased
that we are out of the bankruptcy court.
and that that was actually appealed.
Speaker Change: and again dismissed in bankruptcy so we're happy about that to be out of a bankruptcy process for a lender is a good thing. Outside of that I'd be hesitant to make any more comments about that because of the state of affairs at the loan. Other than to say it is one-third of our watch list.
Speaker Change: and it is of a significant focus of ours. And if just looking at that loan coupled with the Denver Multifamily Loan that's under PSA, I'm going to, you know,
Speaker Change: That's a soft PSA, we're not excited about it until it closes.
Speaker Change: But if we remove those two assets from the watch list, our watch list is going to be about 10% of our loan book. So we would see a dramatic drop in the watch list. So we are obviously very focused on the San Jose Hotel, but I'm really hesitant to say more than that given the state of affairs that we're in in that process.
Understood. Thanks for that color.
Speaker Change: And your next question today will come from Tom Catherwood with BTIG. Please go ahead.
Tom Catherwood: Excellent. Thank you, and good morning, everybody. Mike, I'm going to be starting with you. I appreciate your comments about originations and targeting a billion this year to get ahead of repayments. Obviously, it takes time to rebuild that origination pipeline. You've obviously been active 4Q thus far and in 1Q, but how long do you think it takes to get back to kind of a steady-state run rate on the origination side, fully understanding, as you said, that it's going to take a long time?
Tom Catherwood: It is not a normal Originations markets and it's hard to track down deals and all, but in general, what are your expectations for getting fully up and running on an Originations basis?
Tom Catherwood: I think it'll take us the full year to do that.
Tom Catherwood: And I think part of the reason for that is what I said earlier, a lot of this, I think, is going to be lender-driven. I think a lot of our peers in the marketplace, whether they be banks or non-banks,
Tom Catherwood: have for the period of the past two years, positioning themselves.
on an asset management basis to work with borrowers.
Tom Catherwood: and get loans in better spots. I think borrowers are beginning to have fatigue.
Tom Catherwood: Light at the end of the tunnel feels like it is fading, the hope on lowering the cost of interest rate caps.
that that hope is subsiding.
Tom Catherwood: So, borrowers are unable to go back to their limiteds and continue to tap them for money.
Tom Catherwood: on an endless basis for interest rate reserves and things like that. So I think this is the year, and in speaking to all the brokers at the NBA, we were getting a lot of nodding heads across the table from us when we spoke about how lenders are going to be more active.
and be the source of transaction sales.
Tom Catherwood: in this market, and this isn't at gunpoint, but this is borrowers...
somewhat capitulating.
Tom Catherwood: given the fatigue they've had and the rate environment that we're in, and the lenders are in a position to finally start really pushing assets toward REO, which you see we are doing ourselves. So I think it's very hard to project.
Tom Catherwood: how a market like that is going to behave. Like I said, if you...
Tom Catherwood: interview the the businesses across our peer group, they're all saying we're seeing billions of dollars of product. If we told you the numbers that you're seeing...
Tom Catherwood: you'd have to do a triple take at how big those numbers are. But in terms of actionable loans that could actually work, where you can quote and then potentially win, they are a fraction of what's out there. So we still need a recalibration of the market. And again, I think that is going to be
Tom Catherwood: And I think that's going to be a slow grind over the course of the year, but it's going to pick up. That's why I think it'll take us about a year to get to that stabilized number, which is why when we talk about our dividend coverage, we explain that we expect some modest negative coverage while we rebuild the book.
Steve DeLaney: Got it. Appreciate those thoughts, Mike. And then last one for me, maybe Andy, in terms of the REO portfolio, other than the Phoenix multifamily asset, which sounds like you have it in a really good spot, which of your remaining assets...
Tom Catherwood: are the most actionable in the near term? And do you think there's a likelihood of further impairments as you look to sell those assets?
Tom Catherwood: Thanks for the question. I mean, when we move an asset to REO, we have a view towards, you know, ultimately resolving that asset. And so we've got a couple of properties in Texas that are multifamily. We plan to execute a value-add plan very similar to what we did in Phoenix, and we actually think those are
Tom Catherwood: a lighter lift. But it will take time for us to stabilize those assets and get them in a position for sale. But that's something we're obviously very focused on. We continue to hold our Long Island City office assets, which were
Tom Catherwood: office assets. So that's an example of us, you know, moving to, you know, liquidate those, resolve them, bring that capital back on balance sheet for redeployment and earning assets.
Tom Catherwood: And then on the Long Island City assets, we're getting, you know, listen, it's been a couple of years now, a year and a half plus, probably two.
Tom Catherwood: Where we've been trying to lease those assets We had a lot of interest from single users and we we took a lot of time on that unfortunately that did not work There is a lot of inquiry given that the New York City market is tightening up
Tom Catherwood: and that 3rd Avenue in New York City a year ago was considered Queens West, now 3rd Avenue is getting tight, certainly for better buildings, so we think that will trickle over to Long Island City. Having said that, back to Andy's point, and back to what we said in the prepared remarks.
Tom Catherwood: Executing on the REO is a big focus this year. It is a source of capital. And at this point in time, we're not going to wait that much longer on the Long Island City assets. We will at some point, unfortunately, fish or cut bait.
Tom Catherwood: because we want to use those proceeds to build a loan book. So we are going to be very active in focusing on resolving REO all throughout the year, especially given the fact that we think some more stuff will move on to REO. I'm not going to name specific loans.
Tom Catherwood: in the watch list, but things will move on for REO from risk rated five, and we're going to be very focused on moving those assets.
Got it. That's all for me. Thanks, everyone.
Speaker Change: Again, if you have a question, please press star and then 1. And your next question today will come from Randy Binner with B Riley. Please go ahead.
Randy Binner: Hey, thanks. Good morning. Yeah, most of mine were hasn't answered, but I guess.
Randy Binner: is, you know, would be constructive, of course. I was wondering if...
Randy Binner: If you could maybe help define that a little bit more from like a pipeline perspective.
Randy Binner: you know, geography, property type. I mean, Mike, you've explained the market overall.
Randy Binner: quite a bit here and understood on that, but just kind of from a pipeline perspective, you know, what are the building blocks, you know, that would, that would, are the waypoints that get you to the billion of origination?
Randy Binner: First, one of the building blocks is the source of capital which we have ample amount of just based on the amount of cash we have on the balance sheet and looking at running a cash minimum of 75 to 100 million we have ample cash on the balance sheet plus when you look at recoveries
Randy Binner: in our REO and underlevered assets. For instance, we've said before the San Jose Hotel financing is a very modest amount of financing versus the loan amount, so movement on that asset will release a lot of capital.
Randy Binner: So, we have, you know, at least a couple hundred plus million dollars of potential capital. There are some potential uses of capital that we may plan for during the course of the year. I want to point you out to the fact that on the watch list.
Randy Binner: in risk rated four category. There are two loans, office loans that are in CLOs.
Randy Binner: And if any of those watchlist fours go non-performing and we have to pull them out of a CLO, that takes the amount, the face amount of the loan has to come out of the CLO and the recovery amount is not going to be the face amount of the loan.
Randy Binner: So, we have uses of capital as well. But in terms of building the book, I mean, I'll go back to the points, we'll do a loan anytime, anywhere. There's a price pretty much, pretty much.
for everything.
Randy Binner: Yeah, we're very wary about insurance costs in Florida, we're very wary about the tax bases in cities like Chicago, but there are price points everywhere that will do loans. I'm noticing some of our brethren are doing bigger loans. We might consider...
Randy Binner: Perhaps if these better debt yields and certainly what we had in 21 and 22, we might venture into loans that are greater than $75 million. We would prefer to keep...
Randy Binner: The loan book average loan size, sub 50, at 35, I think it's 35 today. So we're still looking for the 25 to $50 million loans. The market is very competitive.
Randy Binner: for the amount of loans out there. We think that they're...
Randy Binner: We are very pleased for our competitors who were out in the market when we were not there in 2024 and had very good pricing, and hats off to them for that.
Randy Binner: The playing field is level in 2025, and it is very competitive. And there is still a dearth of product.
Randy Binner: versus the amount of credit availability that's out there for the reasons I've stated.
Randy Binner: So, very hard to sit here and predict what we're going to get. I do think, overall...
Randy Binner: The conditions are poised for more spread tightening, as I said in the prepared remarks. CLO spreads were 30 basis points tighter when we did our CLO in 2021. I think we executed at like a AAA of 115, and the CLOs were coming once a week.
Randy Binner: So, we have a lot less supply, I'm very constructive on spreads, the banks have been very helpful. But in terms of making a prediction about what we would do, it's very hard right now given...
where product is coming from. We do still expect.
to get a lot of loans coming out of construction.
Randy Binner: and some even pre-TCO will do those loans. Bridge-to-bridge is something that bridge lenders typically don't want to do, but there are some very good stories behind the bridge-to-bridge deals that are out there now, and we will look at them, especially if there's a little bit of cash.
Randy Binner: are going into a deal. At these debt yield levels, we would consider looking at bridge to bridge. Other than that, it's very hard to predict given how competitive the environment is.
All right. That's helpful.
Randy Binner: Your next question today will come from Gaurav Mehta with Alliance Global Partners. Please go ahead. Yeah, thank you. Good morning. I wanted to follow up on your comments around loan originations. And just to clarify, the billion-dollar number, that's a gross number, not a net number, net of repayments expected in 2025, right?
Randy Binner: The answer is all of the above. We are going to put out as much money as we possibly can. We have enough capital to put out well over a billion dollars in new loans, and we're going to do anything that we believe is actionable and fits the book.
Randy Binner: It's very hard to sit here and tell you what we're going to do.
Randy Binner: I'll tell you what we need to do. We need to do a billion dollars on a net basis to keep the dividend where we want to keep it. We have no intention of moving that dividend. We intend on covering the dividend, and that's what it's going to take.
Randy Binner: The market's going to bear what the market's going to bear. I do think that...
Randy Binner: from 2023. Again, I'll emphasize that 2023 was a 10-year low in asset sales. So what we need to do is we need to grow the book by a net billion dollars. We need to get the book to $3.5 billion.
Randy Binner: We have enough capital to do that, we're quoting every day, we're quoting every property type except for office.
Randy Binner: We've made good headway in the office portfolio, where it's dropped by $100 million to $700. We need to make more headway in the office portfolio before we start quoting office loans, which could very well happen in the latter part of the year.
Randy Binner: But right now we're quoting every property type and we have ample capital to put out more than a billion dollars
Okay, thank you. That's all I have.
Randy Binner: This concludes our question and answer session. I would like to turn the conference back over to Mike Mazzei for any closing remarks.
Mike Mazzei: Well, thank you all for joining us today. We're very excited about the year. We started 2024, and for most of the year, we were in asset management mode, and we emerged from that mode in the fourth quarter. We're very happy to be starting off 2025.
Mike Mazzei: where, as I said in the remarks, we are pivoting toward new origination, focus, and executing a new CLO. So, we're very excited about the coming year, and again, we thank you for joining us today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.