Q4 2024 Claros Mortgage Trust Inc Earnings Call
Hello, everyone and declares mortgage trust first quarter 'twenty to 'twenty four earnings conference call will begin shortly in the meantime, if you would like to pre registered to ask a question. Please press star followed by one on your thoughts won't keep that if you change your mind. Please press star followed by Dave. Thank you very much for your patience.
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Maria: Welcome to Clarus mortgage Trust fourth quarter 2024 earnings Conference call. My name is Maria and I won't be your conference facilitator today.
Speaker Change: Participants will be in a listen only mode. After the Speakers' remarks, there will be a question and answer period. During the presentation. You can register your question by pressing Star followed by one on your telephone keypad now if you change your mind. Please press star followed by two.
Speaker Change: I'd now like to hand over the call to <unk> Nguyen Vice President of Investor Relations for Claris Martin stressed. Please proceed.
Speaker Change: Thank you I'm joined by Richard Mack, Chief Executive Officer, and Chairman of Claris mortgage trusts, and Mike Mcgillis, President and Chief Financial Officer, and director of Claris Mortgage Trust.
Priyanka Garg: Also have Priyanka Garg executive Vice President Luisa <unk> portfolio and asset management.
Priyanka Garg: Prior to this call we distributed C. M. P. <unk> earnings release and supplement we encourage you to reference these documents in conjunction with the information presented on today's call. If you have any questions. Please contact me.
Priyanka Garg: I'd like to remind everyone that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Priyanka Garg: Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in our other filings with the SEC.
Priyanka Garg: Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
Priyanka Garg: We will also be referring to certain non-GAAP financial measures on today's call such as distributable earnings, which we believe may be important to investors to assess our operating performance.
Priyanka Garg: For reconciliations of non-GAAP measures to their nearest GAAP equivalent please refer to the earnings supplement.
Now I'd like to turn the call over to Richard.
Richard Mack: Thank you all and thank you everyone for joining us this morning for <unk> fourth quarter earnings call.
Richard Mack: Commercial real estate continues to undergo a significant transition period, while the underlying fundamentals are generally strong in the capital markets have been demonstrating signs of healing and recovery has been slow and progress has not been linear nor universal.
Richard Mack: Interest rate driven valuation concerns and the higher for longer rate environment continue to be key things weighing on commercial real estate investors.
Richard Mack: For the fourth quarter of 2024 C. MTG had $300 million in transaction activity, which included repayment proceeds from borrowers. In addition to loan sales that we successfully executed at or close to par Michael.
Richard Mack: Mike will provide additional color later on the call.
Richard Mack: We also experienced credit migration in the portfolio as borrowers continue to be impacted by the challenging real estate environment.
Richard Mack: While we have been working towards resolving watch list loans certain pending loan and asset sales that we had forecasted for the fourth quarter did not materialize due to circumstances unique to each situation as.
Richard Mack: As such our objectives of achieving resolutions, while also enhancing overall liquidity were pushed into 2025.
Richard Mack: Additionally, as many of you are aware back in November the interest rate outlook. Once again became uncertain and less optimistic when the fed signaled fewer rate cuts then the market was forecasting at the time.
Richard Mack: Given this and the understanding that the industry collectively will continue to navigate an elevated rate environment, we believe that adopting conservative stance and managing our available capital was prudent.
Richard Mack: In line with this back in December our board of directors after taking into consideration that <unk> had already fulfilled its REIT taxable income distribution requirements for 2024 decided to pause the quarterly dividend to preserve capital and enhance financial flexibility.
Richard Mack: As we look out to 2025, we are encouraged by the industry momentum we are seeing commercial real estate is commencing the year on the heels of quarterly growth in transaction volume and the C. MBS market spreads have tightened meaningfully over the past several quarters, despite increasing primary issuance levels against this backdrop, we believe that this.
Richard Mack: Will be a pivotal year for <unk> as we execute on our 2025 strategic priorities.
Richard Mack: Today, we have a subset of loans in our portfolio that are risk rated four or five and non accrual loans addition to Oreo assets.
Richard Mack: Celebrating the resolution of these watch list loans will enable us to accomplish the following objectives.
Richard Mack: <unk> reduced the drag on earnings second enhance our overall portfolio credit metrics and liquidity.
Third utilize the additional liquidity to strategically deploy capital to more accretive uses.
Richard Mack: This may include Delevering, the portfolio and investing in the opportunities we have previously identified within the existing portfolio.
Richard Mack: Such as for closing on select multifamily assets.
Richard Mack: Mike will speak to this in more detail later on the call.
Richard Mack: Our approach as an asset manager has been to fight for full value.
Richard Mack: On every asset as our executive team has experience from prior cycles patiently working out problem loans and seeing asset values recovered dramatically.
Richard Mack: This approach has meant being willing to work with borrowers to help them execute while also being willing and able to take assets Oreo.
Richard Mack: However at times, our approach to maximizing value has required difficult tradeoffs on liquidity.
Richard Mack: Looking forward into 2025.
Richard Mack: While these continue to be uncertain times.
Richard Mack: Our base case expectation is that refinancing and demand for real estate assets will continue at levels that will allow us to transition out of a meaningful level of our non earning our lower earning assets.
Richard Mack: As for <unk> stock, we do not believe that the recent trading levels appropriately reflect the inherent value of our portfolio.
Richard Mack: Therefore, we will continue to execute and be prepared to take actions designed to improve credit metrics and liquidity reduced leverage and accretively redeploy capital.
Richard Mack: If we are successful we believe this will translate into evaluation, where CMT G stopped.
Richard Mack: That is more reflective of our inherent business and portfolio.
Mike McGillis: I would now like to turn the call over to Mike.
Mike: Thank you Richard for the fourth quarter of 2020 for CMT <unk> reported a GAAP net loss of <unk> 72 per share and a.
Mike McGillis: Distributable loss of 59 per share distributable.
Mike McGillis: <unk> earnings prior to realized gains and losses were <unk> 18 per share.
Mike McGillis: The MTGE held for investment loan portfolio decreased to $6 1 billion at December 31, compared to $6 3 billion at September 30 at the core.
After over quarter decrease was primarily the result of loan repayments and loan sales.
Mike McGillis: During the fourth quarter, we received a total of $99 million and loan repayment, including the full repayment of three loans totaling $80 million in UBB.
Offsetting these total repayments was $75 million in fundings on existing loan commitments.
Mike McGillis: We also executed three loan sales with an aggregate <unk> of $205 million during the quarter. The first two loans were previously reported as third quarter subsequent events and were classified as held for sale on the balance sheet at third quarter end.
Mike McGillis: The first loan was at 30 million subordinate loans secured by to be developed land in Miami.
Mike McGillis: Hold for 99, 5% of <unk>.
Mike McGillis: The second loan was $115 million senior loan collateralized by a multifamily property located in Colorado.
Mike McGillis: <unk> at $111 million, we sold a third loan 60 million loan secured by a multifamily property located in Las Vegas at 99% of UCB. In addition, we also completed a loan sale that was executed subsequent to year end a $101 million.
Mike McGillis: Senior loan collateralized by a hotel in San Diego.
All of those classified as held for sale at December 31st because the loan sale was completed in early January at par.
Mike McGillis: 2024 was an active year with regard to transaction activity.
Mike McGillis: During the year <unk> executed an aggregate of $1 3 billion of realizations, which is split evenly between repayments and loan sales.
Mike McGillis: We do loan sales is positive for the portfolio and that we accelerated loan repayment activity, while removing the risk of the borrower being unable to secure refinancing at maturity during a period of capital markets volatility.
Mike McGillis: During 2024 five of seven loan sales were executed at a level at or above 97% of par, which speaks to the credit quality of these loans.
Mike McGillis: The two exceptions relate to loans with future funding commitments and construction risks that were not deemed to be the most accretive use of <unk> capital.
Mike McGillis: During the quarter. We also reclassified the REO, New York Hotel portfolio to held for sale and we marked the asset to a value based on where we believe it could trade in the market. As a reminder, the portfolio was comprised of seven limited service hotels located throughout <unk>.
Mike McGillis: Patton and back in 2021, we foreclosed on the mezzanine borrower.
Mike McGillis: Foreclosure, we have seen the portfolio's revenue rebound to all time highs as mentioned on prior calls we are regularly explored a sale of the portfolio launching a process last summer.
Mike McGillis: Our process was temporarily delayed due to what ultimately became the New York City State Hotel back legislation, which was passed during the fourth quarter of 2024.
With this behind US we have made progress towards executing a sale of the portfolio and look forward to providing an update on our progress.
Mike McGillis: A similar perspective on the five multifamily loans currently risk rated five.
Mike McGillis: These five multifamily loans collectively represent 50% of our five rated loans.
Mike McGillis: We believe that these multifamily loans have experienced temporary valuation pressure due to the elevated rate environment, and our borrowers not having access to capital or other resources to effectively manage these assets.
Mike McGillis: From our vantage point, we believe these loans have substantial upside under our management and with a modest capital injection.
Mike McGillis: As a result, we plan to foreclose on these assets in the coming quarters.
Mike McGillis: In anticipation of these foreclosures.
Mike McGillis: These loans are now all risk graded five and we recorded specific seasonal reserves at an average of 12% of the <unk> date, which correspond to their estimated fair values and will be charged off upon foreclosure.
Mike McGillis: There are however, other scenarios, where we have determined that foreclosure is not the optimal path due.
Mike McGillis: Due to prioritizing our best uses of capital despite believe in the long term underlying asset value.
One example is a $390 million loan we originated in 2019.
Mike McGillis: Secured by a multifamily building in Manhattan.
Mike McGillis: The loan has performed in accordance with its terms throughout its five year term and November this loan reached its maturity and following extensive conversations with the borrower we agreed to permit the borrower to satisfy its principal repayment obligations with a discounted payoff option if certain conditions are met.
Mike McGillis: Including continuing to pay debt service.
Mike McGillis: While we continue to believe the long term collateral value supports alone.
Mike McGillis: We believe that the incentive to monetize our investments generating approximately $100 million of net liquidity strengthens our position to take advantage of accretive capital allocation opportunities heading into the second half of 2025.
Mike McGillis: Given the contingencies associated with the modification. This loan was downgraded to a risk rating of four and we reserve for this potential loss within our general reserve.
Looking ahead, we expect to continue to pursue loan sales foreclosures <unk> discounted payoffs. However, before doing so we will seek to maximize value through loan modifications and credit support.
Mike McGillis: For example in the third quarter, we modified alone on the New York City mixed use asset that included a $7 2 million principal repayment and bifurcation of the loan and the two arms.
Mike McGillis: One of which is secured by a retail property and the other a well structured personal loan to individuals with significant network.
Mike McGillis: Subsequent to this modification the office component of the original collateral was recently foreclosed on by a ground lessor, resulting in a sponsor losing its collateral.
Mike McGillis: In other words, a third quarter modification provided for an exchange of collateral to avoid losses on the now foreclosed office component.
Mike McGillis: The MTGE store site help to avoid a difficult situation, where a significant loss of protracted legal battle would have been likely.
Mike McGillis: And more broadly as part of our ongoing asset management efforts. We are actively pursuing guarantees on defaulted loans, particularly when the guarantor has meaningful network and the guarantee can be pursued in a short form litigation process.
Mike McGillis: Turning to liquidity.
Mike McGillis: At December 31, we reported $102 million in total liquidity, which includes cash and approved and Undrawn credit capacity based on existing collateral.
Mike McGillis: As Richard mentioned, enhancing our liquidity position, reducing the levels of our watch list loans, non earning are suboptimal, earning assets and deleveraging the balance sheet will be a focus area for our team throughout 2025 and to that point, we expect the pace of resolutions to accelerate include.
Mike McGillis: The remaining held for sale loans, the hotel portfolio and anticipated loan repayments.
Mike McGillis: There are sales and refinancing transactions underway, which could result in just under $2 billion of gross realizations proceeds.
Mike McGillis: We anticipate between one third and two thirds of this total will be finalized in the coming quarters with approximately 40% of such proceeds increasing our liquidity, which we anticipate accretively redeploying.
Mike McGillis: I would now like to turn the call over to the operator.
Mike McGillis: Thank you.
Speaker Change: To ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by two when do you think to ask your questions. Please ensure that your devices are needed locally.
Speaker Change: Our first question comes from the line of friction of Jpmorgan. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking my questions. This morning.
Speaker Change: Look the you guys just referenced the third quarter modification of the New York City mixed use.
Speaker Change: We've had a lot of questions on that I believe that that is related to loan 33, that's listed in your <unk>.
Speaker Change: Disclosures as a land loan.
Speaker Change: And I think that perhaps given that restructuring that land loan designation may be confusing is that actually accurate how should we think about loan 33.
Speaker Change: The context of modifications you just described.
Priyanka Garg: Hi Records Priyanka I'll I'll take that question.
Speaker Change: Low number 33 is totally unrelated.
Speaker Change: Two the modification that Mike spoke about or two.
Speaker Change: The mixed use asset that has always been Atlanta and.
Speaker Change: It's been a landline.
Speaker Change: Since origination.
Speaker Change: I can.
Speaker Change: Comment on the modification that.
Speaker Change: Mike referred to if that's helpful.
Speaker Change: Yes that would be great because again.
Speaker Change: That's a high profile situation and there've been a lot of questions on it.
Speaker Change: Yeah, and and exactly for that reason, we ordinarily do not comment on specific loans, but in this instance, getting into all the reasons that you just highlighted we will clarify that we have zero exposure to the Chrysler building. We did previously had exposure to that asset, but we modified the loan in the third quarter as Mike mentioned as part of that.
Speaker Change: <unk>, we received a pay down of 15% and we improved the collateral package, which now excludes the leasehold interest.
Speaker Change: They're building or anything related to the price of a building and maybe more importantly that modification created an accelerated path to get paid off.
Speaker Change: That's now modified loan benefits from amortization payments and is current on all obligations.
Speaker Change: Got it okay very helpful and I think investors would really appreciate that clarity. Thank you.
Speaker Change: Thank you for asking the question right.
Speaker Change: Our next question comes from the line of Doug Harter from UBS. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Page 11 of your or the way you must have your risk credit for assets you talk about the.
Speaker Change: Near term repayment of two multifamily assets you talked about the New York, One, hoping you could talk about the California assets and the outlook for repayment there.
Priyanka Garg: Yeah, Hi, Doug, it's Priyanka I'll I'll take that.
Priyanka Garg: We are working with the borrower on a near term resolution process. There. So it is a cooperative discussion it's ongoing.
Priyanka Garg: Prefer not to get into any more detail, but it's.
Priyanka Garg: It's very.
Priyanka Garg:
Priyanka Garg: It's on a good path I won't say that.
Priyanka Garg: And then just on those two still can you just talk about how you set the reserve levels against those two assets and how much the near term resolution and visibility into that factors into that reserve level.
Priyanka Garg: Yeah, so on on the the one that Mike.
Priyanka Garg: Discussed in a little more detail in his prepared remarks that has a we added to the general reserve to match what is the discounted pay off that is agreed upon with the borrower. So that is the path that we expect to occur.
Priyanka Garg: So that is fully in the general reserve it is.
Priyanka Garg: Based on a number of contingencies that need to occur which is why there's not a specific reserve.
Priyanka Garg: And as we mentioned you know when you think asset value does does it exceed that level, but it's really a liquidity.
Priyanka Garg: Decision that we made on.
Priyanka Garg: On the second one that we think that that.
Priyanka Garg: That process that we are discussing with the borrower to create liquidity.
Priyanka Garg: It does not require any.
Priyanka Garg: Any additional reserves beyond what's in the General reserve. This is a very well located asset it has benefited from.
Priyanka Garg: Tremendous amount of leasing in recent months.
Priyanka Garg: And it's it should be very well positioned to be illiquid in this market, particularly given the improving capital markets inflows in the multifamily sector.
Mike McGillis: Great I appreciate that color priyanka.
No problem. Thank you.
Speaker Change: As a reminder to ask a question. Please press star followed by one on your telephone keypad. Our next question comes from deny the Jade Rahmani of key VW. Please go ahead.
Speaker Change: Thank you on the financing side is it the company's plan to further reduce leverage in 2025 will there be financing attached to any of the taking of Oreo and also can you address any plans for the secured term loan.
Mike: Sure Jay this is Mike.
Speaker Change:
Speaker Change: And the answer with respect to deleveraging is yes, we do intend to continue to deleverage the portfolio.
Speaker Change: Particularly repaying some of our higher cost.
Speaker Change: With respect to the <unk>.
Speaker Change: Assets that we plan to take our Rio we are working on finalizing a.
Speaker Change: Financing that will allow us to accomplish that.
Speaker Change: Hansen levels very consistent with where they are currently financed.
Speaker Change: <unk> lines.
Speaker Change: So hopefully that's responsive to that.
Speaker Change: And that is a facility that will allow us to.
Speaker Change: Accordion that up and.
Speaker Change: And.
Speaker Change: As we.
Speaker Change: Resolve our REO assets or bring on more of our REO assets.
Speaker Change: In the future. So we think that's a very.
Speaker Change: Our effective financing solution for what we are looking to achieve there.
Speaker Change: And then with respect to the term loan B that has an August 2026 maturity.
Speaker Change: We are and so we get within one year of maturity in August of 2025.
And.
Speaker Change: We'd expect to work.
Speaker Change: Work on.
Speaker Change:
Speaker Change: Sort of a either in any transaction or replacement financing transaction on that.
Speaker Change: During the middle quarters of this year.
Speaker Change: I can't really talk about specifics at this time, but that is the point.
Speaker Change: Okay, and then with regards to.
Speaker Change: Deleveraging with the $100 million in cash on hand.
Speaker Change: And unfunded commitments can.
Speaker Change: Can you just talk about the moving parts, what's the magnitude of deleveraging.
Speaker Change: Much of the unfunded commitments will be funded in 2025 and are there any plans or contemplation of issuing some sort of additional equity like instrument.
Speaker Change: The preferred.
Speaker Change: Something else that could bolster the liquidity profile as well as capital buffer.
Speaker Change: Sure.
Speaker Change: So first and foremost we do have.
Speaker Change: With respect to our liquidity position, we have minimum liquidity requirements under our financings. So first of all we got to maintain compliance with those.
Speaker Change: And we would continue to comply with those but we'd like to have a little more liquidity on hand.
Speaker Change: For obvious reasons.
Speaker Change:
Speaker Change: Let's see with respect to.
Speaker Change: Raising capital I think we will continue to look at.
Speaker Change: What we believe is the best way to generate liquidity and Thats resolving some of these four and five rated loans.
Speaker Change: And converting that to cash we have.
Speaker Change: Have a fairly.
Speaker Change: Under a low leverage balance sheet. So we have a fair amount of liquidity tied up in certain loans that we think we can release by working through.
Speaker Change: A number of these.
Speaker Change: Situations.
Speaker Change: With respect to additional equity capital raise activity.
Speaker Change: Obviously that is something that we should think about a lot, but we have no plans right now.
Speaker Change: Okay.
Speaker Change: And then Mike if I could just.
Speaker Change: Good.
Speaker Change: Yeah go ahead. Thank you.
Speaker Change: Sorry, Jade I was I was just going to also highlight in addition to everything Mike said I just want to reiterate what Mike said in his prepared remarks, which is that we have there are a number of transactions that are already underway.
Speaker Change: Or you know would be $2 billion of gross realization proceeds and we think a good chunk of that is going to happen in the coming quarters, which well see.
Speaker Change: Certainly change liquidity profile, which is what we're very focused on and also resolve some non earning and lower earning asset. So that will be in addition to everything I just said.
Speaker Change: In terms of the valuation you mentioned stock being attractive or not reflecting fair value. How do you think about that is there some kind of a trough book value or NAV number in mind.
Speaker Change: Sure I'll take this one so if you look at our GAAP book value.
Speaker Change: We are it's roughly $14 a share.
Speaker Change: We've got reserves on our long portfolio that are about four 3%.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: Obviously.
Speaker Change: [noise] monetizing a number of these loans, we think results in recoveries significantly in excess of where the stock is trading today.
Speaker Change:
Speaker Change: And.
Speaker Change: I think as we generate liquidity work through.
Speaker Change: The deleveraging process, including the T L b over the upcoming quarters.
Speaker Change: Work out of the four and five rated loans to continue to reduce those.
Speaker Change: And.
Speaker Change: Monetize high Rio as well as improve operating performance.
Speaker Change: Two assets that will become a reality.
Speaker Change: We think that should.
Speaker Change: Ultimately elevate the share price to a level that more approximates value.
Speaker Change: Thanks very much.
Chris Miller: Our next question comes from the line of Chris Miller from citizens JP JMP.
Speaker Change: Your line is now open. Please go ahead.
Chris Miller: Thanks for taking my questions and I want to compliment you guys on your transparency you gave a lot of really good detail on your deck kind of it's very helpful from our seat.
Mike: So looking at the watch list and Mike touched on this a little bit in his comments.
Mike: I guess, how aggressive do you guys plan to be on resolving those loans will it be more of your patient approach you've done historically or can we see some big resolution number start to come through in the near term and then just second part of that should we expect to see more loan sales as part of that strategy.
Mike: So I want to turn this is Richard I'm going to turn it to Chris. Thank you for that question I'm going to turn it over to Priyanka, but I think we have been.
Mike: Very very.
Speaker Change: Tough and trying to maximize every dollar and I think given a refocus on liquidity.
Mike: We're going to have to be more aggressive.
Speaker Change: In creating liquidity over.
Mike: Over 2025.
Mike: That's really our plan, we've got multiple levers to pull on that but.
Mike: We are focused on liquidity.
Mike: And we know then and solving liquidity will <unk>.
Mike: Elevate our stock and that's really why we're thinking about the world in terms of liquidity right now.
Mike: Yeah.
Mike: Yeah, and I would just add to that thank you Chris for the question I would just add that you know given that we're starting to see transaction volume increased capital markets are becoming a lot more accessible we think that this in this improving transaction environment Theres, a real opportunity to use I'm just kind of pay offs in short.
Mike: Sales as a tool and that that goes to our more aggressive you too to resolve those watch list loans, Chris to your point and I think the first of that that you're seeing is the the one that Mike discussed during his prepared remarks, and we're going to continually balance what we can get from a liquidity stands.
Mike: Point with timing and certainty and accelerating resolution. So I think he's going to continue to see more of that from us.
Mike: Yeah.
Speaker Change: Okay very helpful. And then just a clarifying question on the Oreo fair value marks.
Speaker Change: Was this the second time that that hotel portfolio was written down scenario gets mark to fair value. When you guys take the asset back.
Speaker Change: And if so can you just talk about what changed since you took it back I guess, it's been almost four years at this point, but just any changes that drove those write downs.
Speaker Change: Sure I'll start and I'll, let Priyanka finished thank you Chris.
Speaker Change: When we foreclosed on the asset back in 2021 Mark.
Speaker Change: Mark to fair value.
Speaker Change: Our original loan was a mezz loan.
Speaker Change: And it's had a securitize senior financing associated with it when we.
Speaker Change: When we foreclosed on the asset.
Speaker Change: Mark just at fair value, which resulted in a.
Speaker Change: Modest gain.
Speaker Change: On the.
Speaker Change: Part of the foreclosure.
Speaker Change: And <unk>.
Speaker Change: Probably the big driver of change.
Speaker Change: And the Mark is.
Speaker Change: Primarily driven by this safe.
Speaker Change: Hotel legislation that was recently passed by New York City.
Speaker Change: And.
Speaker Change: Which is I think sort of created a little bit of uncertainty on.
Speaker Change: Hotel pricing, particularly around non union hotels, Priyanka, if you want to maybe expand on that that'd be helpful.
Speaker Change: Yeah.
Speaker Change: Yeah, I think look underlying performance, particularly topline, but even flow through has been very very strong 2024.
Speaker Change: The assets resulted in greater EBITDA than in 2019 pre pandemic. So we continue to feel very good about the underlying performance you know we've all read them all the information around a beneficial demand supply.
Speaker Change: And supply dynamic as well as new supply dynamics, which is all favorable and New York City. The issue has really been this New York City Safe Hotels Act, which was first raised by New York City Council in August of 2024, which was right in the middle of our sales process, which caused us to.
Speaker Change: Temporarily pause that process and then it was ultimately pass into legislation in October and so that has really is what has caused the adjustment in value, but again just spoke to thank Chris and the first question you asked from a liquidity standpoint, and freeing up capital.
Speaker Change: Where we're committed to the sale that said we are tracking a dual track process to execute honestly MBS refinancing should a sound that occur.
Speaker Change: Got it that's all very helpful. Thanks, you for taking my questions.
Speaker Change: Yeah.
Speaker Change: As a reminder to ask a question. Please press star followed by one of your telephone keypad.
Speaker Change: Have a question from the line of Tom Keith or wood from peak to peak.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Thank you and just one question for me for the five five rated multifamily loans that you are planning to take Oreo is the 12% reserve a reflection of where you could sell the assets as is today or does that reflect the value youre expecting wants to invest incremental capital.
Speaker Change: And stabilize the assets.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thanks, Paul Great question.
Speaker Change: We are.
Speaker Change: It's a combination of both we triangulate around values in terms of where you know what we think the sell price might be right now versus.
Speaker Change: Where we think stabilized value is it's very hard to say, where something would sell today, particularly as alone within borrower who has you know.
Speaker Change: In many cases starve the asset of capital. So we don't think that.
Speaker Change: Relying on that alone makes a tremendous amount of sense, but we do have a third party appraisals as well to support the values that result in those reserves.
Speaker Change: Okay.
Speaker Change: Got it and then do you have a sense of the kind of aggregate amount of incremental capital that you might have to put into those assets.
Speaker Change: It you know it.
Speaker Change: It's a moving target as you might imagine and it'll depend on the timing of bringing those assets.
Speaker Change: Alright.
Speaker Change: When we can control more of the decision, making but it's one of the reasons that we've identified these assets to be Oreo versus some of the others is because they are cash flowing and the capital requirement is not.
Speaker Change: It's not enormous a lot of the capital that would be required would be as it relates to <unk>.
Speaker Change:
Speaker Change: Renovating units.
Speaker Change: As residents vacate the units, but one thing that we're seeing in this current economic environment and higher renewal rates and people staying in units for longer. So I think there's going to be a lot of factors that impact that but we don't think it's gonna be a tremendous amount of capital. We think there's just a little a little money is gonna go a long way.
Speaker Change: Given how the assets have performed to date.
Speaker Change: Okay.
Speaker Change: Understood. That's it for me thanks, everyone.
Speaker Change: Thank you thank.
Speaker Change: Thank you. We currently have no further questions. So I'll hand back to Richard Mack for closing remarks.
Speaker Change: Yeah.
Richard Mack: So thank you all again for joining us I think just to be very clear and to summarize our path for 2025, we're going to be focused on improving our balance sheet and increasing liquidity.
Richard Mack: It can be less about maximizing value, although we are selectively ready to maximize value in terms of Oreo.
Richard Mack: Recovery is going to continue to be slow can you continue to be choppy and we need to respond to that.
Richard Mack: And meet the market and so in an elevated rate environment, even with spreads coming in.
Richard Mack: We are not going to hope that the valuations are going to move meaningfully although we expect over 2025, given what the capital markets are doing they will but we're going to meet the market as a general statement.
Richard Mack: And tried to move assets.
Richard Mack: On and off and improve liquidity.
Richard Mack: You said that we're not going to be afraid to take assets back.
When we need to.
Richard Mack: So this is going to be the balance, but we're going to lean a little bit more towards liquidity and away from Oreo.
Richard Mack: Or being very difficult.
Richard Mack: In 2025 with a real focus on liquidity, because we believe that once we can fix liquidity.
Richard Mack: Our valuation of our stock is going to be a lot better. So we thank you all for joining and.
Richard Mack: We're looking forward to speaking to you all later and.
Richard Mack: Thank you again.
Richard Mack: Take care.
Richard Mack: This concludes today's call. Thank you for joining you may now disconnect your lines.
Richard Mack: [music].