Q2 2025 Arbor Realty Trust Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the second quarter 2025 Arbor Realty, Trust earnings conference call.

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I would like to now turn the conference over to your speaker today. Paul eliano G, Financial Officer, please go ahead.

Thank you, Stephanie and good morning everyone and welcome to the quarterly earnings call for our realy trust this morning. We will discuss the results for the quarter end of June 30th 2025 with me. On the call today is Ivan kalfman, our president and chief executive officer. Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risk and uncertainties including information about possible or assume future results of our business Financial conditions, liquidity, results of operations, plans and objectives.

These statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports. We caution not to place undue reliance on these forward-looking statements, which speak only as of today. Arbor.

It takes no obligation to publicly update, or revise. These forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. I'll now turn the call over to Arbors president and CEO Ivan calman. Thank you Paul, and thanks to everyone for joining on today's call. As you can see, from this morning's press release. We have another active and productive quarter, as we continue to make substantial improvements on the right side of our balance sheet and significant progress in working through our delinquencies and REO assets despite the challenging environment.

We had a very active first half of the year with many significant accomplishments. We recently completed our first high yield unsecured debt, offering raising 500 million of capital that we used to pay off all of our convertible debt, and added 200 million of additional liquidity, to fund the growth in our platform.

This is a tremendous accomplishment, especially in this environment and we're very pleased to report that. As part of this offering, we received the Double B rating on our corporate credit from both Moody's, and Fitch reinforcing the quality of our platform and the value of our Diversified business model.

Clearly having access to this highly liquid Market will allow us to further, diversify our funding sources and push out and stagger our long-term debt maturities and continue to grow our platform and drive strong Returns on our Capitol.

This was a transformational deal for the franchise Capital office string of a significant Capital Market transactions, totaling 2, and a half billion dollars that we successfully completed over the first half of this year.

1 of these significant transactions occurred earlier in the second quarter. When we issued the first bill to rent securitization in the industry, totaling 800 million dollars with pricing. That was well inside our warehousing lines and contained enhanced leverage and a 2-year replenishment period which allows us to substitute collateral when Loans pay off

As I mentioned, many times, we love the single family rental business and it provides Us free terms on our Capital to construction bridge and permanent agency execution. And this Landmark transaction is now paved the way to building a security sensation platform for this business which will not only increase our level of return significantly but will also Drive substantial efficiencies with our bank lines. Now that there is a takeout through a CL Market

I'm building this type of securitization platform. Will allow us to scale up this business and gain market share. As these efficiencies will further increase our competitive advantage in the space.

These transformational deals, these 2 combined with a 1.1 billion repurchase facility, which we closed in the first half. First quarter with JP Morgan to redeem 2 of our cos are tremendous examples of our ability to continue to make substantial improvements to the right side of our balance sheet and drive higher Returns on our Capitol

and given the strong securitization market and a highly constructed and liquid environment. We are currently seeing with our commercial Banks, we are confident, we will continue to make meaningful progress in this area and create additional efficiencies that will help mitigate the drag from some of our non-interest earning assets.

The prolonged elevated rate environment.

Has created a very challenging climate that is affecting the agency origination business inability for bars to transition to fixed rate loans and recap their deals.

We continue to see a tremendous amount of volatility and uncertainty in the market that has resulted in large ones, in the 5 Grand 10 year, indexes at times, which we believe could continue in the short term, making it very difficult to predict where race will go for the balance of the year.

We'll continue to monitor the market environment and the effect it will have on our business for the balance of 2025.

And again, as we've discussed in the past, if we see a meaningful sustained reduction in the 5 and 10 year, interest rates, it will be, it will be a positive C cat Catalyst for our business by driving increased, origination volumes, and allow us to move more loans off our balance sheet, which will increase our earnings, run rate, and position as well for 2026.

We continue to do an effective job of managing through our loan book. Despite the fact that we have been dealing with elevated rate environment for over 3 years now,

To date. We've had great success in getting bars to recap, the deals and purchase interest rate caps as well as bringing new sponsors to take over assets either essentially or through foreclosure

In the second quarter, we took back approximately $188 million of our assets, $115 million of which we were able to flip to new sponsors and assume our debt. This brings our aerial book to approximately $XXX as of June 30th. We do expect to take back additional assets in the future, which net of dispositions, we estimate will result in owning and operating approximately $400 to $600 million in REO assets, which is slightly above our previous guidance of $400 to $500 million. This is reflective of some of the recent trends we have seen this quarter.

Turning now to our second quarter performance, as Paul will discuss some more detail. Our quarterly results for in line with our Guidance with us producing, distributable earnings of 30 cents per share,

We anticipate that the balances of this year will continue to be challenging due to the significant drag on earnings for an hour, your assets and delinquencies. And to affect this prolonged higher interest rate, environment is having an originations business, all of which will make 2025 a transitional year, which is reflected in our current dividend.

And as we successfully resolve these assets, and if we start to see sustained rate relief, We believe We Will well, well, positioned for growth earnings and dividends again in 2026.

And I balance sheet lending platform. We are seeing an incredibly competitive landscape. There's a tremendous appetite for deals and there's a significant amount of capital out there chasing transactions.

We are seeing shops consistently compromising on credit and structure, which is not something we will sacrifice to win a deal. As a result, we are being highly selective and have closed about $100 million in the second quarter and $215 million in July, putting us around $700 million of volume for the first seven months of the year.

The guidance we gave at the beginning of the year of 1 and a half to 2 billion of Bridge Loan Production for 2025, was based on the current environment is something. We still feel we can accomplish it is highly competitive out there and whether we come in on the low end or the high end of the range, will be dependent upon the market conditions and the interest rate environment, which again has been volatile and unpredictable.

And again, the Bridge Landing business is a very attractive to us. As it generates strong leverage Returns on our Capitol in the short term while continuing to build up a significant pipeline of future agency deals, which is critical to a part of our strategy.

And if we can continue to take advantage of the efficiencies in the securitization market with our commercial banks, we can drive higher levels of returns and increase returns on capital substantially.

Any agency business. We originated 850 million of loans in the second quarter and 1 and a half billion for the first 6 months of the year.

We have incredibly strong July originating. An unprecedented 1 billion of agency loans which includes a large deal that we have been working on for several months.

We also have a very large Pipeline and we believe

We could result in originating a proxy of $2 billion in the third quarter, which would be one of the single largest production quarters in our history.

We are very fortunate to have such a resilient originations network with a very loyal bars which allows us to capture some large, off-market transactions, despite an extremely challenging Market.

Results will put us in a position to meet and possibly be our guidance for 2025 of between 3 and a half and 4 billion of origination volume.

We continue to do an excellent job in growing, our single family rental business. We had a strong second quarter with approximately 230 million of new business and our pipeline remains strong.

This is a great business that it offers 3 turns on our Capital through construction, bridge and permanent lending opportunities. And generates strong, leverage returns in the short term while providing significant long-term benefits by for by further diversifying our income streams. We continue to have great success in executing our business plan converting another 200 million of construction, loans into a new bridge loans. This quarter and 335 million are ready for the first 6 months of the year. And again, with the recent CL, we discussed combined with enhanced efficiencies, we are seeing in our bank lines. We are generating mid to high Returns on our Capital which will contribute to increased future earnings, especially as we continue to scale up the business.

We also continue to make great progress. Not construction lending business. We believe this product is very important for our platform and it also offers us free turns on our Capital to construction bridge and permanent agency, lending opportunities and generates mid to high Returns on our Capitol. We close 265 million in a deals. In the first 6 months and close another 144 million in July.

We also have a strong Pipeline with roughly a 100 million under application and 400 million of additional applications outstanding, and 500 million of deals. We are currently screening and given the strong progress, we feel we will easily beat the guidance. We gave of 250 to 500 million of production for 2045 and we are very and we are way ahead of schedule through the first 7 months of the year.

In summary, we had a very active and productive first half of the year, with many notable accomplishments. We continue to execute our business plan very effectively and in line with our objectives and guidance. Clearly, there's been a tremendous amount of volatility in this space, especially as it relates to our outlook for short-term and long-term rates. If the rate environment improves, it will have a positive effect on our business and outlook moving forward.

Additionally, we have made great. Great trees in improving. The right side of our balance sheet, through the securitization and public debt. Markets with our banking relationships, that will continue to be a positive Catalyst. And as I mentioned earlier, we view 2025 as a transitional year, and in which we will work exceedingly, hard to successfully resolve, our REO assets and delinquencies, providing a strong earnings Foundation which we can build upon in 2026. I will now turn the call over to Paul to take you through the financial results.

Okay. Thank you Ivan in the second quarter, we produced distributable earnings of 52.1 million or 25 cents per share and 62.5 million or 30 cents a share. Excluding 10.5 million of 1-time realized losses from the sale of 2 REO Assets in the second quarter and the 30 cents. A share of distributable earnings translates, into a 10% Roe, for the second quarter.

And the second quarter, we accured an additional 10 million of net interest on paying a cool loans. However, we only increase our interest receivable related to these loans by approximately 3 million dollars during the quarter mainly due to some loans that either repaid in full or had large pay Downs, in which we received 7 million dollars of back accured interest that was outstanding on these loans. And in July, we also received recruited interests of around, 7 million dollars related to a bridge and mezzanine loan. We had on our books on the same property that paid off in full. We had 187 million loans on this asset, which was repaid with 167 million agency loan that we recaptured and outside preferred Equity that came in through the borrowing group. This is a perfect example of a tremendous execution where we generated, strong returns our invested Capital recaptured the agency loan with a much lower Detachment point and recouped. All of our invested capital and back accured interests.

Store in the quarter.

The second bucket consisted of loans that are less than 60 days past due came down to 57 million. This quarter from 143 Million last quarter due to 48 million in modifications and 48 million. That we took back asaro, which was partially offset by approximately 10 million of new delinquencies during the quarter.

And while we're making steady progress in resolving these delinquencies, we do anticipate that we will continue to experience some new delinquencies. Especially if the current rate in environment, persists,

In accordance with our plan of resolving certain delinquent loans. We've continued to take back assets as Aro and we expect to take back more over the next few quarters as Ivan mentioned.

The process of foreclosing on and working to improve these assets and create more of a current income stream takes time which again will temporarily impact our earnings.

In the second quarter we took back 188 million of Aro assets. We've been highly successful at bringing in new sponsors and certain assets to take over the real estate and assume our debt.

This strategy is a very effective tool at turning dead, capital in a non-performing loan into an interest earning asset, which will increase our future earnings we sold 115 million of these Assets in the second quarter and we're in the process of bringing in new sponsors on another 40 million of Ario assets which we hope to close by the end of the third quarter, we recorded an additional 16 million of loan loss reserves on our balance sheet loan book in the second quarter, 6 and a half million of which were specific reserves with the remaining 9, and a half million being General, Cecil Reserves.

As a result of changes in the outlook on real estate values from the outside service providers, we use to assist us in terms in determining our loss reserves and again we believe we've done a good job of putting the appropriate level reserves on our assets, which is evident by the transaction. We've been able to effectuate to date at or around our carrying values, net of Reserves.

And our agency business. We had a solid second quarter, and as Ivan mentioned, we are expected to have an exceptional third quarter as well. We produced $857 million in originations and $877 million in loan sales in the second quarter, with very strong margins of 1.69%.

We also recorded 10.9 million of mortgage servicing rights income related to 853 million of committed loans. In the second quarter representing an average MSR rate of around 1.28%.

Our fee-based services, portfolio grew to approximately 33.8 billion of June 30th with a weighted average servicing fee of 37.4 basis points. And an estimated remaining life of 6 and 1/2 years, this portfolio will continue to generate a predictable annuity of income going forward around 126 million, gross annually.

And our balance sheet lending operation, our investment Port portfolio, grew to 11.6 billion at June 30th from origination to outpacing, runoff for the second straight quarter.

Our all-in yield on this portfolio was 7.86% at June 30th compared to 7.85% at March 31st, mainly due to taking back non-performing assets as REO, which are separately stated on our balance sheet. This was partially offset by some new delinquencies in the second quarter.

The average balance in our quarter Investments was 11.5 billion this quarter compared to 11.4 billion. Last quarter, the average yield on these assets decreased to 7.95% from 8.15% last quarter, mainly due to less back interest collected on our portfolio and some additional delinquencies in the second quarter.

Total debt on our core assets was approximately 9.6 billion in June 30th. The all-in cost of debt was approximately 6.88% at 6:30 versus 6.82% at 331. Mainly due to slight slightly higher rates than our Legacy cos from lower rate, debt tranches being paid down with runoff in the second quarter.

The average balance on a debt facilities was approximately 9.5 billion for the second quarter compared to 9.4 billion in the first quarter, mainly due to funding our second quarter growth.

The average cost of funds on a debt facility. So 6.87% in the second quarter compared to 6.89% for the first quarter, excluding interest expense from Levering, our REO assets, the debt, balance of which is separately stated on our balance sheet and therefore not included in our total debt on core assets. The slight reduction in the average cost of funds was mostly due to the full benefit of lower rates. On the new JP Morgan facility that we closed in the first quarter as compared to the Coos that we redeemed.

Our overall, net interest spreads in our core assets was down to 1.08% this quarter from 1.266 last quarter largely due to more back interest collected. Last quarter, on delinquent loans combined, with a few new non-performing loans, in the second quarter, and our overall spot net interest spread were 0.98% of June 30th compared to 1.03% at March 31st.

% during this very lengthy, dislocation to a leverage ratio of 3 to 1 from a peak of around 4 to 1 nearly 3 years ago, and as Ivan mentioned, in early July. We issued our first unsecured rated debt deal which will now provide us with a significant pocket of new institutional Capital, allowing us to transform our balance sheet and fund more of our business with unsecured long-term debt.

That completes our prepared remarks for this morning and I'll now turn it over to the operator, to take any questions you may have at this time step Stephanie.

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Our first question will come from Steve Delaney with Citizens JMB.

Good morning, and thanks for taking the question. Um, first question I guess, um, the drop in net interest income. Um, from 75 million in the first quarter to 69 million. Um, can you just explain what if there were any unusual items in there? Was it reversals when you took the things into foreclosure just any color there and I apologize if I was trying to take good notes but I probably didn't. You may have mentioned it and I didn't get it down. Thank, you know, Steve, it's a great question. So yes, there's a, there's a couple of items 1. We had a few more at the link and see you in the second quarter. As I mentioned in my commentary. We also had a little less back interest collected on previously delinquent loans.

Obviously, as they move through the life cycle and become further and further delinquent and we're lining it up to take them out as Aro, a reposition them, the chances of getting back interest get smaller and smaller as we're taking those assets back so that had a little bit of an impact, but to your point. And as I mentioned in my commentary, we had, um, we had recorded net new, uh, pain across of about 10 million for the quarter. It would have been about 15 million but we reversed 5 million of paying a call. And 3 million of that were on loans that we foreclosed on 1 of which we flipped at a loss, this quarter that we mentioned that our commentary. So we do spend time every quarter, looking at the performance of our assets and depending on where things are with the particular property in particular sponsor, we may make decisions to reverse certain back interests. Um, and we did that again, this quarter to the tune of 55 million. And that that's really what's driving that difference.

And it sounds like you're being very proactive trying to move 5 rated loans into into Oreos. So you control the situation uh, 365 million. Now that, you know, more than double 176 men at the year, end of 2024 Paul. Do you have some idea, just where that might peek out and how high could that figure go over the next 2 quarters before it starts rolling rolling down and I know you're you're moving some off as you did this quarter but where where should be effective piece?

Yeah, so Steve let me, let me give you um a macro Outlook in terms of how we're approaching it. As I said my commentary, we're we're viewing 2025 a transitional year. So we want to try and accelerate this process as much as we can, and get all of this behind us as much as possible behind us. Clearly the non-performing loans, uh, is a bit of a drag. We've seen a little bit of a recent phenomenon, and we've expanded our potential REO by about 100 million. Um, and it's a little bit of a different Outlook. Uh, a lot of our row that we have are, we've mentioned or 12, to 24 months hold. But we're seeing loans that are reasonable occupancies well above 80 like, in the 85 area where the sponsors are basically a lot of capital, um, and we feel without them putting an additional Capital to continue with the

Unit turns and keep the assets up. Um, and or, or by rate caps, we're making decisions. Now that we're better off facilitating, the disposition of those assets and bringing in new sponsors. So as a result, there will be on our books for a short period of time as we go through those 4 closures, maybe 90 to 120 days. There's not that much to do with those assets. So there'll be a little bit of a drag, um, and we may bubble up,

Reposition more aggressively.

You both for the added color.

Thanks Steve.

Thank you. We'll move next to Jade, Romani with KBW.

Uh, thank you very much for taking the questions. We've seen tighter lending spreads, as I think you noted in your comments, and a pickup in capital markets activity, with lenders across the board being much more active, including the GSEs, and multifamily still remains in favor broadly speaking. So the question is, if this is translating into Arbor's portfolio via increased interest from outside parties in the ARO book, in the sub-performing loan book, and also in an uptick in repayment activities. If you could comment on that, that'd be great.

So, you know, clearly that has a lot to do with the perception of where interest rates are. And as you could see rates from moving down, every time rates move down, it creates an opportunity, to people get it to fixed rates. There's a tremendous amount of dollars, uh, chasing distressed deals. And then when we do, have a deal that's in the distress, we have multiple bidders, and it's the very, very competitive landscape. But as rates move down,

All of that. As I said, my commentary will be in our favor. Um, even as small move like today of, you know, over the last maybe 7 Days of a 20 basis point drop in the 5 year, I could tell you, we're converting, you know, a couple hundred million dollars off our balance sheet today and tomorrow, just with that move. So that will accelerate, um, a transition for people on an attraction of capital. Um, and without a question multi-family, the asset classes always been a great asset class. Um, there's been a dislocation, but we feel it's extraordinarily resilient. We're seeing a lot of money into this space.

I was also wondering if you think that there's an opportunity for Arbor to own.

Key assets within the portfolio, if you've identified any assets, that seem attractive. Because we know there's a shortage of affordable housing in the market, and the outlook probably will improve for this asset class, you know, post the current period of elevated delinquency and non-performance.

Yeah, we're not afraid, you know, historically we've done a great job of taking back assets doing extra extraordinarily, well on them on our balance sheet and then at the appropriate time, selling them. So, uh, clearly it, it it's within our philosophy and capability to do that. So when we do take back these arroz, uh, we feel we can improve them, manage them, and get great execution. So, I think giving guidance to 4 to 600 million of assets owned, um, when we get to a certain level, uh, we make a decision, whether it's Optimum to sell it. But we we, we do believe it work force housing. Uh, we think that a lot of these assets have been Capital stopped and under manage and bringing in the right management. The right amount of capital to reposition them is not only a good opportunity to get full realization on our on our debt. But I, you know, hopefully, you know do better, uh, than that as well.

Thanks and um, the GST side, could you comment on credit Trends within uh, that portfolio we did see uh, the delinquencies pick up.

Yeah, I think across the board in the, in, in, in the, in the agencies you've seen a, a, a a, a level of increase in the liquids. I think we're at the bottom of the cycle, and I think that every time you're at this bottom of the psyche, you'll see, uh, them peek and that with the agencies I've been with them, uh, they've taken about a record

Record number of Rio's relative to the last, you know, last several quarters, they feel, they're peaking as well. But I think bars are at that Peak stress point, um, and they're running out of capital. So I think you're in this period of time where you've seen a bit of a peek, uh, we think that'll continue through the next couple of quarters and clearly what happens with interest rates has a major impact on that as rates go down? Uh, you know, people find a way to sell their assets or attract New Capital but we definitely are in the peak of it. And I think the next 2 quarters uh will reflect a little bit of what's happened in the in the last quarter. Um but we think we're at the bottom.

Thank you very much.

Thanks Jade.

Thank you, we'll move next to Rick. Shane with JP Morgan.

Thanks guys for taking my questions this morning. Um, okay. So you realized 10.5 million of losses related to Aro this quarter. It sounds like 1 property. Um, basically you foreclosed on or took deed and Lou and sold right away. The other 1, perhaps more seasoned, is that the way to look at this?

Yeah, so so Rick, I'll I'll let I even give the details on the 1 Pro, but yes, there was a um an asset that we took back right away, as soon as it went delinquent, it went delinquent in the quarter we took it back right away and flipped it to a quality sponsor and took a loss from where we had it marked. Um, we had it marked at about 4 million loss. We ended up taking about a 9 and a half million loss. So a little deeper than I reserve and I haven't talked to why we did that. Um, the other asset we took back during the quarter as well, but we had it marked pretty much right on top of the value. We flipped it. I think for a million dollar loss from where we had it marked. Um so the 1 was deeper the other 1 was pretty much right on top but I didn't give the details on the 1. I said at the at the 10 million dollar loss. Yeah we just made a decision on that particular asset that if we didn't get our management then the asset could suffer significantly. Um management. Uh it was

Stopping to put capital in a payables were authentic with, could deteriorate exponentially. So we just thought it would be best to foreclose on it.

Settle out with the sponsors and move it into capable hands. That asset has been moved into capable hands. Now, an interest earning asset on our balance sheet will improve occupancies up and we think we made the right decision. It was in the market where there was a lot of competition for tenants, um, and, uh, we thought the existing Management Group, uh, was not capable of continuing to maintain the value. And we felt we were at risk of potential, a deterioration of value. So that was our decision that that period of time to move that asset out.

Uh, totally makes sense. And, uh, I also very much appreciate the transparency about, uh, where you were, where you sold it versus where your marks were. Um, can we talk a little bit about, uh, given the increasing, uh, contribution from PIC? Uh, the amount of crude interest on the balance sheet? I'm assuming that that's being, uh, capitalized in the loan balances, but want to make sure. And if we can just get, um, some numbers around that to understand how that's building over time, that would be really helpful.

Sure, Rick, absolutely. So, we're sitting at at June 30th with 95 million of pick, on our balance sheet, as a receivable, um, 15 million of that pick is related to mes and PE most of which is behind our, uh, you know, our area agency, where there's a pay rate. And then some a cool rate as part of the normal cost of doing those loans, I will say that in my commentary, I mentioned, we did get a payoff yesterday on 187 million loan. It was a bridge loan and a mes loan, and we did get back 7 million at that pick. So that 15 now goes down to 8 million, effectively. After that after that payoff, which is a really nice execution for us, the other 80 million is in Bridge lending. And just to put some numbers around it, we're a about 75% of the loans we modified. So there's about 25% of loans. We've modified that were not accruing, the interest on, it's been running about 15 million a quarter as I've said in the past, it would have ran around that number this quarter but we elected to take back and reverse some of it.

About 5 million to a 3 million of it was related to the 1 asset. We already know asset that we sold at a loss, um and we'll probably have some of that going forward. You know as Ivan and I look at the next couple of quarters, we see it to be continually challenging um with people running out of steam and we keep looking every day and every quarter on what we think we're going to collect. And what we we're not going to collect and as the situations change and things are real time. We'll make decisions to reverse some of that at times, we did reverse some of it.

This quarter that Trend may continue as we go forward. Um, but we are adding, we are adding that interest, um, to the carry value of the loan. And then we continue to look at the value of those loans, every quarter when we do Cecil, and if the value is under our carry, then we're writing it down. Um, so that's been our procedure. That's something we'll continue to do, uh, and that's the way we're approaching it.

Is Jade pointed out. We're kind of reaching probably the cyclical peak in terms of deliveries of multifamily. Can you talk a little bit about the absorption of vacancy on the properties? Where you're seeing strength, where you're seeing weakness, and how that's dictating your strategy about what you're going to sell quickly versus what you're going to hold to potentially enhance value?

Sure. First, the absorption issue that most people talk about is Class A deliveries and some of the major metropolitan areas where there's been older supply and a big overhang. We don't really have much concentration in that area; that doesn't affect us, but that's how people really look at it. Whether you go to, you know, areas like Austin, Nashville, or Atlanta, where there is just tremendous Class A deliveries, and Charlotte.

That really doesn't affect our portfolio.

Well, we really have um is a lot of work force housing, um, in certain areas where um, you you you you you have a some operators who operated Annalee, you had a lot of Co overhang and economic uh, occupancy issues that that, that existed I said my previous calls economic occupancy was as high as 12%.

So we're seeing tremendous growth on the Aro book that we have in terms of occupancies our initial. Arios that we took back um were very deep, they're very neglected properties. Very poorly run properties, and those are all being repositioned and you'll see steady steady growth and occupancy. I think the occupancy, um, will grow. I think our, our, our deep, uh, Ariel book was probably in the mid-30s. We think that'll grow over 12 months period. Steadily and increase at about uh you know, 5 to 10 points a month.

The more recent stuff we're looking at, I'm taking back, which is why we want to be aggressive. We're looking at occupancies in, in in, in the low, to mid 80s, even some at 90. And we want to take that stuff back because the sponsors, uh, are not going to manage the unit turns, increase occupancy, um, and improve that property. So we think that'll be very short term and duration, uh, we think that we'll take them back, we can transition them very quickly, uh, some simultaneously, some maybe 30, 60 90 and 120 days, the absorption will be fine on those, it'll be normal, we'll get with the right Capital Improvements. We'll get those back up to the high 80s, low 90s and once they're at that level, if the Market's right, then we'll look to dispose those. So that's kind of My overall Outlook. Um, but the absorption issue doesn't materially affect us.

More class. A you do have certain areas like San Antonio and Houston, uh, where you had a lot of Migrant issues. You had a lot of, uh, economic occupancy issues due to the migrant issues, that's transitioning over, that's a transition market. And, um, we think that market will show constant Improvement in occupancy and I have all the right trends.

Thank you and I apologize. I am going to ask 1 last follow-up on that. Uh, hopefully it's a quick answer given the size of the portfolio and, and your description of repossession, positioning some of it and optimizing it. What type of capital expenditure should we expect, uh, on the portfolio over the next 6 to 12 months?

Yeah, so it's it's a good question. Um, I've got to get some numbers and maybe I even can help but there's, there's 2 categories, right? There's the, the more heavy lifting assets that we're owning and operating that need some, reposition and need some capital and then the lighter touch stuff that I've been talking about recently. I don't know if I have and you have in your head, what you think? We would invest in the assets we have in our balance sheet right now to get them repositioned. Yeah, we'll get back to you. We do have a budget on that. They've all been forecasted and budgeting. Uh the more recent stuff. We're talking about is very nominal, it's not a huge amount of money. I mean

I think it's probably on everything $25 million to $50 million over time. That'll be a high number rather than just saying we'll get back to you on that number. Yeah.

Thank you, guys, and I apologize for so many questions.

Thank you. We'll move next to Chris and love with Libor Sandler.

So first of all, it's good to have 2 agencies that compete with each other and sometimes 1's more competitive than the other. Um, and sometimes you know, 1 provides quicker service and it it all varies. Um, we've traditionally done a lot more Fannie Mae business than we've done Freddy uh Freddy's been uh uh really stepping up our relationship. Uh recently and sometimes they're more aggressive on certain loan types in particular, some of the bigger loans.

So we're pleased to be able to have both agencies and do a really good job on it. Uh, we've been working on some really significant transactions throughout the year and, uh, as Paul mentioned, uh, until I was probably the biggest month we've had in a long time, closing a billion dollars, it represented a couple of Marquee, uh, big transactions with some of our sponsors who are very loyal to us. So we've done a good job, a pipeline remains extremely strong and we're very bullish on our numbers for the third quarter, which will put us back on track to meet or exceed, what our projections are. Um, we're looking today at a drop in the 5 years, as I mentioned. So within within an hour this morning, we already had about 200 million dollars, worth of loans that are going to convert off our balance sheet, just from that drop. So if the rate environment continues to drop, we should continue to increase our originations above our 4. But um right now

Looking at a pretty good third quarter.

Great. Uh thank you Ivan and then also in the quarter, you had a big pickup in sfr. Originations, how do you think about the longer term strategy of sfr versus Bridge multi-family for Arbor?

So the sf4 market is growing dramatically and there's been a lot of even in this location. A lot of capital put into that space doing the construction lending, part of that requires a real level of expertise that a lot of people don't have.

And we're able to provide, you know, the whole gamut of services for those bars. Meaning construction, bridge and permanent. We're in a great competitive Advantage. Having done the C. Uh, it gives us the ability to really expand out how much we do. We were always concerned with being too reliant on Commercial Banks without having that outlet, once we did that securitization, we really stepped up, um, our appetite and we'd like to actually increase and be a little bit more dominant. So, we were a little cautious, having too much concentration without having to C, uh, origination capability and non-recourse nonmarket to Market financing. Now that we have that we can be a little bit more aggressive and our returns have been exceptional. Um, so we're going to put a big effort in to continue to build our market share in that space.

Great, thank you. And then just one last question for me: can you share your thoughts on the net interest income trajectory over the near term in the current environment and kind of where you might expect it to bottom?

Yeah, that's a good. Good question, Chrisman. It's a it's a tough tough 1 to answer. We are seeing as Ivan said, uh, we are seeing a challenging environment that we expect to continue for the third and fourth quarter. Obviously, if rates move down, that'll certainly help. Um, but we are expecting it to to to bottom out here over the next quarter or 2, a couple of things that could offset it to the positive though are things we've talked about in our commentary. 1 is all the efficiencies we've been getting on the on the right side of our balance sheet is helping some of that drag and we're also seeing growth in the portfolio. As you mentioned, our sfr business is building. We're doing a nice job of converting construction loans over to bridge loans, which is helping. We're also still growing even though it's very competitive, the balance sheet book. So I think that growth will help offset a little bit of that drag. But we do expect at the bottom out here over the next quarter or 2 uh given what we're seeing in the market.

Great. Um, that's it for me. I appreciate you both taking my questions.

Thanks.

Thank you. We do have a follow-up question from Jade Ramani with KBW.

Thanks very much. I'm curious. If you might be interested in launching a fund to put some of the REO and non-performing assets into REITs, capital around, you know, bifurcate the portfolio, create a free stream, and also create some participation in the upside of those assets, you know, and allow the company to invest in and add value there, that's something you might consider.

A few people have approached on it. Um,

We're gonna have to evaluate.

You know, how much you can be transitional, how much we're going to end up with? And whether we have a core, big enough to do that,

Management has been has been discussing, but I think it's probably a little bit premature. Um, we want to see, you know, we're interest rates, go over the next month or so, because of interest rates drop. I think that'll be a real stimulus to move those assets out, uh, more quickly. But we will evaluate that option.

Thanks, and then, just on the agency business, you know, there's quite a lot of noise with what the Trump Administration might do. Uh, whether they try to take the GST public, uh, I guess number 1 is that affecting the business at all. In terms of, you know, the plan to originate new bridge loans, and eventually get a GST take takeout. So that's just number 1 and number 2, you know, 1 of your peers, a mortgage rate, uh, made an acquisition, uh, they acquired another license and, you know, pretty good valuation. Would you be interested in potentially J being, um, with other firms. That are interested in the, uh, agency business.

Yeah, listen, we’re always...

Would like to increase our agency business originations and whether we partner up with them directly or indirectly, if they're all the firms, you know who want to an affiliation to access our agency originations on the and from their from their Bridge Landing. We're happy to do it.

But I think that the, the landscape's going to change a little bit, um, you know, we've talked in the past about how we've been the only effective lender to be able to do balance sheet, lending, and, and agency lending. We now have somebody else trying to replicate that, uh, it took us years to be able to perfect that it's not an easy thing to do. Um, so we'll see how effective they are. I, I wish them luck. It is a process. Um, it takes a long time to create the right culture. Um, and you know, we continue to be very effective at it, uh, but we do everything. We can to increase our our Partnerships with other people who can contribute to our agency. Originations

Thanks very much.

Thanks Jade.

Thank you. This concludes our question-and-answer session for today. I would now like to turn it back to Mr. Ivan Kaufman for any closing or additional remarks.

All right, thank you everybody for your participation and support. Have a great week and enjoy the rest of the summer.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.