Franklin BSP Realty Trust Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

Key Takeaways

  • On its Q1, FBRT reported a 76% increase in GAAP net income per share to $0.44 and a 19% rise in distributable earnings per share, both comfortably covering its $0.355 dividend.
  • The watch list shrank from five to one asset after Q1, highlighted by a 100% principal recovery plus $20 million gain from the Brooklyn hotel sale, unlocking capital for redeployment.
  • The company ended the quarter with $1 billion in total liquidity, repurchased $17.5 million of unsecured debt at 75 cents on the dollar and nearly 8 million common shares, all accretive to book value.
  • The Walgreens retail portfolio is now entirely held in REO amid ongoing litigation, and REO assets represent approximately 2.5% of the total loan portfolio.
  • The portfolio remains 76% multifamily and 98% floating rate with minimal (6%) office exposure, and origination pipelines are rising as banks and other lenders pull back.
AI Generated. May Contain Errors.
Earnings Conference Call
Franklin BSP Realty Trust Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Franklin BSP Realty Trust First Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

Operator

I would now like to turn the conference over to Lindsey Crabbe, Director of Investor Relations. Please go ahead.

Speaker 1

Good morning. Thank you, Gary, for hosting our call today. Welcome to the SBRT First Quarter Earnings Conference Call. As the operator mentioned, I'm Lindsay Kropf. With me on the call today are Richard Byrne, Chairman and CEO of FBRT Jerry Baglian, CFO and Chief Operating Officer of FBRT and Mike Comparato, President of FBRT.

Speaker 1

Before we start today's conversation, I want to mention that some of today's comments from the team are forward looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, May 4, 2023. The company assumes no obligation to update any statements made during this call, including any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com.

Speaker 1

We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Richard Byrne.

Speaker 2

Thanks, Lindsay. Good morning, everyone, and thank you for joining us today. I'm Rich Byrne, as you I'm Chairman and CEO of FBRT. As Lindsay mentioned, our earnings release and supplemental deck were published to our website yesterday. This morning, I guess we will cover our financial results for the Q1 of 2023.

Speaker 2

So I'm going to start on Slide number 4 and maybe just kick off with the initial comments that we were very pleased with our performance in the Q1. The two biggest highlights for us were our earnings increase and improvements in our portfolio. So first, Our GAAP net income per share increased by 76% this quarter to $0.44 per diluted share compared to $0.25 Our distributable earnings per share increased by 19% this quarter with FBRT generating $0.44 per fully converted share compared to $0.37 in the prior quarter. Once again, our distributable earnings comfortably covered our common stock dividend, which remained unchanged at $0.355 and represents a yield of approximately 9% on our March 31 book value of 15.78 The sharp earnings increase reflected the benefit of higher base rates, of course, on our floating rate portfolio, as well as several other positive portfolio developments in the quarter. Jerry will provide more detail on this in his financial overview.

Speaker 2

The 2nd biggest highlight in the quarter for us was the improvement in our portfolio. Despite a market that has been unpredictable, We ended the quarter with 3 loans on watch list down from 5 assets at the end of the prior quarter. And after the end of the Q1, 2 additional loans were removed from our watch list. Our watch list now consists of only one asset, a relatively small CBD office loan in Portland, Oregon. 1 of the assets that came off our watch list After the quarter end was our Brooklyn hotel loan.

Speaker 2

In mid April, we announced the successful completion of the sale process The asset for $96,000,000 we recovered 100% of the principal on the loan and approximately $20,000,000 in additional proceeds. We were very happy to have reached a positive resolution on this protracted process, which will now free up considerable capital for us to redeploy. There were several additional developments to note in the quarter. First, our balance sheet. We closed $200,000,000 of new loans in the quarter, maintaining our patience in Finding the right opportunities, our portfolio size decreased slightly from the prior quarter to $5,100,000,000 spread over 150 Spread over 157 loans with a heavy focus in multifamily and our book value was flat versus last quarter.

Speaker 2

While origination volume was lighter, we found attractive investment opportunities. For example, one of the largest loans we originated was a limited service hotel portfolio. Our weighted average spread on new loans in the quarter was 580 basis points. Mike will go into more detail on all this and on our recent investments and of course our pipeline in his commentary. We ended the quarter with cash and total liquidity of $230,000,000 $1,000,000,000 respectively.

Speaker 2

We believe having a robust liquidity position is quite prudent In order to protect our portfolio against any unforeseen credit events as well as to take advantage of the attractive deal flow we are now seeing in the market. We were also able to deploy capital to buy back our debt and our common stock at meaningful discounts this quarter, Which were both accretive to book value. As for the debt, we repurchased and retired $17,500,000 of our unsecured debt at 75% of its face value. Jerry will provide details on this in his commentary in a moment. As for the stock, we also repurchased 3,700,000 of our common shares in the Q1.

Speaker 2

Subsequent to quarter end, we repurchased an additional 4,500,000 of common stock. In total, in 20222023, once we started our buyback programs, the company and its advisor has purchased Just under $60,000,000 $59,700,000 to be exact of FBRT stock. So that leaves approximately $40,000,000 Which still remains on as our authorized amount for additional repurchases. Lastly, a few concluding comments and thoughts before I turn it over to Jerry. We are confident in the quality of our portfolio given its multifamily focused And our limited exposure to the office sector.

Speaker 2

Office loans represent only 6% of our assets. Our floating rate loans are at the top of the capital stack. We employ relatively light external leverage, our liquidity levels are robust, and while we are defensively positioned, we will continue to take advantage of origination opportunities that will enhance our stockholder returns. Now, I'll let Jerry walk you through our performance for the

Speaker 3

quarter. Thanks, Rich. Hello, everyone. This is Jerry Baglan, the Chief Financial Officer and Chief operating officer of FBRT. I appreciate everyone being on the call today.

Speaker 3

And moving on to results, let's start on Slide 5. In Q1, FBRT generated GAAP earnings of $43,800,000 which is $0.44 per diluted common share, and that's an 11% ROE. Our GAAP earnings this quarter included 2 one time events. 1 was related to the sale of securities, including ARMs and and the second was a partial extinguishment of unsecured floating rate debt. Regarding the debt, We were able to acquire and simultaneously extinguish $17,500,000 of the unsecured at a price of $0.75 on the dollar like Rich mentioned.

Speaker 3

That resulted in an immediate book value gain for shareholders and it reduced our ongoing annual debt service on that unsecured by about $1,500,000 based on the current cost of the debt. Our distributable earnings in the Q1 were $44,800,000 or $0.44 per fully converted share and that represents an 11.1% ROE. A walk through of the distributable earnings to GAAP net income can be found in the earnings release. Our commercial real estate portfolio ended the quarter at $5,100,000,000 in principal balance. Transaction volume remained subdued in the Q1.

Speaker 3

And given the earnings capability of our portfolio, we can be very deliberate in our originations, growing the portfolio when it makes the most sense. Spreads on the loans trended modestly higher in the quarter and we are seeing the benefits of that in our earnings. That said, we have witnessed the spread tightening in the market since quarter end And Mike will go into that in greater detail. We maintain a real estate securities position of $246,000,000 in CRE CLO bonds and ARM Our leverage position trended lower this quarter with net leverage ending the period at 2.3 times and our recourse leverage ending the quarter at 0.46 times, and we feel this is within the appropriate range for our portfolio. And book value ended the quarter flat at $15.78 Moving on to Slide 6, You can see that we had our 4th consecutive quarter of distributable earnings growth.

Speaker 3

And this growth was largely attributable to increases in sulfur. That's the base rate underlying most of our assets as well as fees from certain asset payoffs. Turning to Slide 7, We'll walk you through the activity in our portfolio for the quarter. We received $380,000,000 in loan repayments, 58% of our repayments were from multifamily loans and 25% were from office loans during the quarter.

Speaker 4

While no new assets were added to REO in

Speaker 3

the quarter, we took title to 5 Walgreens properties, which resulted in $25,000,000 in foreclosures or deeds in lieu of foreclosures. And after the quarter, we took deeds to all the remaining Walgreens properties and now hold the retail portfolio entirely as REO. Inclusive of the 24 Walgreens properties, our Foreclosure REO represents approximately 2.5 percent of our total portfolio. Our remaining two REO Properties are a Class A multifamily property and an office tower. We marked the multifamily property down by $1,300,000 in the first quarter based on an updated market value or market information.

Speaker 3

We continue to market both assets for sale. However, depending on pricing levels, we are comfortable for owning and operating these assets. Moving to Slide 8, we have an overview of our capitalization. Our average cost of debt during the quarter was 6.7%. And while short term rates continue to drive up our borrowing costs, we actively manage our CLO book, taking advantage of reinvest.

Speaker 3

And we have reinvest available through July of 2024. 79% of our financing on our core book is in non recourse to non mark to market facilities. We have not gone to market with a CLO in 2023, but continue to monitor that space. We have historically been a leading issuer of CLOs and we will look for opportunities to issue when doing so is accretive both quantitatively and qualitatively to our business. Finally, Slide 10 showcases our liquidity position.

Speaker 3

As Rich mentioned, we ended the quarter with $1,000,000,000 in total available liquidity. This is through a combination of cash on hand, available CLO reinvest and capacity on our warehouse lines. We have diversified funding sources with 6 separate counterparties on our warehouse lines. Our liquidity stabilizes our balance sheet and will enable us to take advantage of future origination With that, I will turn it over to Mike to give you an update on our portfolio.

Speaker 4

Thanks, Sherry. Good morning, everyone, and thank you I am Mike Comparato, President of FBRT. I am going to start on Slide 12. Our commercial loan portfolio is over 99% senior mortgages and 98% floating rate. It continues to be predominantly multifamily with 76 percent of our exposure in this sector.

Speaker 4

We've discussed our office exposure in great detail on the last few earnings calls. That exposure continues to decrease and represents only 6% of our total portfolio at quarter end. We continue to view multifamily as having the best credit and risk adjusted returns within the CRE credit space. Our multifamily focus has made our portfolio very liquid. Geographically, we continue to be heavily invested across the Southeast and Southwest and favor assets in areas with positive population trends.

Speaker 4

As I mentioned last quarter, we have no international exposure and no intention to add international exposure in the near future. Slide 13 shows our activities specific to the Q1. We originated 4 loans in the quarter for a total commitment of 200,000,000 at a weighted average spread of 580 basis points. Deal flow is meaningfully better today than in the prior 2 to 3 quarters. We are seeing strong deal flow with attractive credit metrics and terms.

Speaker 4

Interestingly, we have seen a meaningful tightening in credit spreads in the whole loan market in the past 4 to 6 weeks. While I believe a portion of that is credit quality improvements I believe there is also a tightening due to scarcity of product, specifically within multifamily credits. A good credit is getting a lot of attention in the market and is being bid tighter. I also believe several lenders are looking at whole loan coupons versus the components of the coupon. If If you can write a good credit loan with an 8 handle coupon, that is very compelling given where coupons have been for the prior 20 years.

Speaker 4

Hospitality was our largest ad in the quarter, driven by 1 large loan. We wrote $120,000,000 loan on a cross portfolio of 12 limited service hotels. The loan has strong in place cash flow, included significant equity investment from the borrower at closing, and also has a meaningful mezzanine lender in the capital stack. This loan size is greater than our typical loan size, which averages $32,000,000 Current market conditions creating opportunities where historically we have not been an active participant. We've discussed how we are waiting for the right opportunities and are able to fill voids in the lending market as we This is most obvious in both the large loan market as well as the construction loan market.

Speaker 4

As we have discussed for several quarters, negative leverage continues to be market issue and one that has not resolved itself. We have seen cap rate widening as well as debt coupon tightening and believe within the multifamily sector, we are making positive progress on the severity of negative leverage currently in the floating rate market. Finally, on slide 14, we have 3 loans on watch list as of March 31. 2 loans were removed from our watch list in the Q1, one by way of loan payoff at par together with additional penalties and the other by loan modification, which included a meaningful investment of equity by the borrower. We ended the quarter with 3 loans on our watch list: the Brooklyn Hotel, the Walgreens portfolio, and a CBD office complex.

Speaker 4

As of today, the only loan still on watch list is the CVD office complex. As Rich said, the Williamsburg Hotel sale was completed in April. On top of a complete recovery of our carrying value, we received an additional $20,000,000 in proceeds at closing. A meaningful amount of capital was freed up with this loan payoff that can be put back to work in our portfolio. We are extremely proud of our team who worked diligently throughout the bankruptcy process to bring this loan to a positive resolution.

Speaker 4

The Walgreens portfolio continues to be in litigation and as Jerry mentioned, as of today, it is now entirely held in REO. With that, I would like to turn the call back over to the operator and begin the Q and A session.

Operator

Our first question is from Matthew Ertner with Jones Trading. Please go ahead.

Speaker 4

Hey guys, thanks for taking the question. On for Jason Congrats on the great quarter. So you mentioned that you're seeing opportunities in large loans and construction. Are the large loans similar to the one that got off this This quarter and the one in Florida. Hey, Matt.

Speaker 4

Good morning. It's Mike Comparato. Yes, They are very similar. I can't quite put my finger on why the deal flow has increased Right now, but it is a tremendous increase for us. I would say, I'm going from looking at 2, 3, 4 loans a day for the prior few quarters to now well over 10 to 15 a day.

Speaker 4

So the deal flow has been Really tremendous and noticeably, we're getting some larger loan requests that historically we just haven't been a competitive bid for. Yes. Do you think that has to do with what the banks have been going through? Yes, I think it's a combination of what's going on in the banking sector, as well as what's going on within the mortgage REIT and debt fund sector. I think we're privileged to have about 5% of our book exposed to office, whereas some others have 25% to 50% office and it's probably harder to play offense given that profile.

Speaker 4

So I think we're just seeing lenders that historically played in that space not playing today. Right. And then given those opportunities, when would you expect to capitalize on them? Would it be later half of this year, early half of 'twenty four? What's the expectation there on your end?

Speaker 4

Well, I'm hoping we capitalize on them right now. So We've already closed quarter end to date just under $200,000,000 in new originations. And again, the pipeline is Strongest that it's been. So I'm hoping that we really see an uptick in closed credits here in the coming weeks months. That's great.

Speaker 4

Thank you.

Speaker 2

Thanks, Matt.

Operator

The next question is from Sarah Barcomb with BTIG. Please go ahead.

Speaker 5

Hey, everyone. Thanks for taking the question and I echo the congrats on the great quarter. So just kind of going off that former That previous question, should we expect to see some non multifamily diversification from here in terms of your New originations or how are

Speaker 1

you thinking

Speaker 5

about new investments and sector exposure going forward given That Q1 deal is now a top three credit and is in the hospitality sector.

Speaker 4

It's Mike again. Thanks for the question. I think multifamily is really embedded in our DNA. So I would expect us to always be running an allocation fairly close Where we are today, we're 76% today. Could that ebb and flow in the next few quarters down to 70% or up to 80% it could go either way.

Speaker 4

I'll continue to say what I've been saying for the last several quarters. We want to focus on multifamily And we want to focus on hospitality, and specifically probably more leisure oriented, less business oriented travel hospitality. So I think if you look at the book today and certainly as you look at our forward pipeline, it is entirely the Family and Hospitality. We are not bidding office except for wildly unique situations. We have a bid for other asset classes.

Speaker 4

We actually have a few interesting industrial deals that we're quoting right now. But Predominantly, I would expect us to be multifamily and hospitality focused, keeping our exposure to multi, again, right where we've been for the past several quarters.

Speaker 5

Okay. Thank you. And just given most of your portfolio, of course, is Sunbelt Multifamily, just Thinking about those originations that were done in 2021 2022, when we saw rapid rent growth, Higher LTV lending at low interest rates. You mentioned the negative leverage In your prepared remarks and I was curious if you're starting to see any signs of NOI at the property level, perhaps coming in below Previous expectations on deals that were maybe penciled with negative leverage back And are you seeing any risk in your sponsors' ability to service their debt as a result of that?

Speaker 4

Great question. And obviously, the canary in the coal mine for what I think the CRE industry is going to be dealing with for the next 2 years. Specifically, what we originated in 'twenty one and 'twenty two, borrowers are just kind of getting Through or maybe near the tail end of those business plans, I would say, generally speaking, we're seeing rents at or even above what our projected underwriting was at the completion of the business plan. So we're really happy with that. And then as it pertains to debt service payments, these borrowers have effectively been dealing with fixed Straight loans from their perspective for the past 18 months to 24 months.

Speaker 4

If not every loan, 99 out of 100 loans that we wrote had pretty low sulfur caps that sulfur blew through those levels well over a year ago. So The increase in SOFR has been really borne by the cap provider and not by the borrower. And that's why the kind of Come to moment for everyone is going to be at maturity when these caps run out. And the borrowers are going to have a pretty meaningful Expense to buy a deep in the money cap again or deal with a different cap at which point Then they would be subject to that higher expense. So, there hasn't really been any issues in terms of Servicing debt today, again, because it's been borne mostly by that cap provider.

Speaker 4

And then as loans mature, that's when the tougher conversations start to happen.

Speaker 1

Okay. Thank you.

Operator

The next question is from Stephen Laws with Raymond James. Please go ahead.

Speaker 6

Hi, good morning. I wanted to touch base on the reallocation of capital that's freed up from Williamsburg. Can you talk about kind of How you think about allocating that between new investments and you've been very active with repurchase, but That varies in attractiveness versus what you see in your investment pipeline. So when we think about earnings accretion As that capital gets redeployed into performing loans, how should we think about the impact? And is that more of a 3Q event or how quickly you expect to recycle that capital?

Speaker 2

Hey, Stephen, it's Rich. Let me Hit start with that and maybe if Mike wants to speak to the origination piece, he can add on. Well, first of all, It's not just the Brooklyn hotel proceeds. We carried a pretty large cash position and overall liquidity. So we have a lot of capital To deploy, and as you've seen, we've been pretty circumspect about it, and kind of want to have our cake and eat it too.

Speaker 2

I mean, So I think the items on the menu are the just making loans regular way. You heard our comments, Mike's comments about the pipeline, As well as buying back our stock, we even had an opportunity to buy back our bonds at a pretty steep discount. So I think all are On the table, of course, I think a lot of our peers have been focused on liquidity for obvious reasons. One of those reasons might even be to just have a healthy amount of cash around to deal with any future potential portfolio problems. So I think that's all on the table.

Speaker 2

But As we think about the world, when our stock is at a discount, we're going to buy it. We can have an opportunity to buy our debt at a discount, we're going to buy it. And we're going to make loans, and we're just going to evaluate each based on what's the best return for shareholders. Did that answer the question?

Speaker 6

It does, Rich. Thank you. And I've got a follow-up, I guess, for all of you, but maybe for Jerry. I mean, As you think about the financials, I guess, first off, Mike, where are we seeing LIBOR floors in new loans? And then as we think about The forward curve and how it may be a quick trip for short term rates at these levels, not a lot of capital is going to recycle in this environment to get a For handle, hopefully LIBOR floor, have you thought about looking at buying your own floors to protect some of this Portfolio earnings power as you look at where the forward curve has rates going next year?

Speaker 4

Very timely question, Steve, Jerry and I and our Head of Capital Markets, Dave Henchke and our Chief Credit Officer, Matt Jacobs are sitting down to talk about that this afternoon. So we are actively looking on a way to protect well not protect, but take advantage of So for moving down, obviously, we had looked at and I think we had identified as early as Q4 'twenty one, our concern about Rates rising, looked at putting on some hedges at that point, but because the rise in SOFR was such a benefit to the overall performance of the vehicle in the company just felt that doing nothing was probably appropriate. That obviously is different on the way back down. So, we are actively looking at it. Obviously, no decisions have been made.

Speaker 4

With respect to the first part of the question, it's a market, Right. We're trying to get the highest floors we possibly can. Borrowers are trying to get the lowest floors that they possibly can. And we usually find some place in the middle to transact. We have been giving borrowers a little bit of a menu In terms of tighter overall spread for wider overall floor, just kind of business decisions as we originate, But it's an active dialogue and an active negotiation.

Speaker 4

And I don't think we're kind of draw the line in the sand anywhere. We're really just looking for Good credits that are overall accretive to ROE.

Speaker 6

Appreciate the color. And I guess if you buy your own floors, you can ask for those wider spreads, right? Yes. And then lastly, Mike, just larger picture, you've been remarkably accurate in some publications I've seen on CLO markets and volumes. I mean, can you talk bigger picture Sure what you're seeing there, what you think we need to see.

Speaker 6

I guess they're not closed, but for pricing to get more attractive and to view that especially given the high mix of CLO financing that the mortgage REIT uses. Thank you.

Speaker 4

Yes. Thanks, Steve. Again, CLO is the alternative financing vehicle for this space. I'm not going to say by any means that it's a new concept, but For decades, mortgage REITs, debt funds, etcetera, operated on warehouse facilities. And I think just the fundamental question, not rocket science is until spreads and leverage In the CLO market are better than what we can experience financing our loans on the warehouse facility, the market is just not there.

Speaker 4

As to the void of buyers or seeming void to buyers in the CRE CLO space, I Can't quite put my finger on it. I think it's a size issue more than it is a credit issue. We're seeing a decent amount of action on the secondary market. There seems to be bids up and down the capital stack at Fairly compelling levels, but you're talking sizes that are $2,000,000 here, dollars 6,000,000 there, the occasional $10,000,000 or $20,000,000 And I think the issue really is, if you come out with an $800,000,000 new issue CLO, is there enough demand out there to soak up that kind of volume? And I think that's what the issue is today.

Speaker 4

And I can't tell you when that's going to change, but I don't think it's going to change immediately.

Operator

The next question is from Steve DeLaney with JMP Securities. Please go ahead.

Speaker 7

Good morning, everyone, and congratulations on a really strong quarter. It is nice to see a commercial mortgage REIT lending again these days. We don't hear much of that. Just a couple of accounting thing really to start. Obviously, when you run your buyback, the benefit there just will go straight and show up in your book value.

Speaker 7

On these debt buybacks And a 25% discount. It looks like to me it worked out to $0.05 per share. So, Jerry, is that that is Accounted for within both GAAP and distributable EPS. Is that the case?

Speaker 3

Half of that's right. It's definitely in Book value per share, but we didn't include that gain in our distributable. We looked at that.

Speaker 7

Okay. So it's in GAAP, so therefore it's in book value, but not in distributable.

Speaker 2

Correct.

Speaker 7

Okay, great. No, I think that's great and I would consider conservative because like you say, It's not a recurring item for sure, right?

Speaker 3

Yes, that's kind of how we viewed it. It's sort of on the margins in terms of how you could view it, but Yes. We took a conservative approach and just said it's in GAAP, it's in your book value, distributable is a little more up in the air, we'll just leave it out.

Speaker 7

And is all the $81,000,000 remaining of debt on your balance sheet, is that all subject to buyback, redemption? Or is there any it's

Speaker 3

open. It's open. No, we could buy it back if we want to or pay it down. This wasn't a pay down per se, obviously, it was It was a secondary transaction where we were able to find a nice price. But yes, we could address the rest of it.

Speaker 7

Got it. Okay, thanks. And then one thing I wasn't clear on, on the Brooklyn Hotel, you received your all of your principal on the original loan. You've got your money back. And the $20,000,000 of additional proceeds, can you talk about how that was accounted 4 and whether that $20,000,000 did that have a revenue impact for you in the first when that property was paid off?

Speaker 7

Thanks.

Speaker 3

Yes, I'll take this one. So we've carried the loan at 57,000,000 through the balance of this workout. So any proceeds above that are effectively recognized as income at the resolution. So Yes. The short answer is yes.

Speaker 3

That will show up as positive income for us in the second quarter because we accrued nothing along the way until we had certainty on resolution. So that will be a second quarter item for us.

Speaker 7

Nice. Okay. And is it Premature to ask you whether that will be obviously, it will be in GAAP. When you think of the nature of that recovery or however you want to describe it. Do you think that would impact your distributable EPS?

Speaker 3

It will because that's effectively interest income or at least the lion's share of that should be interest income when we've kind of finished the full accounting on it. But When you think about what it really represents, it's kind of the catch up on all the accrual that never happened for us or that we never recorded rather.

Speaker 2

Yes, it's the return we generated.

Speaker 7

Yes, yes. I mean, Doug, you're getting your money back delayed, but it Was fully earned at one point in time, for sure. Understood.

Operator

That's correct.

Speaker 7

Well, congratulations on the quarter, and it looks like second quarter will be strong as well. Thank you.

Speaker 2

Thanks, Steve.

Operator

Thanks. The next question is from Matthew Howlett with B. Riley. Please go ahead.

Speaker 8

Thanks. Good morning. Thanks for taking my question. Most of my questions have been answered, but what reoccurring team we keep hearing from participants in the CRE market You sort of get to know your lender with the sort of belief that there'll be a lot of extension for Years out. When I look at your portfolio, I mean, you're getting repayments, you have the multifamily with the GSE exits.

Speaker 8

What are your conversations like with the sponsors? I know the maturity dates are couple of years out here, but are leasing rates to the point where you feel that the GSEs will be there? Would you feel that the sponsors are long will need longer to see the cycle out? Just want to hear, just sort of what we've been hearing throughout the earnings season.

Speaker 4

Yes. Thanks, Matt. This is Mike again. Yes, we're in active dialogue with all of our sponsors. Where coupons are is not a surprise to anybody.

Speaker 4

I think in our prepared comments, you heard me specifically reference The negative leverage within the floating rate market, we're not experienced that in the fixed Great GSE market. I would say that that leverage is probably flat today. So you can get You have a 5% flat, give or take 10 or 20 basis points in either direction this morning, coupon out of Fannie Freddie for a 5 Your 10 year fixed rate deal. So it's not necessarily positive leverage, given where we're kind of hearing and seeing cap Today, but it's neutral leverage. So I think as with everything, these loans and credits and assets are going to be dealt with on a case by case basis.

Speaker 4

I would say specific to our book, a lot of our borrowers are merchant value add developers or value add players. And they did not go into these assets Looking to hold them for 5 years or 10 years, but that might just be A de facto outcome of the situation is they don't really have a choice or they always have a choice. It's take a loss, You know, write a big check most likely to right size your capital stack or go to the agencies and get some cheaper financing and hold the asset longer term. And that's just a question that they're going to have to answer for themselves. In terms of our dealing with it, again, I think it's going to be very similar to COVID.

Speaker 4

We have a duty to do what's best for our shareholders. We will do that. These borrowers are also good clients that we've had for a decade at BSP. And individually from our origination staff, some borrowers we've worked with for 20 years. So, we have to walk a line of Being a good lender, listening, being thoughtful, and then also reminding them that we are their lender, not their partner.

Speaker 4

But we're looking to get to positive resolution on everything. We're not looking to be difficult. We're in no way A predatory lender or a lender who's loan to foreclose or loan to own, we would like to just work through these problems, But have to remind people that we are the lender, loan documents exist for a reason and hopefully we'll get to a positive resolution in an amicable way.

Speaker 8

That's right. I mean, that's very helpful and it's nice to have that GSE exit GSEs will always be there in the market. When you look at lending going further, when you look at the banks, the larger impact of the banks, what do you feel do Do you feel you have to trend think about your model differently now? Do you think there's an opportunity? Will CMBS at some point come in and take over the banks?

Speaker 8

How do you look at What's happening with the bank and the larger impact of your model?

Speaker 4

Yes. I mean, it definitely has an impact on our model. I think the banks Probably played the biggest role or at least the void that we can fill the most is in the construction lending space. I mentioned it in the prepared remarks, but we're seeing some large multifamily construction opportunities that Yes, we just weren't in the room for previously because they were gobbled up by the big money center banks. We're also seeing now a lot of Real construction requests.

Speaker 4

And if you think about just the context of what an industrial building is, 200,000 maybe up to a 1000000 square feet, It's more of a middle market banking land, call it a $25,000,000 to $75,000,000 construction loan versus the You can get CBD Multi 100 of 1,000,000 of dollars or something like that, but the industrial space is much more middle market. So I would say for the first time, we're seeing industrial construction opportunities because that regional bank is very much trying to figure out What they're doing and what they can and can't do. So we've been seeing more of that. So yes, it's playing a big, big role. And we're seeing a lot of banks with loans that are maturing that are just telling the borrowers pay us off.

Speaker 4

Getting it paid out, they don't want to pay down, they don't want a modification, they just want out. And so I think we're going to see A tremendous opportunity. I mean, all of the headlines are saying $1,500,000,000,000 of loans maturing in the next 3 years. We're ready, willing and able to fill that void where we can.

Speaker 2

Hey, Matt, it's Rich. And just to maybe add on just a Couple of additional thoughts. I think there's a long term trend and a short term trend. Mike talked about sort of the gap between buyers and sellers. So there's maybe not as many transactions you would naturally think, fewer transactions, more money that Has a tightening effect on the market, but money being put out is much lower.

Speaker 2

So the banks is one obvious example of regional Small banks are a source of lending. There's either a flight of quality away as those banks shrink or regulatory So I mean, I think that's a secular just change in who's putting out money to some of the things that we do. The near term change, Mike also talked about though is what our peers are doing, whether they're funds or some of the public REITs, either because they have Office exposure or just want to build liquidity for a rainy day, they've just been load to put out capital. Again, this is Near term, who knows how long that will last. The other issue is that a permanent capital vehicle like a mortgage REIT can only invest Capital you have and most of the time we're getting prepayments which have slowed down quite considerably for obvious reasons.

Speaker 2

So people just don't have as much money to invest. So I think for all those reasons like you're Kind of getting the pick of the litter if you have a lot of liquidity that you're willing to put to work right now in what deal flow there is in all these different categories. Like I said, some of that will last for a while because as you sort of shift and replace where the banks were and some of it's maybe in next quarter or 2 or 3, but we're enjoying the opportunity right

Speaker 8

Really helpful. I really appreciate it. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Speaker 1

Thank you for joining us this morning. Please reach out with any questions.

Speaker 2

Thanks everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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