Richard Shane: Thanks for taking my questions this morning guys. Ivan, you talked and Paul, you referenced the delinquency data. I believe that’s related to the CLO, which I estimate it represents about 2/3 of the assets. If we look at — if that’s the correct description, if we look at the overall portfolio, can you provide the delinquency statistics for the total portfolio, not just the CLO?
Paul Elenio: Okay. So Rick, you’re correct. What I was referring to was on the CLOs because I thought that was the question that people were asking from the short report. What we do have now, we don’t have it out yet. And when we file our K, it will be there is we have the 60-day-plus delinquencies, which is my nonperforming loans. But there are some loans that I mentioned in my commentary that we’re 30 or inside of 30 days delinquent that we conservatively just chose not to accrue at year-end. I don’t have that number with me now, but that number will be in our filings. And so you can take those numbers and extrapolate it to the overall portfolio to get the delinquency rate, if that’s what you’re looking to do.
Richard Shane: Got it. So is there a difference between the 60-day delinquencies in the CLO that you cited in the 60-day delinquencies, I’m going to call it the managed portfolio because that’s how we would think about it. Is there a difference there?
Paul Elenio: No. So the nonperforming loans that are disclosed in our filing today of 262 million are all our loans, whether they’re in the CLO or not, that are over 60 days delinquent. So that’s the crossover. What we gave you today was numbers on what 30-plus day delinquent in our CLOs. What you don’t have is the 30-plus delinquent in the total portfolio, although it’s not substantively different because, as you said, most of the loans are in the vehicles.
Richard Shane: And can you talk about buyouts from the CLOs, both in the fourth quarter and quarter-to-date because I suspect there’ll be some questions about whether or not the CLO, the decline in delinquencies in the CLOs related to buyouts?
Ivan Kaufman: You have those numbers. So I can give some color.
Paul Elenio: Sure. I’ll give the numbers, and then Ivan will give the color. So for the quarter, it was fairly light. We only bought out on loan for 38 million out of the CLOs in the fourth quarter. We did buy 90 million of loans out of the vehicles in February. But for the year, just to give you some color, Rick, we bought out $453 million of loans out of our vehicles for all of 2023. 95 million of those loans subsequently paid off before the end of the year, 290 million of those loans we modified and restructured and got relevered on. And another 69 million we’re holding on our balance sheet without leverage, but on a bulk of those loans, we’re very close to a satisfactory resolution through a sale in the market. So that’s kind of the data points of how — what the numbers are.
And on the 90 million that we brought out in February, we’re very, very close to finishing a mod on 2 of those loans and actually relevering those loans again. So that’s the data, and then I’ll let Ivan talk about the strategy and how we look at things.
Ivan Kaufman: Yes. I mean it’s an active part of our business, not — it’s active in terms of how we manage our assets. The amount that Paul mentioned is not a tremendous amount, and it’s kind of transitional you can either take a loan out foreclose on them, people can sell them, they can bring a new ownership and it’s a whole myriad of different circumstances. And generally, the process goes anywhere from 30 to 90 days. We generally get leverage on those assets when we do them. And then there are just some that need to be sold and go-to market to be sold. So it’s a constant process.
Richard Shane: Got it. And when we think about that 90 million that was repurchased in February and you can hear me typing in the background, trying to figure this out. How impactful was that on the delta in the DT rate?
Paul Elenio: Those loans, I believe, were already in my nonperforming bucket at year-end. So in the 262 million we disclosed, those are 2 loans that were already nonperforming that we bought out of the CLO, if that’s what you’re asking.
Richard Shane: No, I’m trying to figure out you cited a decline in the delinquency rate, but if you bought out $90 million that were presumably delinquent and you’re discussing the CLO, not the managed portfolio, that comes out of the numerator in terms of that delinquency rate. That’s what I’m trying to understand. What we do —
Ivan Kaufman: It will be in the overall number, which will be —
Paul Elenio: It will, but it will be in February, not in the January numbers we gave you.
Ivan Kaufman: It doesn’t disappear, Rick. It’s not like it falls off the chart. It’s part of the total number.
Richard Shane: Got it. And then last question for me. So when we look at the reserves, and we look at the specific reserves, there’s a $70 million reserve related to a very old loan, 2008, I believe. The specific reserves are, I believe in the $120 million range. I mean, to get this a little bit wrong, but the general reserve is now about 57 or 58 basis points. Should we expect that to increase given your outlook over the next 2 to 3 quarters?
Paul Elenio: So here’s how it works. You’re exactly right. We have 120 million of specific reserves. 78 million of that is actually on a very old legacy land development deal out in California we’ve talked about in the past. And haven’t put a reserve on additional reserve on that deal in a while. The rest of the reserves throughout the asset class is mostly multifamily. We do have 75 million in general reserves on our book, 73 million of those it’s multifamily. As far as outlook, it’s really hard to talk about the reserves because CECL requires you, obviously, to build the reserve when you think you having stress, which we do. However, having said that, we do think the next couple of quarters will be increasingly challenging.
And as Ivan said, if rates stay elevated for longer, that could leak into the third quarter. And we will continue to look as we work through our deals and determine whether we need additional reserves. While I can’t predict what the model is going to show, my — intuitively, I believe reserves will stay elevated for the next couple of quarters. That’s what I think.
Richard Shane: Guys, thanks for taking my question this morning.
Paul Elenio: You’re welcome.
Operator: Our next question will come from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws: Thanks. Good morning. And very nice quarter in a very difficult environment. I know you’re working through a lot like all multifamily lenders are here. I really want to circle back to a couple of your comments. I think one of the big misconceptions I think for the — I hear from people is the assumption that all delinquencies lead to a loss. Can you talk a little more about your process, how the modifications and extensions work, your gives and takes? Are you providing mezz [ph] — how much mezz you guys provide? Are they finding that elsewhere? And again, about the new equity sponsor stepping in, you kind of mentioned that that there’s a lot of liquidity around multifamily. But can you maybe talk a little bit about the delinquencies, like how do you think about collateral values?
How do you think about which loans are subject to potential losses and which ones are just going to go through a process where they worked out and come out as a performing loan with a new sponsor?
Ivan Kaufman: Well, I would say it’s an art, not a science, and there’s no specific one that is the same. You have different sponsors with different capabilities. Different assets, different basis, different ability to get capital. And you have assets that need more capital, less capital. And we approach each one independently. I mean I will tell you that at one of our borrowers who didn’t want to make this payment, and we’re deep, deep in the money. And we have five sponsors who want to take over that asset. We’re going to collect penalty interest all the way through foreclosure, transition that asset. We know ownership, get a reduction in the loan amount, got a nice performing alone and then produce for agency loans in the next nine months when the asset gets restabilized, that’s a great situation.
We have some of those. We have other ones where perhaps we have to give some concessions to attract more capital and be a good partner because we’ll do other business with the client, and it’s a fruitful relationship in the long run, and we’re willing to work with them. Then you have certain circumstances where we have an asset that’s well in the money with a crappy borrower who’s going to hold us up and we’re going to have to fight through it and make it a non-accrual loan, while he’s stealing the rents from us for six or nine months period of time. And then we’re just non-accrued alone and fight to fight and get to where we want to go. So there’s no particular circumstance that’s the same. And it’s a detailed amount of work with a tremendous amount of focus.
We have sponsors who have personal guarantees on loans with the assets underwater, but their guarantees are worth hundreds of millions of dollars, right? And we approach that 1 in a way where, okay, you got to either pay down a loan, feed the loan, fixed the loan, bringing a new partner, recapitalize the loan. You sign on the guarantees, we lent to do a little more than we would have based on your guarantees. So you better work with us. Otherwise, we’re going to collect our money one way or the other. And by the way, when we collect our money. You’re going to be paying a 24% interest rate, which you’re not going to want. So every single one of these circumstances different, very intimate with a lot of it. We have the best asset management team in the nation.
They’re motivated. They’re working hard. We’ve integrated our own teams. I want to add one more thing. Our originators who originated these loans they’re in it, working it through as well. It’s not like they originate a loan, they’re walking away. They’re part of the asset management process. So this is a fully integrated approach top to bottom to achieve the best economic result that we can on each and every loan.
Stephen Laws: I appreciate the color on that. And I wanted to touch base or follow up on the — with regards to buying loans side of the CLOs and just overall liquidity One thing I noticed is you guys did not use the ATM in the fourth quarter like you did in Q3, and maybe I’m over reading that, but you’re in the mid-teens. We’re comfortably above book. So that kind of gives me a signal you feel pretty good about your liquidity and capital to not hit your ATM during the quarter. Can you talk about how you see your liquidity managing through over the next 6 months? And then just generally, when you do buy out a loan from CLOs, say the 90 million in February, what is the impact to liquidity to move that to a bank line, which has a lower advance rate than CLO? How does that process impact liquidity?
Ivan Kaufman: I think that’s a great question because moving — buying loans out of CLOs for the benefit of being able to work or create the best economic result. — certainly very important to us. And when we do buy them out, we’re able to typically releverage and usually, it’s a 10 to 20-point haircut difference. We got to come up with that kind of 10 to 20 points in equity, that’s how that we look at it. We have capacity with our banking relationships. And it’s mostly transitional. It’s not like they sit out there forever. They sit out there for maybe three months, six months, nine months not much longer. And very often, when we buy them out, they restructured, recapitalized, and then they even re-levered back the original leverage rate or very close to it.
So we’re fairly comfortable with our banking partners it’s deemed good business. They get good rates of returns at all a very low advance rate. And it’s not as though we’re buying them out, and they’re going to be with us for 10 years. There’s usually a time line solution. But we forecasted in our cash projections. Buying out a certain amount, the amount of additional leverage and what the total outstanding will be at a certain time. So we’re pretty comfortable forecasting ahead what our cash needs are for buying out but buying loans out of very important to maximize economic value. And we do that and we do it within the rules of the CLO and we do it very effectively.
Paul Elenio: And Stephen, I’ll just add on the liquidity side. Excellent question and good point. I mean, one of the things we’ve been focused on, as I’ve said in our models, is maintaining a strong liquidity position as we can. And we have a lot of dexterity, as Ivan said, in buying loans out and having our warehouse lenders be able to relever those deals at a slight discount in the leverage. But we’ve also been operating our business right now, with when rates tick down in the 10-year, we’re being very opportunistic in bringing loans over from the balance sheet. And as you’ve seen in the last few quarters, our runoff has greatly exceeded our new originations. And in doing that, we’re recouping a lot of the capital we had invested in if we can continue.
It does two things, right? when rates tick down, we’ve got loans ready to be transitioned over to the agencies and we get our capital back and then we end up generating a long-dated income stream and compounded by the fact that when the rates are down in the agency business just generally picks up as it is. That all helps our cash flow. So that’s how we feel comfortable that our cash is the right position. And as you said, it’s 1.1 billion, which is a really nice position to be in, and it’s something we constantly monitor and having that dexterity to move loans out of the vehicles and into our warehouse lines really helps us be able to maintain that cash position.
Stephen Laws: Yeah, I appreciate you. The runoff is certainly a positive number in press the liquidity, I think, actually ticked up a little sequentially. So one last small — one on the mezz loans. Do you guys do as our rep investments, people finding that capital elsewhere if it’s something they’re looking to add?
