Douglas Harter: Thanks. I was just hoping you’d give a little more update on the multifamily portfolio and kind of how given the move in rates, how are you think that that portfolio is going to be able to handle refinancing?
Bryan Donohoe: Yes. So this is typically one of the benefits of the multifamily market is for continued capital markets, participation of Fannie and Freddie, as well as it being a more friendly bank asset as well. I’d say that we’ve seen supply uptick nationally, I think markets market that’s being received differently, largely speaking within our portfolio, we’ve seen positive progress on the leasing side. So kind of it’s I think it will be an opportunity set for the foreseeable future. I think when we think about it structurally, are you still going to be short despite the supply headwinds that have been fairly well publicized? We’re still going to be short over the next five years, four or five, 6 million residents in the United States, especially if you look at the macro level of immigration returning right so it was worse in terms of liquidity, be the buyers, the owners of multifamily real estate assets are seeing that short, the short term supply issues are dwarfed by the long-term fundamental shortage, and you’re starting to see the performance of the underlying assets reflect that.
So a short answer is relatively stable performance within our portfolio. I think that the capital markets functionality will continue to support these assets and the equity markets private equity markets for multifamily, we’ll continue to expand.
Douglas Harter: Great. Thank you.
Operator: [Operator Instructions] We’ll move next to Jade Rahmani of KBW.
Jade Rahmani: Thank you very much. Just to follow up on your answer to Doug’s question, Green Street estimates, multi-family values are down around 28% from the peak. I mean, when we hear answers like that, that’s a non-event. So either we disagree with Green Street or we need to recognize that there’s capital stress in a lot of the multifamily deals that was record issuance in 2021 and 2022. So just ask it another way, how do you expect that to be reconciled over the next year in multifamily? Secondly, I would like to ask about two multi-families in which areas was involved. I think that they are likely an acre portfolio, but wanted to check one was a large Chicago multifamily and another is in Dallas. And those look like based on the real deal they are it outperformed ambition there?
Bryan Donohoe: Yes, Jim, I guess phenomena in the U.S. represent I think that if you go back to certain markets and you were in the spring of 22 purchasing at, I’d say, trough cap rates, yes, there’s probably value decline in excess of the 28% you’re citing with Green Street. And in many instances, you’re seeing rent growth. And I think those buyers saw the perceived rent growth in certain markets continuing unabated, which with expenses that didn’t necessarily go in towers that. So but largely speaking, as a lender, even if you subscribe to the Green Street number, moderate leverage, there’s still equity to protect in those assets. I think you will see some transfer of value from equity to debt. So it’s not that there won’t be distressed.
I just think that when you consider the overall loss severity in this space to the lending to the lender community, I think that will be muted relative to if you look at the office sector, for instance. So it’s not to say that there won’t be transfers of assets given that value decline and certainly if you guys have been drawn, if you got the expense load wrong, there will be stress. And I think the two assets you’re talking about reside in different vehicles the press doesn’t always get the lender correct there. So it carries is associated with those assets, but they are not BAKER assets specifically.
Jade Rahmani: Thanks, appreciate that. So, in terms of the transfer of assets within a portfolio such as mortgage Re portfolio. If you don’t expect ultimately significant loss of barely to the lenders, how do you expect that to play out? You see the mortgage rate being active in bringing in additional capital to recapitalize transactions.
Tae-Sik Yoon: I think that’s certainly a possibility. But I think despite the technology overlay, we see in the multifamily sector specific asset management capabilities within the borrower community has never been more important when you think about some of the issues around because otherwise, you know, in the apartment sector, how you manage these assets is a good bit of the value creation. And I do think to your point, Jamie, there’s ample liquidity to comment on the private side alongside existing lenders recapitalizing an asset and bringing to bear improved asset management or property management from there. So I think you’re spot on that this might take the form of partnership rather than outright sales to kind of stabilize the valuations. And I think — and to the earlier point on the decline in rates, even the stability around rates of multi-family over the next five years will be fairly well correlated to the rate environment.
Jade Rahmani: Thank you. And then lastly, if I could squeeze one more in if there was an industrial property. I can’t recall offhand if you’ve previously discussed this, but it was moved to nonaccrual status. It’s relatively small compared to the average at $19 million, but we haven’t seen much pressure there. So could you comment on that duration?
Tae-Sik Yoon: Yes, that’s just a redeveloped asset on the West Coast. I think Japan, we’ve basically, as you know, in the analysis of that of that property, the dialogue with the borrowers dynamic and it is a relatively small asset, however, be so active discussions with that buyer with a rate cap term yet that’s really the catalyst for well.
Jade Rahmani: The analysis so the deep the nonaccrual is due to the rate cap, not meeting outlook or supply competition or anything advantage.
Bryan Donohoe: I think it was slower than expected leasing velocity alongside a near term event of the rig count.
Jade Rahmani: Okay. Thanks a lot.
Bryan Donohoe: Thank you.
Operator: And there are no further questions at this time. I’d be happy to return the call to Bryan Donohoe for closing comments.
Bryan Donohoe: Yes. Thank you, operator. And I just want to thank everybody for their time today. We appreciate the continued support of Ares’s commercial real estate, and we look forward to speaking with you again on our next earnings call. Thank you.
Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today’s call, an archived replay of this conference call will be available approximately one hour after the end of this call through March 21, 2024 to domestic callers by dialing 1800-723-0544 and to international callers by dialing area code 402-220-2656. And an archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website on a mobile phone.
