Claros Mortgage Trust, Inc. (NYSE:CMTG) Q3 2024 Earnings Call Transcript

Claros Mortgage Trust, Inc. (NYSE:CMTG) Q3 2024 Earnings Call Transcript November 8, 2024

Claros Mortgage Trust, Inc. beats earnings expectations. Reported EPS is $0.22, expectations were $0.09.

Operator: Welcome to Claros Mortgage Trust’s Third Quarter 2024 Earnings Conference Call. My name is Bridget, and I will be your conference facilitator today. All participants will be in a listen only mode. [Operator Instructions]. I would now like to hand the call over to Anh Huynh, Vice President of Investor Relations of Claros Mortgage Trust. Please proceed.

Anh Huynh: Thank you. I’m joined by Richard Mack, Chief Executive Officer and Chairman of Claros Mortgage Trust; and Mike McGillis, President and Chief Financial Officer and Director of Claros Mortgage Trust. We also have Priyanka Garg, Executive Vice President who leads MRECS Portfolio and Asset Management. Prior to this call, we distributed CMTG’s earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today’s call. If you have any questions, please contact me. I’d like to remind everyone that today’s call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non-GAAP financial measures on today’s call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliations of non-GAAP measures to their nearest GAAP equivalent, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Richard Mack: Thank you, Anh, and thank you everyone for joining us this morning for CMTG’s third quarter earnings call. James Carville famously quipped in 1992, It’s the economy stupid as to how Clinton would and did unseat the elder bush. In 2024, one might say that it was inflation stupid or Donald Trump’s promise to tame it that brought him back to the White House. The question however is are the President-elect stated policies actually more inflationary than Democratic Party proposals or will those proposals be escalated down in favor of more anti-inflation business friendly policies. Right now, it seems that Wall Street believes that our new and previous President will bring prosperity if not deflation. If it can bring both that will see a boon to commercial real estate, we just had a tough run for the last few years.

Like many other interest rate sensitive sectors, it has been and will continue to be disproportionately impacted by the Fed’s actions, and so while the cut was very helpful to transitional real estate assets, it’s unclear how much of an inflection point this will be for property values, which will be dependent on what the Fed action is to come. Right now, many market pundits are seeing a Goldilocks environment. Inflation appears under control, while the job market also seems resilient. With inflation easing, oil prices stabilizing, shelter cost declines finally being accounted for in CPI, job growth seemingly slowing and deflationary pressures from China, we think that now is the time for the Fed to cut and to stay ahead of the curve. However, even with Donald Trump as the President who has promised to force the Fed to lower short-term rates, we cannot count on this.

And so, it is prudent for CMTG to remain patient and recognize that the industry is in a transitory phase and should be expected to stay there until sofa reflects a normalized yield curve. Having experienced one of the most aggressive rate tightening cycles in several decades, it has been a challenging period for CRE broadly, however, expectations that the lack of new supply will raise rents, that construction costs are not likely to move downward, and that rates will reset to what may be considered normalized levels are starting to drive transaction volumes by investors who want to be ahead of asset value reinflation. We are already seeing this, the anticipation that better fundamentals and lower borrowing costs coupled with enhanced liquidity could lead to lower cap rates is becoming a self-fulfilling prophecy on the margin, while also providing tailwinds to valuations.

This is a positive sign, but for transaction volumes and values to truly recover, we believe that rates will need to continue to trend downward. As this occurs, we believe more transaction volume will promote confidence from market participants, and importantly, basis resetting, which has the potential to restart a virtuous valuation cycle and increase confidence in commercial real estate. We see this floor on valuations in improved leasing and in unsolicited offers for our sponsors owned assets. Additionally, in CMTG’s portfolio, the amount of transaction activity has been increasing. So far, this year we have had 1.2 billion in realizations. As we look out to 2025, we anticipate transaction volume to pick up momentum as sponsors begin to favorably access the capital markets once again.

We could also see an uptick in construction as developers revisit projects that have been placed on hold for two years or more. Additionally, there will be opportunities for multifamily developers to capitalize on the persistent supply demand imbalances prominent in certain markets, especially as new inventory is absorbed on the heels of curtailed development. With regard to our business, over the past couple of years, we’ve been careful and pragmatic in managing the portfolio during this elevated rate environment. We’ve been highly focused on proactive asset management, while being as responsive as we can to our borrower’s needs, and reducing nominal leverage levels. While we believe that it’s prudent to maintain a defensive posture during this transitory period, we also believe that there’s inherent value in our portfolio to be realized.

In line with the view that underlying asset values have started to recover. We are in the process of transitioning the portfolio over the medium to long term. This may include selling watch list loans into an improving market that is now bidding them more strongly, pursuing future REO opportunities and paying down high cost debt. As we have noted in the past, multifamily continues to represent our largest portfolio exposure and remains one of our high conviction themes. Looking ahead, we see several drivers that we believe will continue to support the multifamily investment thesis. Foremost is that supply constraints continue to challenge the overall availability of U.S. housing due to a strong economy and muted new construction. As a result, we’ve been observing strong pricing trends in major urban markets and believe that so long as the economy remains relatively stable, it will support NOI growth in the years to come.

As we believe our multifamily portfolio is generally well poised to benefit from these trends, we will look to be opportunistic when borrowers are unable to support their asset. We have identified select properties that we believe would be compelling multifamily REO assets, and that also speak to our long-term confidence in the property class. Therefore, we will seek to extract value for our shareholders by leveraging our sponsors deep multifamily real estate experience to bring select multifamily assets into REO under our management when we can and when we feel it is prudent. If done right, we think this can be another lever to create value for investors. As always, I thank you for joining us, and I will now turn the call over to Mike.

Mike McGillis: Thank you, Richard. For the Q3 of 2024, CMTG reported a GAAP net loss of $0.40 per share and distributable loss of $0.17 per share. Distributable earnings per share prior to realized losses were $0.22 per share. CMTG’s loan held for investment portfolio decreased to $6.3 billion at September 30 compared to $6.8 billion at June 30. The quarter-over-quarter decrease was the result of several moving parts. First, the third quarter was an active quarter with regard to loan repayments. We received a total of $374 million in loan repayments, including the full repayment of 4 loans totaling $354 million of UPB. The loan repayments during the quarter translated to reductions in relatively more challenging property types, including office and life science, while also reducing our total future funding commitment through the repayment of two construction loans.

Included in the $354 million of full repayments, we were repaid on $123 million previously four rated New York office loan. CMTG’s office exposure has historically been relatively small at only 14% of the portfolio at quarter end and our pre-COVID negative sentiment towards the sector has proven beneficial throughout this cycle. We were also repaid on a $109 million Boston Life Science loan, an asset class that has been under pressure. Rounding out this quarter’s repayments, we received repayment on two construction loans, a $99 million loan on an industrial project in Nevada and a $23 million loan on a build to rent project in Georgia. Partially offsetting total repayments during the period was the impact of $186 million in fundings on new and existing loan commitments.

As a result of the fundings and repayment of the construction loans, our future funding commitments decreased to $584 million at September 30 from $749 million at June 30. Of the $584 million our expected future net equity commitment is $185 million which we expect to fund over the course of about 2 years. At quarter end, we reclassified three loans to held for sale. The fact pattern surrounding each of the three loans held for sale are distinct and our decision to sell represents our view of the optimal outcome for CMTG given a variety of facts and circumstances. The first loan a $30 million subordinate and unencumbered loan secured by to be developed land in Miami was originated in July of 2021. Upon reaching its initial maturity date in July, 2023, the borrower exercised its right to extend the loan to its fully extended maturity date of July, 2024.

In July, 2024, we agreed to a modification with the borrower to further extend the loan to September, 2024, as the borrower working towards a refinancing. When we reached the September, 2024 maturity date, the borrower requested additional time to execute the refinancing. In order to minimize the impact of the execution risk, we pivoted our strategy and were able to sell the loan at 99.5% of par. The sale closed subsequent to the quarter in early October, realizing an investment level gross IRR above 15%. The second loan, a $211 million senior and unencumbered California for sale condo loan was originated in October, 2019 and had been downgraded to risk grade for in the second quarter of this year. From 2022 through the summer of 2023, we received $83 million in loan repayments reducing our UPB from just under $300 million.

As we mentioned, on our last earnings call, the borrower relied on offshore capital sources, which resulted in disruption in the borrower’s business plan. After assessing our options, we determined that a loan sale was our most appropriate path and based on initial pricing feedback recorded a charge off for the accrued interest receivable and a $28 million principal charge off upon reclassifying the loan to help for sale. The third loan, $115 million senior loans secured by a multi-family building in Colorado was originated in August of 2022. This is a three-risk rated loan, which has been performing since origination with an initial maturity date set for next summer. During the quarter, we received an offer to sell this loan at a small discount to UPB that approximated our general CECL reserve.

Given the environment, we made the decision to execute on the sale and repurpose the capital to deleverage existing financings, which will increase our net interest margin and reduce our average advance rates. We view this in similar selective loan sales as important steps in repositioning the portfolio and related financings, and enabling us to pivot towards offense over time. In light of all this activity, the portfolio’s composition remained relatively in line with the prior quarter. Multifamily continues to be our biggest exposure at 42% of the portfolio at quarter end. As Richard mentioned, we remain optimistic on multifamily. However, the elevated rate environment has been challenging for multifamily borrowers and we continue to see this theme persist in our portfolio.

As a result, during the third quarter, and consistent with what we have seen year-to-date, credit migration has been concentrated within our multifamily book. During a quarter, we moved two multifamily loans to a four-risk rating, representing a total UPB of $325 million. These loans with the same sponsor and are collateralized by assets located in Denver and Phoenix. The sponsor has experienced difficulties accessing the capital markets, and while we have a positive long-term outlook on housing in these markets, we believe it was prudent to proactively downgrade these loans. We also moved three multifamily loans to a five-risk rating. These three loans have the same sponsor and a combined UPB of $186 million and are collateralized by assets located in Las Vegas, Phoenix, and Dallas.

These three loans were placed on nonaccrual status in the Q1, and the decision to further downgrade was made in anticipation of taking ownership of the assets over the next quarter or 2. As part of this process, we recorded specific reserves of $30 million collectively against these loans representing 16% of UPB. It’s important to note that this reflects the current valuation of these assets and does not reflect what we view as long term value of these assets under our management. We believe that leveraging our sponsors’ extensive multifamily experience will enable us to successfully execute a value-add plan to improve cash flow over time and, as a result, the asset’s value. Turning to liquidity. At September 30, we reported $116 million in total liquidity, which includes cash and approved and undrawn credit capacity based on existing collateral.

Unencumbered assets were comprised of loans totaling $459 million of UPB, including $213 million of loans classified is for sale in our mixed juice REO with a carrying value of $146 million. I’ll now turn the call over to the operator.

Q&A Session

Operator: [Operator Instructions]. The first question comes from the line of Doug Harter with UBS. Doug, your line is now open.

Doug Harter: Thanks. I’m hoping you could talk, kind of big picture about the 4 rated — 4 rated loan bucket and kind of how you see those progressing either through sale, through resolution or potentially downgraded and kind of how you think about the carrying value of that bucket?

Priyanka Garg: Yeah. Hi, Doug. It’s Priyanka. Thank you for the question. Thanks for joining. You know, I’m gonna be a little bit repetitive to what both Richard and Mike said. Of our I’ll and I’ll talk about 4s and 5s in aggregate. About half of that exposure is multifamily. So, if we were going to have assets that are on our watch list, that’s the one sector that we, are most excited about or most, constructive on, I would say. We always want our sponsors to be successful in their business plans, but if they’re not, multifamily is where we want the exposure. There’s fundamentals are strengthening. There’s no secular shift in the asset class, and all of those multifamily assets that are 4s and 5s are cash flowing and have value add opportunities.

So, we know we can do a better job ultimately of managing those assets, particularly by leveraging the broader platform, and alongside that with a normalized rate environment creating more value inherently. So, I think 4s and 5s multifamily assets, we hope to work something out with the borrowers. But if not, we’re ready to take those REOs as indicated by the three assets that we moved to a five this quarter. Of the other half of our fours and five. One, I would say we’re making great progress of the billion two that we’ve had of realizations year-to-date. A third of that have been four rated loans, and that excludes the asset we moved to health for sale. So, I think we’re making really good progress on the non-multifamily assets. It’s the resolution is really going to come down to do we think there is long-term value creation?

Is it a good use of capital allocation that we have and are we going — should we foreclose or should we sell assets? And I think we’ve demonstrated over the last few quarters that we take that decision quite seriously and we put a lot of analytics behind it and if there’s, it’s not a great use of capital, then we’re going to sell at a discount and move on. So that’s kind the broad big picture answer.

Operator: The next question comes from the line of Rick Shane with JP Morgan. Rick your line is open.

Rick Shane: Thanks for taking my questions. Look, the building, the reserve is important because at some point you’re going to start taking that down. In the third quarter you used, I don’t know if that’s the right term, but you use 27% of the prior quarters reserve recognizing losses. That’s again, that’s what it’s for. At the same time, the reserve continued to grow another 13%. Obviously, there are some mechanical aspects of that in terms of when loans migrate, you have to take much higher reserves. But I am kind of curious, is the increase in reserves and the continued migration at this point surprising to you, because it we’re trying to wonder when sort of you’re going to be able to dimensionalize the extent of the challenges in the portfolio. And when you have a quarter where you take this big a charge off and the reserve builds, it kind of suggests that we’re not there yet.

Priyanka Garg : Mike, do you want me to take that?

Mike McGillis : No, I’m on. I got it. I think Rick obviously, establishing these reserves is a pretty subjective process and a lot of it depends on sort of what our ultimate plan migrates to resolve some of these assets. So obviously I think in scenarios where we decide to go REO with assets to be some specific charge offs on some of those assets that we would expect to recover over time under our management. And I think, particularly with fundamental strengthening and then in other scenarios as pre-mentioned where we may go down a loan sale path or some other form of resolution on the loan. I think those decisions are going to be in ultimate reserves or charge offs that are taken are going to be very driven by facts and circumstances when we’re making those decisions down the road.

But in an improving environment I think we’ll continue to look to be opportunistic as we work before I move over the medium term, near to medium term. Priyanka, feel free to add anything else you think would be helpful.

Priyanka Garg: No. I think that covers it. I mean, it’s just it’s very dynamic and we’re going to make decisions based on data points in that quarter at that time. So, Rick, I think it’s hard to sort of project that out.

Rick Shane: Got it. Fair enough. Look, the other aspect of this is that, there are essentially there are several paths to resolving a loan. But the difference between the optics between REO and selling a loan and potentially redeploying capital, REO probably drags on distributable income in the short term or distributable earnings in the short term, but might lead to better long-term outcomes. Selling a loan or resolving a loan through resolving a challenging situation through a loan sale might actually enhance distributable earnings, but might not have as long term a positive impact. What are you playing for at this point? Like what is the motivation or incentive between those two choices?

Richard Mack: Rick, this is a you wanna go, Mike? Go ahead. It’s a great question. Oh, you go first.

Mike McGillis: No. It’s a great question. It’s a great question, Rick, and it’s one that we, deliberate over as we work through these scenarios. And it’s all about what is our it’s a capital allocation decision. Where do we get the best return on our invested capital? And obviously, with multifamily assets, we feel like we are extremely well positioned to take advantage of that opportunity with minimal capital requirements going into these assets in the near term. I think on some of these bigger loans that are much longer-term kind of turnaround plays, we’ve really got to look hard at the decision to invest more capital versus sell the loan, get capital today and redeploy that capital into higher yielding are more accretive opportunities. So that’s part of our decision every day as we’re evaluating stuff. So, Richard, feel free to…

Richard Mack: Yes, sure. And that’s a that was a terrific answer, Mike. Rick, this is certainly a dynamic situation. But when we are making these decisions, we’re also looking at the risks inherent with executing a business plan, as well as where is the market bidding something. So, we may test the market on quite a few things and make a determination of whether or not the price is strong enough for us to sell, as opposed to hold. So, you have to let the market speak, look at the reinvestment analysis, look at the risks associated with it, and make a tough decision. And these are, very, very dynamic. We spend a lot of time at this. One of the things that is influencing our behavior is just how strong, market bids seem to have seem to be right at this moment, we’ll see for loan sales.

And that look, that could change. But because there’s been not that much quote unquote distress in the market people who have distressed business plans are having to be relatively aggressive as they bid on these things. And the more aggressive those bids are, the more likely we will to sell and move on, as opposed to even in situations where we have really the capacity to add value, where we’ll make the decision not to take the asset over and do so.

Priyanka Garg: And if I could just add…

Rick Shane : Yes, go ahead, sorry.

Priyanka Garg : Sorry, Rick. Just one more thing I would add to what Richard and Mike said. You can see that the focus is on cash flowing multifamily that has the value-add component. And part of that is when we’re making that capital allocation decision, we can efficiently finance the REO position. So that obviously plays a heavy role in the capital allocation decision.

Rick Shane : Look it is a really insightful answer in terms of thinking about the decision trees, and I always appreciate your willingness to take the tough questions. So, thank you.

Operator: The next question comes from the line of Steve DeLaney with Citizens, JMP. Steve your line is now open.

Steve DeLaney : Nice to see your stock up 6% this morning. Richard, I guess when you look at the emerging new vintage bridge loan market, I don’t know if there’s enough data points or transactions yet, but what are you seeing in terms of loan terms and quality in the 2024, 2025 vintage of bridge loans versus the 2021 and 2022? Just curious if there, you’ve seen enough transactions to have a sense for how the market is evolving. Thank you.

Richard Mack : Yes, sure. Steve, thanks so much for that question. I think, what I would say very generally is that returns on a levered basis have not moved very much, because the cost of the most senior part of the capital stack is what has expanded out. That has reduced values. So even when we look at what is going on in the market, our returns aren’t really higher. But what is much better this time is better assets. So, flight to quality, better sponsors and lower values and bit more conservatism in business plans. And so, the risk is down, even though the returns are relatively equivalent to where they were before. Now what we are seeing is that back leverage at cost is coming in, it’s coming in slowly, but it’s coming in.

And the question is what’s going to come in more over time as rates decline, the financing cost or the absolute spreads on loans? Right now, it’s kind of held pricing kind of where it has been interestingly enough, and we’ll have to see where it goes. But I think quality of assets and sponsors and better projections, more conservative projections and at lower costs, certainly at lower costs relative to replacement. Not sure that’s a meaningful indicator anymore, but certainly, risk feels lower for the same return.

Steve DeLaney : That’s very helpful. And, hopefully, this time, we can keep a lot of the bad actors, off the playing field. So, you don’t want the market too hot, do you, because it brings in the worst of competitors. Quick wrap up question.

Richard Mack: Absolutely correct.

Steve DeLaney : Okay. Thank you. Your ability to sell that loan, are you seeing underperforming loan that you described that you moved to HFS? Is the bid coming from private debt funds primarily? And are there funds It is. Are you seeing private funds being created to buy these distressed funds is kind a where I’m going with it? Is there money more money being formed for this purpose?

Richard Mack: I think there’s been money on the sideline that’s had this mandate. Go ahead, Priyanka. Sorry.

Priyanka Garg: No. Sorry, Richard. Go ahead.

Richard Mack: So, I’m gonna hand it to Priyanka in one moment. But what we’re seeing is that money was raised to do distress or to kind of do revalued opportunistic deals. It has been really patient, but that patience is waning as their investment periods start to shorten as well as there’s competition for assets in the market. So, people are buying on the come here saying, look, we’re gonna let’s just take the multifamily sector. Cap rates are low and have stayed low, because people are basically saying, we’re going to take a low cash on cash return in anticipation of rents growing and rates coming down. And so that and that philosophy is moving into the loan sale market around private capital. I’ll hand it to Priyanka who’s really been talking to the buyers, and I know we’ll have something to say on this. Sorry, Priyanka.

Priyanka Garg: No. Didn’t mean to interrupt you. The only thing I would add to that is the other pocket of capital we’re seeing are, family offices and high net worth capital that’s really Yes. Making, really aggressive bets, because of they’re doing it at a great basis. And we have really engaged with that bucket of capital as well because it tends to, move more quickly, which gives us more certainty of execution. So, while we’re working through all the active dynamics, certainty of execution becomes, really important, and you don’t those funds don’t get stuck in things like investment committees and things like that. So that’s the other bucket I would say that’s been pretty active.

Richard Mack: Yeah. But the answer really is it’s private capital though as you suggested.

Operator: The next question comes from the line of Jade Rahmani with KBW. Jade, your line is now open.

Jade Rahmani: Thank you, very much. Was curious, you say there hasn’t been much distress this cycle, but about 20% thereabouts in mortgage REIT portfolios, are non-performing and about 10% plus in CMBS and the preponderance, of course is in office. So, do you mean that outside of office, there hasn’t been much distress or do you mean that lenders really have not let these loans go, particularly the banks, and maybe that’s starting to change?

Richard Mack : Yes. Jade, you’re hitting it on the nose, not much distress has traded that is perhaps different than the fact that there may not be a lot of distress out there. Certainly, as it relates to office. That is probably correct. There is a lot of distress, and I can tell you that I’ve had conversations with banks about their office and given the uncertainty and the very few bids that are out there as it relates to office banks are deciding by and large not to sell office assets. And so, I think you’ve said it correctly, we could see distress come into the market. But if behavior continues and we get into an improving asset value cycle, I do think it will dribble out slowly and at increasing prices, we could get back into a declining value cycle.

Certainly, the office could be at its own thing, and we could see a distress market come about. It just feeling what we see at right at this moment that we’re just not seeing a lot of distressed trades. But I think you are categorizing it correctly.

Jade Rahmani : And then as you look across the relative value spectrum between equity on cash flowing assets, transitional lending, and also construction, whether it be as a developer, which Mac is, or in construction lending, how do you think about where returns right now are most attractive?

Richard Mack : Yes, so I would tell you that, just to answer very concisely, construction lending is probably the best risk adjusted return we see out there. As a general statement, the lending business is feels a little bit better to me, because you don’t have to make a lot of assumptions. So, if you take the world as it is, debt returns make a lot more sense. If you believe that things are getting better from a fundamentals perspective as we see that they are, but that they’re going to get dramatically better because the economy is going to stay strong and you’re willing to forecast out cap rate compression as well. Then the returns can be quite healthy in the equity business. But you’ve got to make a lot of assumptions to do that in previous markets where when we go back to the great recession, now that was a time when you wanted to buy assets.

You could — you were talking about getting 8% to let’s call it 7% to 10%, that’s a wide thing, cash on cash return to buy multifamily. Today, you are actually getting negative, slightly negative to maybe slightly positive leverage to buy. And so, one of the ways to think about it is you have to, if you want to do equity deals, you’re paying to wait as opposed to getting paid to wait, which is what we saw in the great recession. And so, therefore, the debt market, as a general statement, looks a lot better. Now naturally, there are always unique opportunities in the equity business. And so, there are always going to be a kind of a unique distressed opportunity or a unique development opportunity that you can’t really categorize as a trend. Certainly, I would say that as it relates to what we are doing around Taiwan Semiconductor on the equity side of our business.

But that’s really an investment that has its kind of its own unique dynamics, almost on an isolated basis.

Jade Rahmani: Thank you. All that is really helpful in terms of your macro view, and I think you articulated, really well. Wanted to ask about CMTG’s capital availability and needs over the next year. Over what period is the equity required for unfunded commitments to be, needed to be required, and will there be either sufficient repayment to fund that and also your confidence level in the debt financing that will, help fund the aggregate of that, unfunded commitments?

Mike McGillis: Jay, it’s Mike. I’m happy to take this one. Yes. So, we’ve — as you can see, we’ve worked down that unfunded commitment level pretty significantly over the last couple of years, and it’s now down to a level where before existing leverage in place to fund that it’s down to about $584 million I think it’s important to recognize about 1/3 of that is good news money. So, it’s tied to leasing or other kind of activities that improve the value of the asset that then we would fund into those deals. And we’ve got about if you think about the in-place financing, that’s already in place, we’ll use we’ve got financing in the 60%, 65% range already in place for those commitments. So, the equity required is about $185 million assume all this good news happens, and that’s going to be over a couple of year time frame based on what we know about our borrowers business plans.

So, it’s come down to a very manageable level. And as you’ve seen really over the course of this year a lot of our repayments have been construction loans that still have some future funding commitments associated with them. So, I think as those projects continue to hold along, we’ll continue to see repayment activity there as well that will also reduce our future funding. So, we feel like we’re at a pretty reasonable level at this point, manageable level.

Jade Rahmani: And if you were going to access incremental capital, would it be through, another term loan or perhaps an additional credit facility or expanded, relationship with one of your, bank lenders?

Mike McGillis: It’s probably as we the place where we probably look to tap some additional capital is as we take some of these multifamily assets REO. The financings in place on those are very we have very low advance rates, and we think we can on a cash neutral basis, refinance those. But those that will probably be a private lender execution given that they’re transitional assets that we’d be taking over as REO and improving ultimate cash flow over time on those. So that would probably be the source of capital for something like that. But I don’t expect we’ll be during the term loan market at this point.

Jade Rahmani: You don’t — do not expect to be answering the term loan market.

Richard Mack : Correct.

Jade Rahmani: Okay. Thanks very much.

Operator: There are no additional questions waiting at this time. I would like to pass the conference over to the management team for closing remarks.

Richard Mack : I just want to thank everyone again for joining us. I think, we’re starting to feel like the market is recovering. Last quarter, we said we thought we might be at a bottom. I think that it’s unclear how much we’ve come off the bottom, but it does feel like things are stabilizing. And we are going to be in a better position to execute on everything that has to happen in order for us to think about the future in a much more bright manner. We appreciate all your support and we thank you for joining us. Take care.

Operator: That concludes the Claros Mortgage Trust, Inc. third quarter 2024 earnings conference call. Thank you for your participation and enjoy the rest of your day.