Steven Delaney: Good morning, everyone. Congratulations on another strong quarter. Let me start with the new CLO. I was wondering, Mike, the ROE there. And I think you have to, obviously, for now, just look through the reinvestment period, right? Because things can change when it delevers. But what would you just estimate kind of a target range for what type of return on equity within the CLO would you expect to realize? Thanks.
Michael Comparato: Jerry, you want to cover that?
Jerome Baglien: Yes. Happy to. I think when we start out, we are in the high teens on that, in terms of what we have contributed day one. As we turn it over and we turn over our CLOs quite a bit if you look at the actual amount of reinvest we use, I expect it to probably stay there if not get better, based on kind of new spreads that we are able to get in the market today. So even with the wider cost of spread in the market today, we are making up for that on the asset side. So this is just as accretive as some of the deals we have done in the past, which is why you have seen us be patient with this, to — we were able to accumulate a pool that worked, and this is working in essentially the same range as our older deal. So the reason we all highlighted and said we are pretty happy with the execution is, because I think we are going to have really good execution over the life of this deal.
Steven Delaney: Well, it was number 10. So I think The Street knows what they are getting when they buy one of your transactions. What was the length of the reinvestment period?
Michael Comparato: This one was 18.
Steven Delaney: 18 months?
Michael Comparato: Yes.
Steven Delaney: Okay. Very good.
Michael Comparato: And Steve, just a little color on that. Market convention has been two years on reinvest. This was the first managed deal that had gone to market in over a year. So we just wanted to give a little cushion to investors feel a little bit better about buying into the first managed CRE CLO in over a year. And I think it was the right move for everybody to get that done.
Steven Delaney: Thanks for explaining that, Mike. And just the final question. The leverage ticked down a little bit to 2.2. I am wondering, does it actually go down a little bit further with the CLO? It closed at the end of September. So I guess I am just thinking mechanically that were you able to move cash around and pay-off other debt maybe with involving more leverage. How did it all shake out at quarter end? And where do you see your leverage now after the CLO and your financings have been rebalanced?
Richard Byrne: I will start on that and you guys can chime in. In terms of where we ended, we closed the deal just before the end of the quarter. So that created a decent amount of cash in terms of how we were able to rebalance what was on warehouse lines. And having — obviously ending with $400 million of cash means we were able to take down some of the borrowing where we didn’t necessarily need it. In the very near-term, I don’t expect this to run quite the slow of a leverage level. But as you just heard earlier, we do have a decent forward pipeline in terms of how we think we’ll deploy some of this. And as we deploy it, we will put some leverage on that. So some of this was just repositioning through the execution of the CLO, and some of it’s just a build of cash ahead of redeploying as new opportunities start to come in.
Operator: The next question comes from Sarah Barcomb from BTIG.
Sarah Barcomb: So it was good to see some new investments get done, as many of your peers had zero originations this quarter. It looks like the Q3 deals were done at less than 60% average LTVs. My question is whether any of these SOFR+400 coupon deals were underwritten with negative leverage? Can you give some color surrounding the rent growth assumptions and cash flow coverage on these properties, and their ability to service the debt? And separately, I’m also curious if you’re doing these deals with existing sponsors or new sponsors. Any color there?
Richard Byrne: Hey, Sarah. Good morning. Thanks for the question. I’m going to start backward both. So some were with existing clients, and some were new clients that we picked up during the quarter. One of which very institutional and very glad we were able to transact with them. With respect to coverage, I would say almost nothing covers today, right? I mean, we’re lending at 9.5% coupons, if just roughly speaking. I will say the hotel loan that we originated, actually, I think that was post quarter end. That was a very, very low LTV loan. I think it was like 30, 35 LTV for us on the senior. So that actually does have some coverage. But everything else that we’re doing is definitely negative leverage. They’re all being structured with interest reserves and our typical kind of interest reload structure that usually has recourse to the sponsorship.
And they are bridging to better days, brighter days hopefully, and ultimately to agency execution. So I think the idea is we’ll pay 9%, 9.5% today. Hopefully that is an expense we’re only paying for 12 or 18 months, and then we can bridge into an agency execution that has a 6 handle on it. So it’s negative leverage today with hopes of being agency as a takeout.
Sarah Barcomb: Okay. Thanks for the detail there. And then my follow up. So we saw one multifamily asset foreclosed and another 4 rated asset repay in full. So two different outcomes for 4 rated assets. I’m curious if the — were there any loan modifications during the quarter? And given we’re seeing about 3 billion or so of maturities next year, can you talk about your outlook for potentially modifying some of these loans?
Richard Byrne: Sure. We definitely had modifications during the quarter. I think as we’ve said last quarter and this quarter in the prepared remarks we’re trying to take a very proactive stance on addressing pending maturities. I will say borrowers have been very communicative with us. They’re engaging us. We’re having overall productive dialogue, and I think we’re getting these amendments done and modifications done thus far that are all net benefit to our current credit position. I foresee us continuing on that path throughout 2024. We are going to be modifying and working with borrowers, kind of across the board. So I will say again what I said during COVID, we have to go into these negotiations, understanding this is a difficult time, it is not their fault.
It is not our fault. It’s the reality that we are living with. But we are not their partner, we are their lender, and we expect that, this is not going to be lender just gives six things and borrower doesn’t chip in. So it is an active negotiation. But we are fully expecting borrowers to come to the table, with something, whether it is a pay down, whether it’s amortization, whether it is recourse to increase our rely on our existing credit position.
Operator: Our next question comes from Jade Rahmani from KBW. Please go ahead.
Jade Rahmani: Thank you very much for taking the question. A few multifamily REITs have reported a market slowdown in new lease rent growth in September and October, particularly in the Sunbelt and Phoenix, as well as a decline in occupancy that looks to be above normal seasonality. They attribute this to elevated supply, driven by the strong completions. And then they also are citing a behavioral characteristic from so called merchant developers that are in a race to get to stabilized occupancy and enhanced offering, concessions and free rent. Can you talk to this trend and whether you think this phenomenon is big enough to weigh on credit for the bridge lending sector as well as overall multifamily?
