Jack Taylor: Well, I’ll make a quick comment, Steve, which is we’ve done it in the past. We’re able to do it in the future. Steve, if you looked at me like you wanted to answer, so go ahead, please.
Steve Alpart: No, I was. Yes. So we have – Steve, we have – it’s Steve Alpart, good morning. We have a number of resolution strategies that you’ve heard us talk about quarter-over-quarter. For a lot of the loans that we just talked about trying to resolve by the end of the year, many of them, I would say most of them, we are working with a good borrower on a cooperative basis to sell the property. In general, we think you get a better price by selling the property versus selling the loan, although they’re both very good strategies. We’ve done both. In fact, last quarter, we did a loan sale. In a few cases, we’ve been marketing the property at this while we have the loan, and we’re simultaneously running a deed in lieu and/or a foreclosure process, sometimes both.
So we know when the buyer is ready, we can deliver the fee. If we don’t like the bid price, or we think we need to take ownership of the property for a variety of reasons, as we did on the Phoenix office deal, probably a smaller number of cases, we’ll take title, own the REO, do what we think we need to do to kind of maximize value in the short-term or medium-term. We’re not going to look to own those assets on the long-term. And then we can sell the REO. So it really is very situational and we’ve done all the different flavors of it. A lot of them right now are working with the borrower to sell the property. We think that gets you, in general, the best bid.
Steve DeLaney: Got it. And when you’re working with those borrowers to find a new buyer, new capital infusion, is it usually with the understanding that your existing loan will remain in place to benefit the new buyer and the new equity?
Steve Alpart: It can be the existing loan, but I would say more often we’re going to provide and we don’t do it in every case. But if we need to, certainly on an office sale today, it’s probably likely that we’re going to need to provide staple financing, at least in the short to medium-term. It’s more likely if we are providing financing case by case, that we would be providing a new loan at a reset basis, as opposed to a buyer just assuming the loan. There are ways to do that, but more often than not, it’s going to be what we refer to as staple financing, providing a new loan to a new buyer at a reset basis.
Steve DeLaney: Thank you for the comments this morning.
Steve Alpart: Thank you.
Jack Taylor: Thank you, Steve.
Operator: Thank you. Our next question is from Jade Rahmani with KBW. Please proceed with your question.
Jade Rahmani: Thank you very much. This quarter has been kind of a tale of two cities between the banks and the commercial mortgage REITs, with the banks offering some relief in terms of commercial real estate credit performance. Essentially, I believe they’re modifying and extending loans and there’s less pressure on their liabilities as rates, while volatile have been more stable and than a year ago. On the other hand, the commercial mortgage REITs have taken significant losses. And so it raises the question as to whether the – most of the pressure is on the asset side or if it’s on the liability side. And I was wondering if you could comment on that.
Jack Taylor: Well, I’ll start off by saying I think it’s on both. In general, the banks lend – have lent at a lower advance rate than the non-bank lenders. So you would expect that there would be some difference between the non-bank lenders at a higher advance rate, even though a low advance rate with what we like to call from – stealing from the bond world [ph] positive convexity on credit, which has worked out in many cases, but not in all in the current environment, meaning that the loans are meant to improve the assets with the capital from the loan, and the borrower is meant to improve credit over time with the double punch of the pandemic and now very elevated interest rates has proven more difficult in some of the cases.
So I do think on the asset side, that’s true. On the liability side, we have in our own case and in many others of our peers, very stable, broadly diverse financing facilities and other structures that have provided us with our leverage. However, the banks have deposits and it’s a lower cost of capital to work with. So I think this is why we’re observing that.
Jade Rahmani:
reprieve :
Jack Taylor: Well, so with respect to the better results when loans, sometimes the best route is to sell a loan. Other times, if you particularly have a cooperative borrower who’s working with you, you can get a better result by taking over the property and selling it and probably in a simultaneous sell in the pied bleu structure. But – so I don’t think of that as so much of as a liquidity aspect compared to what you were talking about with banks having deposit basis. So the – it’s a case by case basis on the loan sale versus equity sale. But oftentimes, not always, but oftentimes, somebody who’s buying the note wants to do so at a discount to what they think the property is worth. And so that’s what I believe Steve was referencing when he made that comment.
Jade Rahmani: Thanks very much.
Jack Taylor: Thank you.
Operator: Thank you. There are no further questions. I would like to turn the floor back over to Jack Taylor for any closing comments.
Jack Taylor: Thank you. We appreciate all of our investors support and the team’s effort in navigating this extraordinarily challenging market, and we look forward to speaking with you next time. Thank you very much.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
