We’ll come up with a plan to potentially give more time to get loan pay downs, to get debt service reserves replenished to try and create some kind of a win-win situation. And what I just described will handle the bulk of it. And then there will be a smaller cohort of loans, the 5s, for example, where we have to kind of take a different approach. And that may be a note sale could be a property sale. It can be working with our borrowers to sell the property. Going to the earlier question, case-by-case, we can provide sell financing. So it’s kind of a range of outcomes or range of tools that we have. We’re obviously very focused on this. The tone with our borrowers for the majority of our assets very positive. People are still putting money into these deals.
But look, it’s — we recognize the environment is challenging for a lot of these loans, particularly office loans. And that’s why you’ve seen us increase our CECL reserve, which I think are about doubled since Q4 2022. It’s something we’re very focused on.
Doug Harter: Great. And then kind of in the — how are you thinking about your current liquidity how much of that — with no corporate debt maturities, how much of that liquidity could be used for buyback versus how much do you need to save for potential defensive portfolio actions?
Jack Taylor: Hey Doug, this is Jack. Good to speak with you. Thank you for joining us. Well, we’ve been maintaining a focus on keeping an elevated level of liquidity. And even during that period of time, we have deployed some into purchasing our shares. And so we don’t predict when we might and went, but we have the ability to do so. and we’ll remain opportunistic with respect to that. We’ve had tremendous success so far with providing ourselves more financial liquidity in our asset management of our loan portfolio addressing potential credit events. And we’re going to — as we’ve said in our prepared remarks, we’re going to maintain that position. We — in prior calls, we’ve stated that our general goal is to maintain about 10% to 15% of our capital base in cash.
Now that obviously varies quarter-to-quarter. And we’re currently north of that. But given market dynamics, we believe it’s prudent to keep it elevated but we’ll remain opportunistic with respect to managing our balance sheet. And if there are opportunities to further improve our capitalization, we’ll consider them like we’ve done in the past. if there’s opportunities to deploy the capital in accretive ways, we’ll do that as well.
Doug Harter: Great. Thank you, Jack.
Operator: Thank you. The next question is coming from Jade Rahmani of KBW. Please go ahead.
Jade Rahmani: Since we won’t have the 10-K for some time, could you please provide the balance of non-performing loans and non-accrual loans? I guess, the 10-Q had total loans past due as of September 30th of $231.8 million and non-accrual loans of $165.9 million. So just looking for an update on those two numbers.
Marcin Urbaszek: Sure, good morning Jade. Thank you for joining us. Thank you for the question. As I mentioned in my prepared remarks, given sort of the downgrades that we had — at the end of the year, we had about $450 million of loans that are non-accrual status.
Jade Rahmani: And do you have the non-performing loans, the total past due?
Marcin Urbaszek: That’s pretty much the same number.
Jade Rahmani: Okay. Has there been any change so far this year in terms of credit?
Jack Taylor: Hey Jade, let me ask you if you could clarify, are you saying over the past 12 months or since the beginning of Jan 1?
Jade Rahmani: Since Jan 1.
Jack Taylor: Yes. Well, we’ve had — there’s no update to the risk rankings or report that we just gave. I would say that we are — we’re observing a couple of things in the market and from our borrowers there is some increase — so there’s nothing official to report as a post Jan 1 event. But what I would say is that we have — a subset of the borrowers are watching the Fed even more closely in terms of the calibration of how much more money to put in for how long, there’s just general fatigue throughout the market we believe, including some of our borrowers. We’ve — continue — and Steve Alpart can talk to this in the multifamily sector. We know that there’s increasing concern in general about the multifamily sector in the market, we’re still seeing a pretty good response from our borrowers and performance of our properties. And given our locations and our sponsors, we’re not troubled by that portfolio. But that’s what I would answer your question.
Jade Rahmani: Okay, that’s good to hear. Steve, did you want to provide any additional color on that question or perhaps multifamily?
Steve Alpart: Sure. No, I guess on the multifamily, Jade, we talked about this on our call last quarter. I’m commenting on specifically on the multifamily. It’s still generally stable and healthy in the markets that we’re in. including in the Sunbelt, which is I think where there’s a lot of concern about heightened new supply, which we obviously see. We have assets in places like the Carolinas. They’re doing fine, Savannah doing well, Birmingham, very little new supply. So, the supply even of the Sunbelt is not uniform. We are watching some of the markets in Texas. We’ve seen, and you’ve heard on some of the other calls about over building in Austin. We’re not in Austin. We definitely have seen rent growth slow, but our business plans aren’t primarily based on rent growth.
Our business plans are usually based on doing a value-add renovation, looking to get rent bumps. We still are seeing that borrowers are getting rent bumps. It may not be exactly what was underwritten, but we think that if you turn the rent roll one or two times, they’re likely to get there. Would not be surprised to see some multifamily assets fall a little bit behind plan. But what we’re seeing so far is that we just think it will just maybe take an extra year or two. And we didn’t do a ton of loans at the peak. We did some. We didn’t do a ton. And the loans that we were doing, call it, second half of 2021 or early 2022, we were increasing our kind of exit debt yield. So, the leverage was probably down 5 or 10 points. The borrowers have a good amount of equity to protect.
So, I think the general trend on multifamily is stable and positive. But we are seeing the headlines and we are all watching it very carefully.
Jade Rahmani: Thanks very much. Since their older originations, could you give an update on the Illinois multifamily origination data is 12/19 and also New York mixed use since it’s quite a large loan, $96 million. Origination is 12/18. Are those risk-rated 3 loans? Is there any reserve against those? And what’s going on with those plans? Should we expect any potential loss on those two?
Steve Alpart: Yes, they’re both risk ranked 3. The first thing you mentioned was the Illinois multifamily was — is actually 2? Is it one in particular you’re looking at?
Jade Rahmani: Yes, last quarter, it was about $109 million carrying value.
Steve Alpart: Got it. Okay, right. Got that one. No real specific update on that one. That one is doing fine. It’s kind of, I would say, directionally on plan. The New York mixed-use one, that one is office with ground floor retail. The retail is largely leased. The business plan really revolves around leasing up the office space. The sponsors put in more capital to support the asset. It’s currently ranked 4, leasing — it’s really about at this point about leasing up the office space.
Jade Rahmani: Is there a reserve against that? Because this is a really old origination. So I mean, if the office is still trying to lease up, what are the risks that there’s going to be an impairment on this? And what’s the reserve held against it at this point?
Marcin Urbaszek: Yes, this loan, obviously, as a reserve on it, it’s part of our general pool being risk rated 4. I think it’s safe to assume that it has higher reserve than some of the other assets that are in the pool. It is a loan that we are obviously watching closely given sort of the New York and what’s going on here. And it’s hard to predict about what may or may not happen here, but it is definitely given that it’s a 4-rated loan. It’s obviously on our “watch list”, and we’re watching it closely, and we’ll see what happens there.
Jade Rahmani: Okay. Thanks. And then the general reserve, I can’t think of any others. I may be wrong, though, but I can’t think of any others that have taken the general reserves down by the magnitude that you all have. And I know there’s management discretion. The macroeconomic variables are unemployment and interest rates. Clearly, those improved in the fourth quarter. Interest rates are up this year. But management has discretion there. So, why take down the [Technical Difficulty] headwinds still in the market?
Marcin Urbaszek: Thanks for the question. It’s a function of movement in the portfolio. Obviously, as there are some downgrades from 4 to 5 and some of the 4-rated loans may have some higher reserves, like I said earlier than the rest of the pool as they sort of migrate, right? That reserve sort of migrates from the general to specific. So, that’s part of it. Repayments is another part and sort of the general movement within the portfolio. So, we remain cautious, right? Our general pool is still close to 2%. But as the portfolio sort of shifts and continues to sort of run off a little bit and you have some of these downgrades, I think you will — you have — we have seen to a varying degree sort of across the peer group where sort of you have that migration between the general and the specific pool in January, and that’s what you would expect as sort of the cycle continues?
Jade Rahmani: Okay, that’s good color. That makes sense because the specific reserves did increase, and then there were repayments. So, probably movement out of the general into the specific and then movement — decline in the general due to loans that paid off.
Marcin Urbaszek: Correct.
Jade Rahmani: All right. Thanks for taking the questions.
Marcin Urbaszek: Thank you.
Operator: Thank you. At this time, I’d like to turn the floor back over to Mr. Taylor for closing comments.
Jack Taylor: Thank you, operator and thank you everybody for joining our call. And as I always would — I want to make sure I do — I want to thank our investors for their support and our team for their hard work and we look forward to speaking with you again next quarter. Thank you.
Operator: Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines of or log-off the webcast at this time and enjoy the rest of your day.
