We think we’ll get $1 billion of repayment this year. So, that — certainly that’s starting to move in the kind of green zone in terms of how we’re looking at it. The second thing would just be, okay, portfolio migration in terms of like what are we seeing from a credit perspective, that feels like it’s slowing down now. This isn’t a market I particularly want to predict the future. But certainly, when we look at the velocity of where things are going from 3s to 4s or 4s to 5s, that wave of office feels like we’ve dealt with a lot of that already. And there’s other things that have come in recently, but it feels like it’s slowing down. So I think just some stability around that and the portfolio migration. And then finally, just leverage ratios, right?
Just to make sure we get back to where we historically have operated, which has been in more of that high 3s context versus very low 4s where we are today, and that’s migrating in the right way. And certainly, when we look through our projections, we expect that to continue to go in the right direction. So, those are probably the three things we’re watching most closely. From a liquidity perspective, we have lots of liquidity. So, certainly we can go out and make another loan or two. But I think we really want to see those other areas firm up before we move in that direction.
Stephen Laws: Great. Appreciate the comments this morning. Thank you.
Operator: And the next question will be from Sarah Barcomb from BTIG. Please go ahead.
Sarah Barcomb: Hi, good morning, everyone. So, my first question is related to the life science portfolio. Could you talk about the leasing outlook for assets that are still 3-rated that may be close to delivering the projects, but potentially remain vacant? Could you give us any insight into leasing for life science in your portfolio in general? Thank you.
Matt Salem: Hi, Sarah. It’s Matt. Yeah, happy to answer that. As you identified, we’ve got a couple — two life science loans on the watch list today. When you look at the loans or the properties outside of those two that have been identified, about 70% of the remaining exposure there is new build, as you’re suggesting. So by definition, very, very high-quality trophy in some cases, and these are extremely well-located assets in the best life science markets in the country. So, I think we feel very good about where those stand currently. Some are kind of lease ready and some are still in the process of finishing construction and waiting for that moment to really have an opportunity to attract a tenant in. But I think what we’ve seen is that the velocity in its early days and — but certainly with the LOIs and to some extent, leases that are getting signed at these assets, there’s a little bit more velocity in these newer-build purpose-built assets and new construction than we’ve seen in maybe some of the conversion plays.
Sarah Barcomb: Okay. Great. And then my follow-up question is related to the REO portfolio. Could you walk us through expectations for potential CapEx spend on these assets? And maybe some commentary on your expectations for foreclosures going forward beyond your expected REO disclosures?
Matt Salem: I think from a — it’s Matt again. Let me start on the CapEx side. I would say we’re still finalizing these business plans. And as we go, REO, we’ll develop those. I guess, when we think about it in a couple of ways, number one, we were perfectly committed to spending CapEx to positioning these assets in absolutely the best way possible to attract really high-quality tenants and to stabilize the property. So that is our mindset that we will spend money to create value. I’d say number two, in most cases, from just a pure CapEx perspective, we don’t think there’s large, large outlays. I think a lot of the capital is going to come from good news from tenant improvement and leasing commissions as we sign tenants there.
And from — I guess, the two ways you could think about it is like from an earnings perspective and from a liquidity perspective, certainly from a liquidity perspective, not worried about it at all. Again, it’s not a big number. We have ample liquidity to implement any strategy we wanted to. And from an earnings perspective, a lot of the CapEx, by definition, is going to get capitalized into the assets. So, it’s not going to come through earnings. And we’ll have a little bit of just expenses that will certainly impact earnings. And when we thought about resetting the dividend, clearly, that was kind of factored into some of the scenario analysis as we think about that. So, hopefully, that helps address a little bit of your CapEx questions. And then, from an REO perspective or foreclosure perspective, I think we’ve identified everything at this point in time in terms of where — what’s in the watch list that were kind of proceeding down that path.
And of course, we’ll keep that transparency on a quarterly basis, and if that change, we can update it. But there’s nothing kind of like left right now that we’re — that we haven’t identified that we plan to go to title on.
Sarah Barcomb: Great. Thank you.
Operator: The next question is from Steve Delaney with JMP Securities. Please go ahead.
Steve Delaney: Good morning, everyone. Can you hear me?
Matt Salem: Good morning. Yeah, we hear you well, Steve.
Steve Delaney: Okay. Great. Thanks. I’m on the cell phone this morning. Listen, first, just really applaud the forward disclosure about that the losses — the projected REO and the realized losses in the second quarter, it makes — I think it will make — certainly make their life easier and it will yours and I think shareholders as well just to kind of not have the uncertainty about 2Q. So, I’m looking at Page 11 now, given that perspective, and should we think about this after those projected REOs that as far as 5 ratings, as you see things right now, that you’re basically left with the Minne and Boston office properties. Is that the way to look at it sort of post the REO actions?
Matt Salem: That’s right. Yes. I mean, obviously, as in the other changes, that’s the way to think about it. And keep in mind that Minneapolis, we have modified that loan, that’s gone through restructuring. And then, as Patrick mentioned in his remarks, the Boston office is currently — under modification discussions currently, and we tried to reflect that in the reserves for this quarter.
Steve Delaney: Got it. And with Boston, a little unusual there because the $38 million — the retained mezz. Is the $38 million your exposure at KREF and the difference between the total $188 million is with other KKR entities, is that the way to view that?
Matt Salem: There’s a little bit of nuance there, I would say. The $38 million is — $37.5 million, I think to be correct, but is KREF’s total exposure. The debt…
Steve Delaney: That’s where I was going, to find out how much KREF is exposed.
