Matt Salem: Well, it’s not our expectation at this point in time. I think that when we look at those, one, they are in very strong locations. We’re in on those construction deals, we’re in Cambridge, we’re in Seaport, in Boston, and we’re in South San Francisco, so these are very, very strong locations for Life Science, the two biggest hubs in the United States and they are purpose built and I think there’s going to be a fair amount of demand for that high quality real estate. So, it’s not our expectation at this point in time, but you are right to highlight that there is a lease up component involved here. It’s just the quality of the real estate and the location. We think and our basis obviously, but we think we’ll overcome potential issues there, but there’s some uncertainty.
Jade Rahmani: And lastly just on the Seattle, since that was originated in October of ’21, you said it was converted from traditional office to life science, so that probably took some time, but still it’s a three-year loan and also surprised you it went from a three to a five in just one quarter. What do you think a reasonable timeline is to consider stabilizing and optimizing that asset?
Matt Salem: Well, we’re doing the work on that now in terms of just really understanding the lease up of that asset. But Seattle in particular is a little bit smaller Life Science market, so that one will take is going to take a little bit of time, but it could take anywhere from 18 plus 24 months plus to fully stabilize that asset from a leasing perspective.
Jade Rahmani: Thanks very much.
Operator: And the next question is from Rick Shane from JPMorgan. Please go ahead.
Rick Shane: Thanks guys for taking my questions this morning. And I apologize we’re bouncing around a little bit. So, if some of this has been covered, I apologize. Can you talk a little bit about the ability to redeploy capital as you realize losses and removing loans from non-accrual and any potential impact on NII going forward?
Matt Salem: Sure. I could take that. It’s Matt. I think in the prepared remarks, we tried to give some context around this. I think the timing component is the difficult one, right, we want to make sure that we really optimize the value of the REO portfolio. And that’s really the way we’re thinking about it is, that’s the portion of the portfolio that is not creating earnings, there is actually a drag around that from OpEx and something we have against those assets. As we stated in the script, if you just repatriate our basis in those assets, we think that can generate an additional $0.12 of DE per quarter. Now the question is how much time it takes to get there and that goes back to our comment where we’re going to have to be patient a little bit to Jade’s last remarks, some of these will take a little bit of time to get through.
But as we sell those assets, stabilize them, sell them in the market, we should be able to and of course it could happen at different times for each asset. We should be able to repatriate that equity and then invest it in new loans and start to get some of that $0.12 back, the $0.12 per quarter is based again on our basis, not on where we hope and the goal is to sell these assets. Obviously, we think we’re going to make more over time is why we’re going to implement this business plan. So, this gives you a little bit of context of where we could go. But it’s not we’re not thinking about this as like the next quarter or two, like we are trying to make sure that we have the runway to be patient.
Rick Shane: Got it. I appreciate the color. Thanks, guys.
Matt Salem: Thank you.
Operator: And the next question is from Kaili Wang from Citi. Please go ahead.
Kaili Wang: Thank you. Maybe you could talk about as you look at the new deal opportunities coming to the market today, how are the spreads trending and what are you seeing from the competitive front in general?
Matt Salem: Yes, thank you for the question. It’s Matt again. I’ll take that. Again, I’ll speak a little bit to our broader. The broader real estate credit platform here at KKR where we’re actively lending in the market on a daily basis. I would say we, again, we have a pretty big return in transaction volumes, both acquisition and refinance needs. Our pipeline right now across all of our different pockets of capital is up over 50% from last year. Still down from, call it the peak 21 type of levels, but has picked up a lot over the course of the last, call it couple months, as you saw the Fed pivot. And where we’re seeing the most competition, I would say, is on real stabilized assets and the insurance capital and the agencies, Freddie Mac, and Fannie Mae.
I think that’s really where you’ve seen the most aggressive from a spread perspective, from a spread of yield. As you look at what’s going on with investment-grade corporates, you look at what’s going on with CMBS, there’s spread tightening happening across most of fixed income. And that’s happening in the loan market as well. So, if, like, stabilized lending, what used to be low 200s type of spread is now gravitating into the 100s. We’ve seen insurance companies go as tight as 150 base points over at this point. So, it is — there’s clearly a lot of demand for lending in today’s market. I think the big question, as we all know, is the banking market. They are roughly 40% of the overall commercial real estate lending market. We’ve seen a little bit more bank activity, but it’s still largely on the sidelines.
And as we start to pick up volumes this year, that’s the big question is, will there be a gap in the need for financing? Of course, there’ll be some alternative lenders like ourselves that can step in and fill that gap. But I think that will — this year we’ll figure out a little bit of how much the banking system is really going to come back online. One good news for KREF, I’d say, is that what we are seeing from especially the larger banks is a willingness to lend on loan-on-loan facilities, warehouse facilities, much more. There’s been a little bit of a shift away from direct lending, mortgage origination, into more facility type of lending. It’s better capital. It’s safer. And so, that will be in my mind one of the big changes as we come out of this market environment is as the banks reduce their footprint in the direct mortgage origination business they’ll likely increase their footprint in the loan on loan and warehouse side of things.
Kaili Wang: Great. Thanks for the comment.
Matt Salem: Thank you.
Operator: And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.
Jack Switala: Well, great. Thanks, Operator, and thanks, everyone, for joining today. You can reach out to me or the team here if you have any questions. Thanks and take care.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
