Jade Rahmani: Thanks very much. Multifamily is showing some softness in areas, a little bit of dip in occupancy and some markets like Phoenix with negative rent growth. With the portfolio at 36% multifamily, and you mentioned the billion of originations 4Q21, how are you feeling about the outlook in multifamily credit?
Brian Harris: I think multifamily got too expensive. I think we were vocal about that, that we didn’t think a three cap was a great idea. And even if you thought rents might double, it still has turned into a bad idea because rates have outpaced the rent growth. And when you throw in the OpEx increases, you pretty much blew the thing up. So I feel okay about multis though, because homes are so unaffordable at these high rates, and there’s nothing available. So, I do believe that there’s a large contingent of the population that would like to own a home that simply can’t for a myriad of reasons. But so I tend to think that apartments, if you hang in there long enough, you don’t usually get in trouble with apartments, especially in a high inflation environment.
And so we’re constructive on it, and I think we made the first move in that direction to show consistency here. Back in 2021 in the fourth quarter, we noticed and you may recall me saying it on an earnings call that some of the caps were just becoming incredibly expensive. And so, when we saw that, we got a little concerned about the, the rehab story of a 1970s garden style apartment we’re going to paint it, change the windows and rents double. What we focused on, and you might remember we moved over to it, to avoid the cost of the cap on new originations, we wrote fixed rate loans, but they had points in, points out, and they were two year loans. So those fixed rate loans are coming due at Ladder, and they appear to be doing pretty well, and that we were very comfortable that Fannie or Freddie could take most of the loan out, if not all of it, but with a little bit of seasoning, those rents are still going higher in most cases.
And if we do have to get caught with it, with a lending decision that didn’t go as planned, we would much rather own a brand new apartment building that’s just been built in 2021. The other thing that 2021 originations on brand new buildings did was, this is when inflation was really taking off. So what happened was a lot of the transactions that required a lot of lumber and steel and all kinds of commodities, prices began getting away from the developer, whereas the brand-new construction that simply had to be leased up, the costs were over. So yes, we’re very comfortable with the book. We actually have hundreds of millions of dollars in fixed rate multifamily loans coming due that even if they extend because they don’t feel like they’re fully stabilized, the rates will be going much higher because most of those are around 5% to 5.5%.
Jade Rahmani: Okay. My follow-up offline with that the other big question I know everyone’s fixated on liquidity but scale to really put ladder in a different playing field to get me to increase and yet with the aspirations for IG you need to maintain lots of unencumbered assets and high unsecured that ratio so buying a mortgage REIT it would put that at risk so to me the answer would be therefore real estate ownership whether it be portfolios or maybe buying a net lease company. What are your thoughts on that?
Brian Harris: Yes, I think you’re probably right. On the other hand, if I saw a mortgage REIT that had just dropped 20% of its book value in 90 days, prices change things too. We may very well move in a direction that doesn’t help us in the IG arena because we’re just not there yet. But I think if we ever do try to, and make a move to become an investment grade credit, and I think we will, it will be obvious. We’ll go out and we’ll do a large issue when it’s unsecured. And we’ll do that at a time where the rate that we’re going to pay is going to make some sense relative to where we can lend money or buy assets. So your instincts are right there. I think certainly given the leverage that goes with some mortgage REITs and especially mortgage REITs with deteriorating assets, it, yes, I’d rather start over in a new building, on a net lease side.
And we have quite a bit of net lease here, but they’re not quite as wide as they’ll need to be if they’re going to be financed. And but I think we’ll get there.
Jade Rahmani: Thank you.
Operator: Thank you. There are no further questions at this time. I’d like to hand the floor back over to Brian Harris for any closing comments.
Brian Harris: Well, thank you for tuning in on our first daytime call. And hopefully, this will work a little bit easier for everybody and hope we’re going to continue that. But thanks for tuning in and thanks for staying with us. And future looks bright. We feel good about it. Thanks. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
