Jade Rahmani: So, I was going through Howard Hughes’s transcript and their comments about the construction market, construction loan market, really caught my attention. I mean, they basically said they’ve never seen a market like this, where even getting a multifamily loan is challenging. The banks are being told to not do office. It’s totally redlined and to pull back everywhere else. So, how do you all feel about that? And on the life science sounds like it is a construction loan, based on the magnitude of future fundings and the attachment point being so low. That’s a pro forma LTC estimate. So, is construction an area you’re looking to get more active in?
Brian Mitts: Yeah. I think so, and I’d say, two things. One is the $220 million construction loan is on a 27-acre site in Cambridge, where the sponsor is a well-heeled repeat sponsor of ours and has roughly $420 million in equity into the project. This opportunity was born out of banks pulling back, trying to syndicate the senior mortgage. We were, in fact, going to do the mezz on this loan. And so, when the bank — when the banks pulled back, we just stepped in and did a senior mortgage at basically the same rate, lower detachment point, creating a pretty attractive risk return profile. The project was also already funded in terms of equity. Two of the three buildings were built. The third is about to top out. So, from a risk reward, this one was a good one.
Our storage platform has through the past decade, through our storage team, led by John Good, had a construction development pipeline whereby they would fund construction loans to developers of self-storage and take a profit participation interest. I would expect us to get more active in that space, as well as the multifamily space, as well. Because, as you mentioned, and this bodes well for multifamily and really all property types of performance in 2025 and 2026. But over the past nine months to 18 months you — if you’re a developer, you’re hurting and can’t find access to capital. So, it is a good time, it is on our radar and we’ve already been doing it. So your money has a good nose.
Jade Rahmani: On the life science, is there a tenant already signed up, because I know there’s quite a lot of supply expected to hit this year and next year.
Brian Mitts: Yeah. That’s a rumor. A lot of the supply hitting has been pushed out to 2027 and 2028. I think half of what was planned to deliver over the next 12 months, it won’t deliver. So, if you dig into the numbers and we’re happy to share those with you. I think the supply in life sciences is fairly overstated. This particular project is one of the last to be developed in Cambridge before moratorium hits and the location, the size, the ability to take full blocks of 395,000 square feet total, we expect to be very attractive. And again, it opens its COs in 2025. It’s not like this is a far out project. So, we expect leasing velocity to do very well here. But as of today, there is no tenant. But our basis is below…
Jade Rahmani: Okay.
Brian Mitts: Our base — I would just add one thing, our basis is land value, so.
Jade Rahmani: Okay. And then, on multifamily, lots of noise, lots of — there’s CLO reports showing delinquencies. There’s a lot of scrutiny on some of your peers, mortgage REIT peers. But at the same time, the GSEs are showing pretty low delinquencies in their stabilized servicing portfolios that, others like Walker and Dunlop manage. So, can you just give us a sense, since you’re so active even on the equity side, of what’s going on on the ground with multifamily, some of the supply challenges and yet what looks like pretty decent credit performance?
Brian Mitts: Yeah. You bet. I think it — I think you got to bifurcate agency versus non-agency. And just, I guess, generally in multifamily, right now, Q2 — Q1, Q2, Q3 is the eye of the storm, the supply storm, so to speak. And then, supply wanes throughout 2024 and into 2025, it gets — the dynamic really flips in the landlord’s favor. On the ground, the CRE CLO loans, obviously, probably, lower quality collateral are hitting air pockets. Their cash flows starve. They’re almost zombie deals to the extent that there is no cash flow to fund operations or rehabs or business plans that were conducted or created a couple years ago. So those deals are challenged and I’m not going to say you can’t work through it. Multifamily is the easiest to work through.
But those are where you’re seeing the most weakness. The agency portfolios, including our own, have held up a lot better, and that makes sense, right? They’re particularly better sponsors, maybe well-located, they go through a bunch of different layers of underwriting and they’re more diversified. And so I think those deals will continue to be fine and be able to be refinanced, especially as we get through the next three or four quarters, which I think things, once the Fed decides to actually pivot, that’ll ease some pressure on the system and then getting through the supply will also help. So a little bit of a rough time in the next two or three quarters, but I do think there’s light at the end of the tunnel.
Jade Rahmani: Thanks a lot.
Brian Mitts: Thanks, Jade.
Operator: This concludes the Q&A session of today’s call. I will now turn the call back to the management team for closing remarks.
Brian Mitts: Yeah. I appreciate everybody’s time. Great questions today. We’ll look forward to speaking again soon. Thank you.
Operator: This concludes the NexPoint Real Estate Finance fourth quarter 2023 conference call. Thank you for your participation. You may now disconnect.
