Kenneth Lee: Hey, good morning. Thanks for taking my question. In regards to your confidence in closing some of those or majority of the eight LOIs in the second quarter. Just wondering if you could further flush that out, what factors are driving this confidence for closing these deals? Thanks.
Jay Sugarman: Yes, those are all moving towards closing. Our confidence is the last couple of weeks, these deals have continued to move forward, which with a rate rise was a comfortable piece of it. However, look, they’re not closed yet, so there’s no guarantees. But we’re pretty confident where they sit in the process of closing the vast majority, if not all will get there.
Kenneth Lee: Gotcha. Very helpful there. And just one follow up. In terms of the economic yields, looks like the economic yields on the LOIs were around 7.5%. Is this sort of like a good range? I know that historically you talked about expecting about 100 basis points above risk free rates, but just want to get your sense of how economic yields are shaping up for some of the newer originations? Thanks.
Brett Asnas: Obviously this is a new territory. These are the highest yields we’ve been able to generate. So customers are adapting to a marketplace that continues to shift. We’ve seen cap rates back up. That’s starting to make deals possible. But as Tim said, it’s still a little bit touch and go. When rates get this high, you lose a number of customers who I think we’ll come back to the trough when there’s an opportunity to lock in rates a little bit lower than this. So, we think 7.5% is great. But honestly, as long as we’re meeting our benchmark, a little bit lower rates would be better.
Kenneth Lee: Got you. Very helpful there. Thanks again.
Operator: Thank you. Our next question is coming from Harsh Hemnani with Green Street. Your line is live.
Harsh Hemnani: Thank you. Going back to the Caret redemption, what was the conversation around that redemption with the outside investors? Was there a sense that the valuation of Caret today was well below the $1.75 billion or that they paid for two years ago? Or was it mostly a liquidity hurdle where because Caret was not listed on the public market, they just needed some liquidity. Any sense around that conversation would be helpful.
Jay Sugarman: Yes. I don’t want to speak for them, but there was no conversation with the VCs around value. It was entirely liquidity and what are the prospects in the near term of monetization. And we were candid with them until that growth rate kicks up. That was not something near term that they should expect. And we – I don’t think we’re disappointed. We understood the trade they were making. I think with the high net worth families, it was a different conversation. It’s much more focused on future rounds and what kind of scale we will shoot for. So that’s a better conversation. That’s the right conversation. And that one I’m sure there will be a valuation component too, as we think about future investors.
But with the VCs, it was entirely about, hey, we jumped in here, we thought there was a chance this would be recognized very quickly and you guys be able to monetize it. You’ve done a good job. But if there’s no near-term prospect, this isn’t exactly what we do for a living.
Harsh Hemnani: Okay. That’s fair. I’ll leave it there. Thank you.
Operator: Thank you. Our next question is coming from Stephen Laws with Raymond James. Your line is live.
Stephen Laws: Hi, good morning. Jay, a lot covered on the pipeline, but one follow-up. How quickly can it build? If rates were to go back to 4.25% or 4%, does it take six weeks to ramp? Does it take six months? How quickly would you expect borrowers to step in and take advantage of that? And how quickly can you guys move to ramp that up?
Jay Sugarman: Let me kick it to Tim. I mean, it can move quickly. Whether the deals can close quickly is a different question. But in terms of interest levels, Tim, you saw some elasticity last time rates fell.
Tim Doherty: Right. I think, look, you see it with the – Jay mentioned earlier with the rate drop at the end of last year and relative, I guess short-term stability and visibility was there. You saw a big ramp up in the deal flow, the entire market, right? This is about the macro market, not just us. And I think that’s a good starting point for the length of time, some of these take, because it took time for those to get to market to start putting the cap stacks together. So typical real estate, you’re seeing deals that are short term, two months to get from start to finish in normal way, three to four months. So once the market shifts and people see that and get that confidence of the visibility and stability that’s usually about the timeframe you’ll see. That’s why you see that the fluctuation in quarter-to-quarter in normal markets, right? It takes time to ramp up pipeline for the entire market, not just capital providers such as ourselves.
Stephen Laws: Great. And as a follow-up on a switch to the UCA, I think the marks on office assets make sense and given annual appraisals. I guess it’s been coming for a few quarters to be expected. Can you talk about the tail there? If you look at the worst office, where are those attached and kind of what’s the cushion there when you look at your most risky situations in the office? And then, I noticed the other property types, the LTVs really haven’t changed materially. So those valuations held in or we have a markdown in those valuations as we roll forward. So it does seem like values across all property types are down. And I’m just curious kind of how those other property types have held in?
Jay Sugarman: Yes. Just in generically, I would say the cap rate assumptions that are CBRE uses have definitely gone up, so that will impact all asset classes. But we’ve seen rent growth in some of the – certainly multifamily offset that to a great degree. So that’s the dynamic sort of in the multifamily space is how fast rents are moving versus how fast cap rates are adjusting upwards. Office is different. It’s tougher in terms of there’s excess supply in a lot of markets. So I do think the LTVs going up faster is reflective of higher rates and tougher fundamentals. You’re not seeing the same dynamics we’re seeing in multifamily. I think, Brett, you said 80% of the office book has now gone through a CBRE reappraisal in the last two quarters.
So we’ll see where the last 20% of that comes out. And this is a market that’s going to have to adjust and adapt and certainly here too lower rates would be helpful, probably provide some confidence that today we’re not seeing.
Stephen Laws: Great. Appreciate the comments this morning, Jay. Thanks.
Operator: Thank you. Our next question is coming from Kelly Kunath with Morgan Stanley. Your line is live.
