They’re let it within a month, at the asking rents. So the markets are broad brush. There is a huge issue with B&C office, most of which will come down and get converted to something else. It’s not trading cheaply enough for people to scrape it yet, but it eventually will and or the governments will come forward with credits and concession packages to turn mid-block buildings that have no conversion opportunity to anything into residential probably by tearing them down. And then I’ll start another cycle. So, real estate is a long life and long asset class, and it’s not a day trading asset class, but it is the largest asset class in the world. And it’s not going away. And if you pick your spots, you’ll make money both on the lending side and on the investing side.
Operator: Next question, Stephen Laws with Raymond James. Please go ahead.
Stephen Laws: Appreciate the commentary so far. Jeff, you talked a little bit about upcoming original maturity dates or where cap expirations maybe providing some opportunity. Looking at the other way on rates, what would increase transactions? Is there a clearing level on rates, if it goes back to 400 quarter or four? Are there people that maybe were hoping for 3.5 early this year that all of a sudden move quickly because it gets back to four and they missed their window? How do you think about a clearing level for rates of what creates more transaction opportunities?
Jeff DiModica: It’s interesting. I think it’s going to be cap rate dependent as well, right? You’re seeing some multifamily trade in the low-fives. We’ve just seen some recently. You’re seeing some office rate that CapEx that are higher than you think. They are sort of one-off. I believe if you get to the point where people can get some equity out where they weren’t sure yesterday if they could get equity out, everybody gets deal fatigue and people want to move on from things. And if they can start repatriating some equity and turning to do something else, I think that that’s where deal flow really starts to pick up, which you’re not far from today, but you probably need every 50 to 100 today means more than it’s ever meant as I look at it.
As I look at it, we all started by lending at 70% LTV and with cap rate expansion that we’ve seen to date, that cushion has been eaten into. So as that cushion gets eaten into every basis point where we end up and Barry is 100% correct. The forward curve has not been right for 30 years. So let’s just assume that we don’t know where it’s going to go. But given some of our lending cushion has been eaten up by cap rate expansion, every basis point actually matters more than it has historically, because lenders in that are closer to the equity than they were when they made the loan. So I would say, 50 to 100 basis points forward curve or 50 to 100 basis points in the 10-year, I think transaction volume starts to pick up very significantly. I don’t think you need a large move, but you need to sustain it.
We were there in January and had we sustained January rates, volumes, I think, would be tremendously higher today, both in the lending side and the equity side. We’ve just been unable to sustain trended 50 basis up, 50 basis points down every three months for the last sort of year, year and a half. And it’s difficult. By the time you get to those rates, you start setting something up, three months later rates are the other way. And I think that’s why you haven’t seen the volumes. But if we get six months sustained back at sort of January’s rates, 50, 70 basis points lower than this in the 10-year and 75 basis points lower than this in for SOFR, I think you’ll see a lot of transaction volume. I think there’s a lot of people who would like to trade if they see that stability, and that’s exciting opportunity for us.
We have significant capital today to deploy. Our pipeline, I touched on it briefly, but we sat for a couple of hours yesterday. It’s as big of a debt pipeline as I’ve seen here in a couple of years. If we decided to use all of our liquidity, we could use almost all of our liquidity in the next six months between our Energy and Pro and our CRE lending businesses. We’re going to choose the best of those, but we’re starting to see opportunities. Some of those are refis, it’s not to your question where transactions really happen but refis where the previous lender is where you’re up against a final majority and the previous lender has deal fatigue. So they’re going to look for somebody else. So I say the majority of what we’re seeing is that over the transactions Barry was talking about.
But we have a decent pipeline from a lender’s perspective. The equity pipeline will pick up, I think, with a decent rally. Barry, I don’t know if you have anything to add to that.
Barry Sternlicht : No, we’re good. We’re running out of time. Thank you.
Operator: Next question, Doug Harter with UBS. Please go ahead.
Doug Harter: I’m hoping you could talk a little bit more about the refinance on the medical office building. Looks like your debt against the property came down, a little over a $100 million. Thoughts on that, and does that imply anything about the value of the properties?
Barry Sternlicht : Less about the value and more of service coverage, Jeff. Go ahead, Jeff.
Jeff DiModica: Yes, Barry. I think you nailed it. The properties continue to perform, but they’re performing against the higher cap rate today, so the valuation is lower. It’s not an income problem. It is a higher cap rate problem and the agencies are going to allow you to take a little bit less debt. Now the good news against that is, against that, we tightened 25 basis points. The market felt really good about as the agencies gave us good enhancement levels. We don’t need like we’re sort of happy to under lever this asset. So yes, we did put $100 million of equity in, but it’s a decent return for us of cash we’re sitting on a lot of cash. And so we got a really good rate at $2.52 over on what we did take, which in this market feels pretty good, given the high yield we just issued at. So for both of $3.12 over. Go ahead, Barry.
Barry Sternlicht : No, I was just going to say that we could have taken more junior classes are dilutive to the dividend. So with the rate it’s not the spread, it’s just where base rates are. So it wasn’t so much the cap rate, it’s really debt service coverage to get debt that’s attractive enough to take it. The $2.50 over was pretty decent debt. And if we increase the leverage levels higher, which we could have, it was silly money and we’d want to buy it, not borrow it. So we just cut the proceeds to a level that we thought was attractive and accretive to the company and that’s it.
Operator: I would like to turn the floor over to Barry Sternlicht for closing remarks.
Barry Sternlicht : Well, thank you, everyone. We appreciate you listening in and good luck to you and hope your loans pay off. Take care. Thanks, team.
Operator: This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.
