Gary Berman: Yes, so I’m going to answer a little bit of that, and then I’m going to allow Jon to — we want to give Jon a chance to talk about how we think about leverage in the context of kind of longer term returns and why we use leverage. There is clearly a benefit to getting scale from an operations perspective, because it allows us essentially to go, let’s say, twice as fast, so — or more. So that — there is definitely benefit there. And then there is obviously more fee income associated with that as well. But we’ll give you some insight into how our JV partners think and how they think about kind of longer-term IRRs and I’ll turn it over to Jon. I would just say on the — yes, I mean, look the debt markets are whipsawing and we’re seeing, like, the way they are oscillating from day-to-day, week-to-week is really crazy.
And so we understand it’s an incredibly volatile environment and we know that the benchmark rates have blown out in the last couple of weeks and again into today. But we are seeing green shoots in terms of the CMBS or ABS market, right? So, we just met with 30 investors over the last couple of days. And they told us that they’re interested again and what they really want and certainly from an A tranche, bigger is better, right? They’re looking for some more call protection, they are looking for some concessions, probably compared to previous type deals. But the bottom line is that, investors are waiting for deals and they want to see bigger deals. So that’s really good news. What it means, that a spreads will come in and we’ll have to accept the benchmark rates.
And I think those benchmark rates will probably continue to oscillate all year, they’ll be up or down and maybe you’ve got to pick a window. But that’s the kind of environment we’re in. Jon, over to you to talk about how — like why would we — I guess the question is, why would we buy with cap rates in line with debt costs. Why do that at all? Maybe you can give some insight into that.
Jonathan Ellenzweig: Sure. And I think, Jade, it’s a great question and it’s extremely important to think about this over a period of time versus point in time. So your point is right, if you’re buying a cap rates right on top of leverage, you’re not getting benefit on day one. But if you think about its overall, let’s say, an eight-year investment program or vehicle life. And you’re going to see, as Gary mentioned before, let’s say, 4% to 5% NOI growth every single year. Over time you certainly get those benefits of leverage. So going in on unlevered basis you might expect a 9% or 10% IRR. But if you’re adding 50% leverage at or around 5.5% to 6%, the same as your cap rate, you’re going to see that IRR expand closer to 14% or 15%. So it’s really thinking about the longer-term because you’re getting the leverage benefit on that growth as opposed to just going in.
Jade Rahmani: So on that point, is there an opportunity to scale up your acquisitions on an unlevered basis? And then accumulate a very large portfolio to securitize in a very low leverage structure, which would allow those CMBS buyers you met with the 30 you met with who want scale in the deal to buy like a really big piece of AAAs and maybe into some of the slightly lower-rated securities?
Gary Berman: Yes. The answer to that is, yes.
Jade Rahmani: Okay. Thank you very much for taking the questions and look forward to speaking with you soon.
Gary Berman: Thanks, Jade.
Jonathan Ellenzweig: Thanks, Jade.
Operator: Your next question comes from the line of Tal Woolley from National Bank Financial. Your line is open.
