Joe Fisher: Yeah. It’s definitely in blend a fluid situation. As you mentioned, I mean, — cap or not cap rates, borrowing costs were up by 100 basis points just since our last call. So it is pretty fluid. I’d say majority of these deals did have built-in expectations of 30-plus percent value creation relative to cost. And many of them, if you think about when they started to where they’re at today, they had NOI exceeding their pro forma numbers. So there have been some challenges where there’s been a greater pocket of supply, but by and large, I’d say the majority of these deals are actually exceeding their expectations. And so I don’t know specifically how to get into individual deals or overall, I would say if you look on Attachment 11B, just to point out the time lines that we have to potentially figure out when that equity comes due.
We got some questions on those first four up in the pref equity stack, showing that years’ to maturity. Just want to remind everybody that down footnote four, that years’ to maturity is actually for our pref position. That’s not always co-terminus with the senior loan. So, those first four deals, which look like they’re coming to do a little bit sooner. Those are actually mid-25 to mid-2026, type maturities. So those are not coming due. The next deal up for us is actually down in the loan section, 1300 Fairmount, that’s coming due in January 24. And so that’s the only one that we have due in 2024, that we’re going to be working through and trying to think about how does that refi look and what does the capital stack look like. So I think by next quarter, we’ll have some more to talk about on that transaction.
But overall, I think most of these are exceeding their initial pro forma. It’s just trying to figure out where cap rates and values stabilize ultimately.
John Pawlowski: Okay. One follow-up, can you give us a sense how many projects on Attachment 11B, you’re concerned about the debt service coverage ratios, the interest cost on the other types of debt going up, market rents are going down. It feels like the perfect storm for developer cash flow drying up. So can you give us a sense of how many projects you’re worried about?
Joe Fisher : Yes. I guess I don’t want to get into specific transactions. I’d say, most of these — they’re kind of in that 9% to 10% NOI yield. These deals that are kind of in the bottom two-thirds of the page, because of the fact that their pro formas have been exceeding expectations. So that’s kind of a 6% to 7% yield to our pref position, which a mid to high 5s cap environment feels pretty good. I think what we’ve got to be able to get to with these is, yes, SOFR has increased materially. And when you’re sulfur plus 300, that becomes painful from a coverage perspective. The reality is that the GSEs are very much still alive and well and have liquidity available. And so you got to balance the liquidity and then the rate and coverage.
And so if you’re doing GSE debt, you can get nice cash flow coverage on many of these deals once they get to refi. They’re just trying to manage when do they want to go to that refi window and do they want to lock in longer duration debt. So I’d say at this point, nothing to speak of in terms of impairments or takebacks of any of these assets given the duration that we have on the senior loans, but we’ll continue working with the senior partners and equity partners over time to figure out where those discussions need to go if they have to go somewhere.
John Pawlowski: Okay. Thanks for the time.
Operator: Our next question is from Connor Mitchell with Piper Sandler. Please proceed.
Connor Mitchell : Hey, thanks for taking my question. So you guys talked a little bit about how you’re looking at the different development landscapes now? And I guess my question is just regarding the guidance reduction, how does that impact your underwriting of your own and then also JV. So, how can we think about the environment now versus a few months ago when you made the LaSalle JV deal? And maybe looking ahead, what can you expect to see a difference in the underwriting?
Joe Fisher : Yes. I guess, I’d say, first off, we’re very pleased that we got that joint venture done. Obviously, it’s a little bit different debt market at that point in time. So fluctuating that transaction and the pricing that we did, very pleased with and then being able to pull out those cash proceeds deploy them into basically CP paydown in a non-dilutive manner was clearly a nice trade there for the time being as we got stockpile that liquidity, if you will, until we redeploy. I think from an underwriting standpoint, we’re going to meet the market in terms of where cap rates are if we find the right opportunities. So today, you’re seeing kind of that mid- to high 5s caps. You are seeing that on a very limited transaction volume.
So there’s not a lot of sellers out there in the market. And you do have a number of buyers that are in the market to kind of help that pricing. So you’ve got a number of closed-end funds that have capital available that they’ve already raised. You have family offices, high net worth type of money, then, of course, the 1031 buyers out there. And so the market right now, while those pricings are beneath where current borrowing costs are with that limited amount of transaction activity, there’s enough of a buyer and seller pool to actually get that done. I think going forward, the underwriting is not necessarily going to change in terms of forward growth expectations over an extended period of time. We’re going to really be focused on what can us and our partner find together that can maximize what we can do from an operating platform perspective.
And so that’s always what we’re focused on. So I don’t think there’s much in terms of change in underwriting on a go-forward NOI growth perspective.
Connor Mitchell : Thanks. I appreciate the color. And then you talked a little bit about the underperformance of B products versus A products and how that was the opposite earlier this year. Just kind of wanted to get some of your updated thoughts on how you think about the mix of B and A in your portfolio going forward? Thanks.
Joe Fisher: Yeah. I think over time, the diversification has clearly served us well when you look at having diversified price points, diversified submarkets and, of course, the 20 plus or minus markets that we’re in provides a pretty good foundation from which to insulate ourselves relative to volatility and cash flow, but also kind of pivot the sources and uses. So I think we want to remain balanced. We’re a little bit more B biased, obviously, throughout the portfolio, which has worked well for us over time. have a kind of a solid B that you can redevelop when you see upside rent potential and the markets are going well, but also helps insulate it during downturns is pretty nice. So I don’t see any material shifts taking place to the overall portfolio strategy.
We do typically like to try to find Bs to buy because as allowed for more opportunity to get a little more meat on the bone and/or more margin upside when we bring those on to the operating platform. So you do typically see us kind of buy that B to A range typically. And then the improvement in portfolio quality really comes through our development arm that does a great job of bringing on high-quality developments for us.
Operator: There are no further questions in the queue. I would like to hand the call back over to Chairman and CEO, Mr. Toomey for closing comments.
Tom Toomey: Well, thanks for all of you and your time and interest and support of UDR. I want to highlight again relative performance in my closing remarks. In particular, I think during the quarter, Mike out of the five peers that have reported, finishing number one in revenue, expense and NOI, it matters what we get to the bottom line. And it starts with operations, and I take my hat off to the team for that level of performance and it’s a testament to their efforts and the platform, which are key points of future differentiation and growth potential. With that, we look forward to seeing many of you at NAREIT in Los Angeles and in a couple of weeks at other upcoming events. And enjoy your holiday/Halloween and take care.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.
