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spk07: I'd like to remind everyone that today's call and webcasts are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to gap figures in our earnings presentation, which is available in the stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apollocreft.com or call us at 212-515-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein.
spk01: Thank you, Operator, and good morning and thank you to those of us joining us on the Apollo Commercial Real Estate Finance Inc. Third Quarter 2022 Earnings Call. I am joined this morning by Anastasia Maranova, our Chief Financial Officer. From a macro perspective, the dominant themes remain the same. Continued efforts by central banks to fight persistent inflation resulting in additional interest rate increases continued capital markets volatility, and an overall slowdown in capital transaction activity, all of which are permeating the real estate market. Despite the somewhat challenging backdrop, for the third quarter, ARI reported distributable earnings comfortably in excess of the common stock dividend and significant progress on several key asset management and balance sheet optimization initiatives. It is worth noting that Even with a positive move in the stock this morning, ARI's current quarterly dividend run rate of 35 cents per share, ARI is paying common stockholders a 13 plus percent annualized yield while trading at approximately 70 percent of book value with earnings supported by a portfolio consisting of 98 percent floating rate loans. Importantly, we expect ARI's robust pace of originations over the past 18 months will enable the company to continue generating distributable earnings that support the common stock dividend while maintaining a more selective approach to any incremental capital deployment consistent with a focus on maintaining liquidity and balance sheet flexibility. In taking this approach, ARI is fortunate to benefit from Apollo's broader commercial real estate debt platform, which originates over $10 billion of loan transactions per year. Apollo remains active in the marketplace, originating and closing transactions on behalf of other managed capital, which enables ARI to access real-time market data and information as we assess the use of the company's investable capital. Shifting to capital management, I would like to highlight a few key milestones with respect to the right side of ARI's balance sheet. During the quarter, ARI repaid $345 million of convertible notes that matured in August with existing liquidity and without the need to access the choppy capital markets. Also during the past year, ARI has entered new asset-specific lending facilities with Banco Santander and MUFG, respectively, expanding ARI's roster of scalable capital relationships. In addition, the company sold down approximately $328 million of a future funding obligation for one of ARI's largest UK loans, which is financing the construction of a mixed-use property in a prime central London location. ARI ended the quarter with over $1.1 billion of unencumbered assets and a debt-to-equity ratio of 2.8 times. Turning to the portfolio, There are several important updates with respect to the focus loans. We executed a contract to sell the properties underlying ARI's Miami Design District loan. The purchasing group has posted a substantial deposit and we expect the transaction to close prior to year end. As such, ARI reversed $53 million of the previously recorded $68 million loan impairment and will retain some additional performance-based economics that may result in additional recapture of the remaining impairment. In connection with this transaction, ARI will provide seller financing consistent with current market terms, enabling ARI to redeploy a portion of the return capital into a new performing loan. In addition, in connection with the closing of the construction financing provided by Bank of America and M&T Bank for ARI's multifamily development in Brooklyn, known as The Brook. The investment was transferred to ARI's balance sheet as real estate owned, and ARI recognized a $44 million gain to book value, which reflects the difference between the prior loan balance and the current fair value of the development. We are extremely pleased with the progress made on these focused loans, which highlights the strength of our asset management capabilities in addition to our ongoing commitment to and focus on the preservation of capital. Turning to the loan on 111 West 57th Street, commonly known as the Steinway Building, the property was recently recapitalized and the existing senior mortgage loan and a portion of the senior mezzanine loan were refinanced with a new senior loan provided by both ARI and a global money center bank. The bank is also providing 75% financing to ARI for its portion of the senior loan. In connection with the recapitalization, ARI funded a portion of the senior loan at approximately a 50% LTV with no change to ARI's existing junior mezzanine loan positions. Based upon the units closed subsequent to quarter end, as well as units under contract that are expected to close by year end, we anticipate ARI's exposure will be reduced by approximately $150 million by the end of this year. Before turning the call over to Anastasia, I wanted to spend a few minutes on ARI's European portfolio. We added an additional page of disclosure to our supplemental information package this quarter to provide incremental color on the exposure as loans secured by properties in Europe now represent slightly more than 40% of ARI's portfolio. As a reminder, Apollo has been active in the European commercial real estate lending market since 2014 when we moved one of the senior members of our team to London to oversee the expansion of Apollo's commercial real estate debt platform. Today, the team in Europe is comprised of 12 people all of whom have done an outstanding job contributing to our success in capturing market share and developing Apollo's reputation as one of the leading non-bank lenders to the commercial real estate sector throughout Western Europe. Importantly, as we have expanded our origination activity there, the transaction types, the quality of equity sponsorship, and the deal structures have been consistent with ARI's U.S. loan originations. ARI only transacts in countries with legal systems and structures that provide necessary lender protections. Further, ARI does not take currency risk when lending in Europe. Any asset-specific financing used by ARI is transacted in local currency, and we work with internal and external advisors to appropriately hedge expected principal and interest payments. We consistently review the effectiveness of the hedging strategies used, which to date have proven to be highly effective. With respect to ARI's European portfolio, operating performance at the asset level is very market and property specific and has generally been positive to date, consistent with the post-pandemic economic recovery. At quarter end, ARI had 25 positions in Europe totaling $3.8 billion, approximately two-thirds of which are secured by properties in the United Kingdom. 99% of the portfolio consists of senior loans, and the portfolio has a weighted average LTV of 62%. The equity sponsors are some of the most sophisticated real estate private equity owners and operators in the world, with Blackstone being our largest borrower in Europe. In addition, five loans totaling $900 million have debt subordinated to ARI's senior mortgage position. At present, ARI's entire European portfolio is risk-rated three, and there are no asset-specific reserves. In terms of property-type exposures, The non-UK portion of the portfolio is over 50% comprised of industrial and hotel assets. Given the ongoing strength of the U.S. dollar, European hospitality assets continue to perform very well, and the assets underlying these loans continue to report positive REVPAR metrics. With respect to the UK assets, The portfolio is broadly diversified across multiple property types split between London and other major cities. Approximately one-third of ARI's UK exposure is in retail assets, which include outlet centers and retail warehouse properties, both of which have typically outperformed traditional retail due to lower occupancy cost and a focus on discounted goods. At present, we are comfortable with ARI's European portfolio, but we recognize that the market has challenges, including heightened recessionary risks from persistent inflation, rising interest rates, and the added burden of increased uncertainty around energy supply given the reliance on Russia. As a result, we will continue to monitor ARI's European portfolio closely and, where possible, be proactive in managing and limiting any asset-specific exposures. With respect to new capital deployment in Europe, the bar has risen significantly given the economic uncertainty coupled with the decline in relative value as compared to the U.S., primarily due to the impact of rising rates and its impact on currency hedging costs. With that, I will turn the call over to Anastasia to review ARI's financial results for the quarter.
spk08: Thank you, Stuart, and good morning, everyone. REI reported another stable quarter of financial results in Q3, with distributable earnings prior to the realized gain on investments of $52 million, or $0.37 per share. Gas net income available to common stockholders was $180 million, or $1.27 per share, and diluted net income of $1.13 per share. The progress with our focused loans positively impacted our book value per share this quarter, which, prior to the general CECL allowance and depreciation, increased 6% to $16.12 as compared to $15.19 at the end of the second quarter. This includes $0.38 in net reversals of specific CECL allowance, $0.31 in realized gain from the title acquisition of the brook, and 23 cents in net unrealized gain on our currency and interest hedges, which continue to be beneficial in this volatile forex climate. As Stuart mentioned, we take several steps to mitigate our foreign currency risk, given that 42% of the loans in our portfolio are secured by properties in Europe. We hedge our exposure on net equity basis for all foreign currency-nominated transactions by entering into forward currency contracts at closing. Forward point impact on forward currency contracts resulted in 1.5 million of realized gains during the quarter, which also positively impacts our distributable earnings. Our portfolio remains well positioned for rising interest rates, as 98% of our loans are floating rate. And as of quarter end, all of our US and UK floating rate loans were in excess of their respective floors. An additional increase of 50 basis points in the US and the UK and Europe would lead to an incremental $0.043 per share, respectively, of net interest income. With respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity. We ended the quarter with $361 million of total liquidity. which was a combination of cash and undrawn credit capacity on our existing facilities and $1.1 billion of unencumbered loan assets. Our debt-to-equity ratio at quarter end decreased to 2.8 times. Turning to our CECL allowance for the quarter, as Stuart mentioned, we had several positive developments in connection with our focus loans. During the quarter, $53 million specific CECL allowance was reversed on our Miami Design District loan, as the collateral which secures the loan is under contract to be sold in the near term, at a higher value than the carrying value of the loan pre-reversal. In addition, REI's general CECL allowance decreased by $2.6 million, primarily due to portfolio seasoning and the previously mentioned sale of the unfunded commitments on our loan, secured with a mixed-use asset in London. This was partially offset by one new loan origination and a more adverse macroeconomic outlook. And with that, I would like to open the line for questions. Operator, please go ahead.
spk07: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Doug Harder with Credit Suisse. You may proceed.
spk02: Thanks. I'm hoping you could talk about your, you know, kind of how you're envisioning kind of the coming months, quarters playing out in terms of, you know, the level of liquidity you expect to hold and capital deployment into new loans. And, you know, I guess also along that, would you consider kind of various parts of the capital structure given the valuation you mentioned at the beginning of the call?
spk01: Yeah, thanks, Doug. Look, I think as I indicated in my remarks, I think, you know, from the lens of continuing to generate earnings that comfortably support the dividend, I think the portfolio is at that level right now, given sort of what we know on our side vis-a-vis the future funding requirements, as well as some expected repayments. We're certainly still in the market looking at transactions, but I would say at a high level biased more towards liquidity and keeping powder dry versus feeling the need to be you know, fully invested at any one point in time. We still look at things. We still underwrite things. We will still come across things that fit from a portfolio perspective. But I, you know, I would be biased towards keeping excess dry powder and deal flow to be pretty muted between now and the end of the year. To the latter part of your question, We certainly look at all parts of the capital structure on a daily basis, frequent dialogue both internally and with external advisors about opportunities to do something in the capital structure. We've got a share repurchase plan in place with plenty of capacity. But again, I think in a period of uncertainty, for lack of a better phrase, I think biased at this point towards marshalling capital, keeping dry powder unless things get to a level where they're just too compelling not to do anything given potential ROE from deploying the capital.
spk02: Thanks.
spk01: And then...
spk02: You had a page in your slide deck that showed you don't have a lot of final maturities kind of in the next year or two. But can you just talk about kind of how you expect your borrowers to be able to – the impact of refinancing given the much higher rates that they would kind of be facing today?
spk01: Yeah, look, I think obviously very situations dependent – In those situations to date, despite higher costs where people have achieved or made progress on business plan, we're certainly getting paid off. There's still capital available to people to pay us off. But conversely, we've had other situations, which has existed, by the way, for our entire 14-year history where people, either due to wanting to make more progress in a business plan or a choppy financing market, there might be situations where things get extended in exchange for additional subordinate capital, either in the form of MES, PREF equity, or common equity coming into the deal. And in those situations where people are willing to add more economic support to a transaction. We're certainly willing to consider extending our loan to the extent we feel like we continue to be well protected. I think a lot of, ultimately a lot of what plays out will depend on how right or wrong the forecasts are. Obviously the forecast right now by many assume rates coming down fairly significantly in the latter part of next year. I think it remains to be seen whether that comes to fruition or not.
spk07: Thank you.
spk01: Sure.
spk07: Thank you. One moment for questions. Our next question comes from Stephen Laws with Raymond James. You may proceed. Hi, good morning.
spk05: Good morning, Steve. Hi, Stuart. First, I want to start, you mentioned a higher hurdle to clear, I think, with how you phrased it as far as deploying capital. I think that was in your Europe comments. I'm guessing it applies across the board, just kind of given the comments around liquidity. But maybe how do you think about Europe versus the U.S. as far as new investments with where they are in the respective cycles, or maybe even needs to be bifurcated even further to the U.K. versus continental Europe? And How do you think about the relative attractiveness of each market right now?
spk01: Yes, it's a great question. And yes, you could certainly assume my high level comment around Europe being a higher bar applies to the US as well as I take my response to Doug sort of reaffirmed. Look, I think as we look at the world, right, there was a period of time, call it early coming out of the pandemic through much of 21 where As you think about lending and underwriting deals for sponsorship, real estate risk, confidence in business plan, et cetera, there was an economic pickup or return pickup to doing things in Europe, both in terms of, call it like-for-like achievable return on the loans we were making post-financing, as well as a positive pickup when hedging back to the US, just given interest rate differentials, that has obviously disappeared given interest rate moves and the strength of the dollar. As we think about Europe versus the US, and obviously we spend a lot of time talking about it from a macro perspective, I think high level While Europe is suffering from high inflation as well, interestingly enough, if you look at the underlying components of that inflation, most of what's driving inflation in Europe is energy and food. So it's fairly targeted, fairly specific, and one could argue that as new supplies are generated, as alternative sources are created, there's a chance to bring that inflation down perhaps more quickly than in the U.S., where the areas of inflation in the U.S. are more diversified and in many respects are more driven by the service sectors than the good sectors, which are a little bit harder to get a handle on. That being said, I think looking over the next couple of quarters, I'd say in our mind there's a little bit more concern over the European economies than there are in the U.S. economies, and as a result, I would say all things being equal, bias towards doing things in the U.S. versus doing things in Europe. I think if you want to get more granular vis-a-vis the U.K. and other parts of Western Europe, while certainly the – political machinations in the UK have been somewhat interesting over the last three months, to say the least. I think it does speak to a system that is very transparent, addressing what they need to address, unclear when they get to the finish line, but as one who's been over in Europe twice in the last six weeks, There is still a lot of dry powder looking at the UK. There's still a lot of dry powder looking at other parts of Europe. The strength of the dollar in many respects has attracted more capital to look at those markets. So the markets seem to be functioning. We're a little bit more cautious just given where the economies are right now, given the fact that Europe represents 40% of our portfolio. And that's sort of a, you know, A long-winded way of saying there's a high bar for all deals that we look at right now, but on par, we're more biased towards trying to find things in the U.S. versus Europe.
spk05: I appreciate the color on that, Stuart, and the additional discussion in the deck. Anastasia, I have one follow-up on the Miami assets. I think $15 million of the specific reserve is remaining, and I think you commented that that asset is under contract and expected to close maybe 4Q, or maybe it was just soon. When we do see that close, will we see the remaining specific reserve run through distributable earnings as a realized loss, or is the accounting going to be different given the situation?
spk08: Thank you. Yes, I think the remainder of the reserve that you currently see on the books is probably a good indication for the realized loss that we expect to realize once the asset sale closes.
spk01: But just – that's the technical answer, but just to be, you know, back to my comment, Stephen, you know, we will – potentially maintain some additional economics in the deal that while we'll be realizing the loss, you know, I would say there's an optimistic view that we may claw back more of those economics over time.
spk05: Great. Okay. Appreciate the comments this morning. Take care.
spk07: Thank you. One moment for questions. Our next question comes from Jade Romani with KBW. You may proceed.
spk03: Hey, how's it going? Thanks for taking the questions. On the Miami Design District loan, what's the size of the new loan?
spk01: You know, we're not, you know, we'll announce it when the deal is done, but, you know, if you think about value, you know, we'll be a fairly conservative LTV and, you know, the loan will be, plus or minus $100 million to $125 million based on rough purchase price.
spk03: Okay. Thanks very much. On 111 West 57th Street, can you give some details around number of unsold units, what the revised maturity date is, and if there's been any recent contracts over the last, say, six months?
spk01: Sure, high level, the building still has more than 50% to be sold. It's a 60-unit building, so you could do the math. There have been, if you look at the last six months, there's been plus or minus a handful of units put under contract. The maturity date of the new loan, Off the top of my head, I think it's late 24, but I'll get it for you before the call is over. And I would say high-level foot traffic remains healthy. Volatility in the capital markets overall is not a positive thing. Those units under contract continuing to close I think are a positive as they create more life around the asset. So we're continuing to grind through it, and the maturity date on the new loan is September of next year, so September of 23.
spk03: That's the initial maturity, and there's extension options? Yes. Okay, because it seems unlikely that there'd be 30 units, or maybe there's more unsold units than that to be sold by September of next year.
spk01: Actually, I might have just misspoke. The actual maturity date is – that's what I thought. It's 9-24. I was off by a bit.
spk03: Oh, September 24. Okay, great. And I believe – do you view the moves that were made as a de-risking of the position because now you're in the first mortgage and you also received 50% financing from the two money center banks, thereby sort of validating the investment case?
spk01: A couple of things. Partial, you know, I think a de-risking, you know, I think it puts us more partial de-risking. I think the de-risking is really as you think about the way dollars flow on units being sold and sort of what gets paid back over time. Obviously, the senior position is still in the priority position, but it'll allow us to start paying off hopefully some of the bottom parts of the structure a little sooner. And yeah, 50% LTV, given that the original senior lender was looking for an exit and had certain rights, we were able to craft something at the senior level that worked a little bit better for the project on a go-forward basis.
spk03: The London office loan, what's the update there since it missed maturity in October?
spk01: Yeah, there is a mezzanine lender subordinate to our position, which was intentional given that we originally created the whole loan and then sold a subordinate position to the mezzanine lender. High level, we believe there is a path towards getting us refinanced out. And if for whatever reason that didn't come to fruition, we'd force the sale of the asset, and we believe we are well protected in an asset sale. But at this point, the expectation is that with the providing a little bit more time, we'll end up getting refinanced out.
spk03: Just thinking about near-term loan maturities in 2023, there's a few that jump out. One of your peers had some risk rating downgrades on the office side. So, for example, there's a Chicago office loan. with a January maturity. How are you generally thinking about the loans that are coming up for maturity in 2023?
spk01: Yeah, you should assume there's been dialogue with the borrowers already. In some situations, business plan has been achieved and there's a clear path to repayment. In other situations, as I alluded, I think, to Doug Carter, active dialogue around Tad Piper-Trading time for additional capital coming in subordinate to us. Tad Piper-Trading time for additional capital coming in subordinate to us, but in everything. Tad Piper-Trading time for additional capital coming in subordinate to us, but in everything that presents as a near term maturity comfortable with our path to either get repaid or. Tad Piper-Trading time for additional capital coming in subordinate to us, but in everything that presents as a near term maturity comfortable with our path to either get repaid or. Tad Piper-Trading time for additional capital coming in subordinate to us, but in everything that presents as a near term maturity comfortable with our path to either get repaid or. Tad Piper-Trading time for additional capital coming in subordinate to us, but in everything that presents as a near term maturity comfortable with our path to either get repaid or to get our leverage decreased through additional capital such that. from an accounting perspective, obviously no additional reserves or asset-specific reserves were taken.
spk03: And lastly, the commentary around the dividend, was that to signal maintenance of the current dividend policy and that with the rising rate environment, current liquidity, the positive moves in asset management, that earnings would exceed the dividend?
spk01: It was meant to indicate that we see a path towards comfortably covering the dividend going forward. Thank you. Thanks, Jay.
spk07: Thank you. One moment for questions. The next question comes from Steve Delaney with J&P Securities. You may proceed.
spk00: Thanks. Good morning, everyone. So, Stuart, if I had seen your report come out last night and you had said, resolved one of brooklyn or miami that would have been a fantastic out i don't know how you pulled off two in one quarter but uh you ought to buy a lottery ticket while you're while you're on a roll here so congratulations okay on the brooklyn property now um so i mean you are now in an equity position right and will all the financing be third party or are you going to need to provide some financing on it as well?
spk01: All the financing will be third party. We will put, per the financing, we will put additional equity into the project, like you would in any loan where there's a balance between financing and equity. That being said, there are some very, very early stage discussions around potentially bringing in someone to partner with us on the equity side. I don't want to bank on that yet, but while we like the risk of the investment, we think multifamily in Brooklyn works all day long. We recognize that ARI is not an equity vehicle at the end of the day, so we're just trying to think through the right mix of equity exposure and investment upside. But as of this point, we feel pretty comfortable with the way the deal is structured and what we're creating in Brooklyn.
spk00: Great. And in Miami, you do not have a future lending obligation as part of that transaction?
spk01: We're providing, call it market seller financing right so someone's buying the deal from us we are providing you know market-based seller financing which i indicated to jade would be you know 100 to 125 million dollars based on where things shake out and then beyond that it'll be a structured financing so like in anything we do where someone's buying something to create uh you know new assets there'll be an upfront funding and then there'll be future fundings, but it will all be within that $100 to $125 million envelope in total.
spk00: Great. And that's first lien, obviously, on that particular property. And on West 57th, it sounds like a situation where, you know, the project was structurally messed up and you simply, you put more dollars on the table, but you went from a MEZ position to a first lien position, a senior position. Is that the way to view that?
spk01: Yeah, look, our last dollar of risk has not changed, but to sort of the best way to structure the top was for us and the bank that we worked with to take the top, and we are very comfortable with the money we've put in at the top, and obviously we continue to be comfortable with the money we've got at the bottom, but nothing changed as you think about the last dollar of risk.
spk00: Got it. Okay, thanks for the comments.
spk01: Sure.
spk07: Thank you. One moment for questions. Our next question comes from Rick Shane with JP Morgan. You may proceed.
spk06: Hey, guys. Thanks for taking my question. And we really appreciate the disclosure on Europe, both in terms of the assets and in terms of the hedging. It's really helpful. I did want to talk about one thing. Stuart, you have indicated sort of taking a conservative approach approach in terms of deploying capital, maintaining liquidity. Obviously, there have been allowance reductions due to the successful resolution of a couple of loans, but I am curious how we should be thinking about the general reserve in the context of your more cautious or more conservative outlook.
spk01: Look, I would say from a macroeconomic perspective, I would say the inputs we put into our CECL reserve were as pessimistic as we've been from a macroeconomic perspective. The countervailing force to that from a CECL perspective is the influence of portfolio seasoning on the CECL reserve. So you've got factors going in both directions, and I will refrain from making any broader editorial comments on CECL in general. But I know, you know, I'm going to assume that based on your question, seems odd to see a general CECL reserve going down in a period where collectively we're all feeling a little bit more uncertain about where the economy is headed. Our CECL assumptions agree with you that we're more uncertain about where the economy is headed. but there are also factors in the CECL analysis related to portfolio seasoning that allow less wiggle room. I don't know, Anastasia, if there's anything you'd add to that.
spk08: Yeah, that's correct. And the reversal, as Stuart mentioned, is primarily the impact of our seasoning portfolio, and the unfunded piece was also impacted by the sale of our unfunded commitment on a loan secured by a mixed-use property in London. But generally, yes, we did. include the recessionary sentiment in our macroeconomic outlook. Go ahead, sorry.
spk06: Oh, go ahead. Sorry, I didn't mean to interrupt. Please go ahead.
spk08: So ultimately, I was just echoing Stuart's comments that our macroeconomic projections included the recessionary sentiment in the market.
spk06: Got it. Okay, that's helpful. And Stuart, yes? Good reading between the lines and interesting response in terms of how you're thinking about it as well. And I can sense a little bit of maybe not frustration, but cognitive dissonance in terms of how you're thinking about it also.
spk02: Yep.
spk01: Fair enough. I think you're right. I think it's, you know, it is what it is. But, you know, I think, look, from our perspective, And I think we've evidenced always being willing to be on our front foot with respect to asset-specific reserves. You know, CECL is somewhat of a mechanical exercise. Most of our efforts each quarter are around specific assets, specific questions, and trying to make sure we are on our front foot with respect to necessary asset-specific reserves, because I think that is the most meaningful disclosure vis-à-vis the portfolio.
spk06: No, I agree. And, again, the track record, and particularly what we've seen in the last quarter, really validates that as well.
spk01: Great. Thank you.
spk07: Thank you. And as a reminder, to ask a question, you will need to press star 1-1 on your telephone. Our next question comes from Eric Hagan with BTIG. You may proceed.
spk04: Hey, thanks. Good morning. Some of the disclosure around Steinway was really helpful, but what would you say is the upside more broadly for the assets in New York City? Like fundamentally, are there catalysts specific to New York that investors can maybe think about? And then the second question is around the structure of the secured funding. Just a general kind of question, does the lender have the ability to change the financing terms of the haircut in the middle of the loan term or just maybe the conditions that you think about that could drive lenders to tighten terms and how much tightening of terms you've seen up to this point. Thank you.
spk01: Yeah, working backwards, Eric. Yeah, on any specific repurchase facility, there's sort of a regular way dialogue between us and the banks with respect to haircuts, spreads, etc. I think obviously the experience during the pandemic is the best indication of how those things play out. I think we have always managed those relationships pretty comfortably. I think we've also always maintained a roster of relationships which allows us to move assets around as need be. I would say our experience has more been driven by what a particular banks appetite may be for specific types of assets given their overall portfolio as opposed to any specific asset. So to date, not a lot taking place. I think views on certain banks being more conservative or less conservative are being expressed through indicative terms on new deals, but nothing of a material nature going on with respect to any change in financing terms broadly. I'm curious just to clarify your question on the New York assets. Was that broadly on New York? Was it on specific types of assets? I guess I just helped clarify the question for me.
spk04: Sure. It was really more broad just to think about the catalysts for that portfolio specifically. And if there's any specific catalysts for New York that investors can think about relative to the other Catalyst in my tribe, the portfolio. Thanks.
spk01: Yeah, look, I think what we're seeing, and look, we look at the existing portfolio of ARI deals for New York. We look at many things away from what would work for ARI in New York, and then we also have real estate opportunity funds that are looking at New York from an equity perspective. I think, look, I think the macro drivers of New York continue to be what they've always been, whether it be liquidity, attractiveness to capital, global financial center, 24-hour city, et cetera, which cuts across a lot of property types. I think more specifically to the condo market, to the extent that 111 West 57th Street was the genesis of the question. I think ultimately that is an asset geared towards ultra high net worth client. There is certainly more than enough wealth globally with respect to what we're trying to sell. I think the volatility and uncertainty in the capital markets is you know, doesn't help. And I would say a lessening of that volatility or a, you know, more confidence that inflation has peaked and is heading down would be viewed favorably. But ultimately, our sense is the asset shows well, foot traffic is a good thing as more people like what they're seeing. more international exposure coming out of the pandemic has been a good thing. I think we're moving towards a point where in most condo projects, you know, you create momentum, and I think the number of units closing both this year as well as what will close between now and the end of the year continues to be viewed favorably by the marketplace as it creates more life at the asset. And the final piece of the puzzle was the completion of the amenity package at the property, which was displayed to plus or minus 150 brokers last week to overwhelmingly favorable reviews. So the asset itself is in as good a position as it's been in from a physical real estate perspective. I think, you know, I think, velocity of sales would benefit from, you know, at some point less volatility in the overall capital markets.
spk04: Yeah, that's helpful. Did you guys say that you sold a loan participation in one of the UK loans? Can you talk about that and what the terms of that were?
spk01: We sold a future funding obligation. So we made a loan on a sizable mixed use project in central London and two plus years ago, give or take. It was always expected that at some point in the future we would sell a piece of the future funding obligation. It's effectively a construction project that's taking place over multiple years. We were plus or minus $300 million funded into our position. We did two things. We financed in a typical financing, our existing outstanding position, and then we sold $328 million of the future funding obligation, so effectively removing a liquidity need for us in the future and also removing, you know, further growth of our UK portfolio into the future.
spk04: That's helpful.
spk07: Thank you guys very much.
spk01: Sure.
spk07: Thank you, and I'm not showing any further questions. I'll call back over to Mr. Rothstein for any further remarks.
spk01: Thank you, Operator, and thanks to all of you that participated this morning. And as always, Hillary, myself, Anastasia are available if people have questions. Post the call. Thanks, everybody.
spk07: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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