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spk01: Good day and welcome to the Q4 2022 Apollo Commercial Real Estate Finance, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I'd like to remind everyone that today's call and webcast 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 GAAP 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.apollocraft.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. Please go ahead, sir.
spk04: Thank you, operator, and good morning and thank you to those of us joining us on the Apollo Commercial Real Estate Finance fourth quarter 2022 earnings call. I am joined today by Scott Wiener, our chief investment officer, and Anastasia Maranova, our chief financial officer. The consistent credit performance of ARI's floating rate portfolio of loans produced strong operating results in 2022 as evidenced by substantial earnings growth and a well-covered common stock dividend. Our team originated over $3.7 billion of loans and grew the portfolio to $8.7 billion at year end. Notably, despite some lingering misperception, 93% of ARI's portfolio now consists of first mortgage positions. Beyond originations, ARI achieved significant milestones with respect to several focus assets, freeing up underperforming capital and redeploying it into newly originated loans underwritten to generate attractive risk-adjusted returns. Proactive steps also were taken to strengthen ARI's balance sheet, expanding and diversifying financing sources and extending the term on several facilities. As a result of these efforts, ARI continued to demonstrate the resilience and earnings power of the company's business model. 2023 begins with the real estate markets continuing to face headwinds from elevated interest rates and concern over both additional Fed rate increases and the potential for an economic recession. While historically, inflation has been a positive for in-place real estate, in the short term, the rise in rates is leading to a repricing of assets. Sellers and buyers, as well as lenders, continue to reconcile their views on value, and as a result, transaction volume has slowed. Importantly for ARI, given the robust level of loans originated over the past two years, ARI's portfolio remains well positioned to continue generating distributable earnings in excess of the common stock dividend, while taking a measured and opportunistic approach with respect to new capital deployment. As always, ARI is fortunate to benefit from Apollo's broader commercial real estate debt platform, which originated over $13 billion of loan transactions last year. Apollo remains active originating and closing transactions in the marketplace, which enables ARI to access real-time market data and information as we assess the use of the company's investable capital. While transaction velocity has slowed, the market remains open for assets to be refinanced, as evidenced by the $2.2 billion of repayments received in ARI's loan portfolio over the past year. ARI's repayments were across varied property types and geographies. In most instances, properties were refinanced as they achieved business plans. However, there were also situations in which other capital sources were willing to provide financing in order to put capital to work at attractive attachment points and yield, and ARI was the beneficiary of a full or partial pay down. Notably, ARI had several office loans either fully or partially repay totaling approximately $650 million during 2022. And as of year end, office exposure had decreased from a high of nearly 30% at the end of 2020 to just 19% of the current portfolio. That exposure was further reduced after quarter end as ARI received full repayment of a loan on a London office building and partial repayment on loans secured by office buildings in Chicago. What we have seen with respect to repayments is the importance of working with both well-capitalized, high-quality institutional sponsors and subordinate lenders. In many instances, borrowers recognize the long-term value inherent in their underlying properties and have the patience and capital to support properties until business plans are achieved and markets normalized. Shifting to the portfolio, at year end, ARI had 61 loans totaling $8.7 billion. Near quarter end, we sold the properties underlying ARI's Miami Design District loan to a sponsorship group with significant experience in the neighborhood, which freed up approximately $180 million of capital. As part of the transaction, ARI provided 60% loan-to-cost seller financing. There has also been positive operating performance at ARI's hotel in Washington, D.C. While we are still considering selling the asset, the hotel produced positive cash flow in 2022 and is rapidly approaching pre-pandemic performance levels. Work remains on the other focus assets. However, we are extremely pleased with the positive outcomes achieved this past year, which we believe highlights the strength of Apollo's asset management capabilities in addition to the ongoing focus and commitment to the preservation of capital. Turning to the right side of the balance sheet, as we look ahead to 2023, ARI's only corporate maturity is the $230 million of convertible notes coming due during the fourth quarter of the year. Similar to the convertible notes that matured in 2022, ARI will closely monitor the credit capital markets as the year progresses, and consider a capital markets transaction to repay the notes, while also at all times being prepared to repay the notes using existing liquidity if needed. Before I turn the call over to Anastasia, it is worth highlighting that ARI's current quarterly dividend run rate of $0.35 per share, the company is paying common stockholders roughly a 12% annualized yield coming off a quarter in which ARI earned 48 cents per share while trading at approximately 75% of book value with earnings supported by a portfolio consisting of 98% floating rate, predominantly senior loans. With that, I will turn the call over to Anastasia to review ARI's financial results for the quarter.
spk00: Thank you, Stuart, and good morning, everyone. ARI produced strong financial results in Q4. with distributable earnings prior to the realized losses in impairment and investment of $69.3 million, or $0.48 per share. Gap net loss available to common stockholders was $7 million, or $0.06 per diluted share of common stock. ARISE portfolio remains well-positioned for rising interest rates, as 98% of our loans are floating rate. And as of quarter end, all our U.S. and European floating rate loans were in excess of their respective floors. An additional increase of 50 basis points in the global floating rate interest benchmarks would lead to approximately a $0.09 per share increase in net interest income. Portfolio credit also remains strong, with no additions to the list of focus assets during the quarter, and a resolution of one of the largest focus assets, the Miami Design District loan, as mentioned by Stewart. The resolution of this asset freed up non-performing capital, a portion of which was immediately redeployed into seller financing. As of December 31, the weighted average risk rating of REI's loan portfolio was 3, with less than 3% of the loans in the portfolio based on principal outstanding. Risk rated 4 or 5. During the quarter, there was an increase in the general CECL allowance of $5.7 million, bringing it to 36 basis points of the loan portfolio's amortized cost basis as of December 31. The increase is attributable to a more conservative macro outlook with respect to the economy, partially offset by the impact of portfolio seasoning. Also, during the quarter, REI reported 36.5 million increase in the specific CECL allowance for the mezzanine loan secured by the for sale residential project located at 111 West 57th Street. In accordance with ARI methodology for loans that are individually assessed for specific CECL allowance, we compare the fair value of the underlying collateral to the carrying value of the loan. The value of the underlying collateral is typically determined using a cash flow forecast model. In the instance of 111 West 57th Street, cash outflows in the model comprise the expected remaining costs to complete the project, including carry costs and borings. Capital inflows are based upon net sales proceeds, driven by assumptions around the timing and pricing of future unit sales, which take into account a number of factors, including prior sales activity, recent and expected closings, overall market activity, and current buyer interest, as indicated by food traffic and broker inquiry. For accounting purposes, we then calculate the net present value, or NPV, of expected cash flows and compare the NPV to the current carrying value of RRI's outstanding loans. In our most recent analysis, the forecast model still shows that the nominal projected cash flows, free any NPV discounting, exceed RRI's fully funded basis, net of the prior $30 million reserves. However, given the more conservative view on timing and net sales proceeds on an NPV basis, we took the additional 36.5 million reserves. It is worth noting that to the extent our forecast is realized and ARI's current basis proves to be covered by nominal proceeds, any incremental reserves taken based upon the discounted cash flow analysis will be reversed over time. We will continue to provide updates on the project as there may be future differences in the nominal and discounted NPV view of the asset value, which may potentially result in further adjustments to the specific CECL reserve in the future. It is worth noting that since the refinancing of the Steinway capital structure in August of 2022, net proceeds from the sale of seven units have reduced the balance of ARI senior loan by $111 million. and the principal balance of the senior loan as of year-end was $277 million. From this point, proceeds from the future unit sales will be used to pay down the senior loan and the MSB loan on a pro rata basis, until both are fully repaid. Currently, there are two penthouse units in the tower and one unit in the historical Steinway building, expected to close within the next few months. Proceeds from the sale of these three units will further decrease the outstanding principal balance of REI's senior loan and mezzanine B loan by approximately $75 million. With respect to realized events, during the fourth quarter, REI recorded a $24.9 million realized loss in connection with the Miami Design District loan and the loan secured by a hotel property in Atlanta, Georgia. There was no impact to the book value for the year, as the realized loss represented the write-off of previous allowances. With respect to the Atlanta loan, we opted to realize the loss in the current quarter due to certain tax structure and considerations. Despite the additional reserves and realized losses taken during the quarter, area as book value per share, excluding general CISO reserves and depreciation, was $15.78 at year end. an increase of two percent over last year book value in 2022 benefited from the company's earnings in excess of the common stock dividend and the gain realized on the acquisition of the multi-family development in brooklyn known as the brook with respect to ari's borings arise in compliance with all covenants and continue to maintain strong liquidity ari ended the quarter with 232 million of total liquidity which was a combination of cash and undrawn credit capacity on existing facilities, and $1 billion of unencumbered loan assets. ERA's debt-to-equity ratio at year-end remained constant compared to the previous quarter end at 2.8. We're currently in discussions with several financial institutions to further expand and diversify our borrowing relationships. And with that, we would like to open the line for questions. Operator, please go ahead.
spk01: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment while we compile the Q&A roster. Today's first question will come from the line of Steven Delaney with JMP Securities. Your line is open.
spk03: Thanks. Good morning, everyone, and congratulations on the nice close to 2022 in terms of resolutions and strong distributable EPS. Starting with the EPS, $0.48 before realized losses, nice increase over $0.37 in the prior quarter. Can you comment if there were any one-time items or possibly significant prepayment fees that were included in the $0.48 and possibly quantify that for us as far as anything that we shouldn't expect to see again in the first quarter of this year? Thank you.
spk04: Yeah, the simple answer is no, Steve. It's really the benefit of obviously rising interest rates, but then also putting to work capital that heretofore has not been earning a return.
spk03: Yeah. So the more capital invested and you've got the lot more tailwind.
spk04: Yep.
spk03: Okay. Well, we were $0.40, and it sounds like we've got to step that up. but that's for another time. Stuart, the loan portfolio, you grew, I guess, about 10% in 2022 to 8.7%. Do you expect net growth in 2023 given your liquidity position, or how should we think about it? Just reinvest and a flat portfolio, or could it possibly grow? Thanks.
spk04: I think about it a couple ways, and I don't want to I don't want to miss the point that there's not a lot we have to do in order to keep paying the dividend, and I think that allows us to be somewhat more selective and thoughtful as we think about deploying capital. I think the increase in the portfolio overall was obviously very healthy originations during the first half of last year, but also As I alluded to in my opening remarks, I think it's sort of somewhat misappreciated that we've transferred, not all, but just about all of the portfolio from MES to first mortgage. And obviously, first mortgages levered versus MES loans unlevered just naturally leads to a larger portfolio size. It's an inexact science. We certainly are open for business and expect keeping our capital working, but I think from a portfolio sizing perspective, you know, modestly up just as we continue to get paid back on some things and redeploy capital. We've got some excess liquidity going into the year, but probably inside of what took place last year vis-a-vis portfolio growth.
spk03: Thanks for the color. Appreciate it.
spk01: Thank you. One moment for our next question. And that will come from the line of Stephen Laws with Raymond James. Your line is open.
spk06: Hi, good morning. Hey, Stuart. Hey. You know, we'd love to get some comments. You know, you guys focus more on Europe than most of your peers, and I was kind of looking at your breakout and your deck. You know... UK and Europe is about half of your office exposure. It's about 70% of your retail exposure is UK. Can you maybe talk about pros and cons or what you're seeing over there that maybe we don't hear as much being talked about as far as those exposures?
spk04: Yeah, look, at a high level, let me start by saying, right, as you think about what we've done over the last 12 to 18 months vis-a-vis moving ratings around or taking asset-specific allowances, et cetera. Notable that none of that activity has been in Europe, which should be certainly an indication that from our perspective, we believe the portfolio is performing well. I think at a high level on the asset side, Our strategy in Europe has really been twofold. We've found some situations where we've provided loans against things that are longer-term leased and envisioned for redevelopment renovation at some point in the future but feel perfectly comfortable with existing credit today. And then we've obviously done the traditional, you know, call it office renovation work. bridge type of lending. We've had assets that are performed quite well and we've been paid off because of that and we've had other situations where there was sub-debt or other capital subordinate to us that as business plan was being achieved sought to take us out. I guess the high level commentary on office in Europe in general is that Office usage in Europe hasn't gone through the fits and starts that we've seen in the U.S. with respect to getting people back to the office. People are back to the office in Europe. People are using office space. You have similar concerns in Europe to the U.S. vis-a-vis concerns over recession, not recession, though I would say the concerns in Europe are a little bit more concentrated, i.e. it's tied to, for the most part, energy prices. So I would say on the office side in Europe, we've stuck to major cities and have generally been quite pleased with the performance of the portfolio. On the retail side of things, the strategy in Europe has been more, I'd say, non-traditional retail in that we've done outlet center in Europe, and then we've also done... call it a bigger box concept. Both concepts, which historically have proven to be much more recession resilient in terms of their performance, given the price points at which the tenants are selling goods, I would say performance has been good on a debt yield basis. I think given that it's retail, we were able to strike some pretty attractive terms from our perspective. So as we look at rent levels versus our loan basis, we feel very comfortable from a debt yield or cap rate perspective if you think about it at that level. But generally speaking, happy with the portfolio in Europe. As you've heard me say on prior calls, a little bit more selective with Europe today, A, because of where Europe's gotten in terms of sizing of our overall portfolio, and I'm not sure we envision it being any bigger in terms of percentage, and then also given shifts in currency rates and the impacts of interest rate differentials, it is no longer as economically advantageous to do deals in Europe and then pick up economics when hedging back But at a high level, we feel good about the portfolio. And I'd also say from a liquidity perspective, similar to the U.S., slowdown in the market overall, but still plenty of capital available for deals that are ready to be sold or deals that are ripe for a refinancing.
spk06: Great. Thanks for those comments, Stuart. Those are helpful. My follow-up question, I want to follow up on Steve's initial question. You know, you guys have transitioned the portfolio to almost entirely senior loans. And, you know, when I look at a leverage table versus peers, you know, 2.8 is a little below most, maybe in the mid or high threes on a total leverage basis. You know, maybe it's not near term, but kind of as you think medium term, on an all senior loan portfolio, kind of where do you envision, you know, leverage moving? Do you think it gets to the mid threes or kind of how does that look on a median firm basis and how much does it depend on kind of your financing mix as you move forward?
spk04: Yeah, I think it gets roughly speaking to three, maybe a tick ahead of three on sort of an asset specific basis. If you think about an all first loan portfolio, right, we eliminated, $350 million of corporate leverage with respect to the convertible notes last year. I think it's certainly reasonable to expect we'll eliminate $230 million of corporate leverage with the convertible notes maturing in the fourth quarter of this year. And unless there was a way to attractively replace that corporate leverage at some point, I think you run the bucket, call it three to three, one turns of leverage. And maybe at some point, if there was attractive corporate level financing, you might move, you know, towards the mid threes. But I think for now, you know, as we project out, it's sort of three, 3.1 times. Right. Which makes sense if you think about, which makes sense if you think about most of our repo borrowings or call it 70 to 75% advance rates.
spk06: Yep, yep. Great. Thanks, Stuart.
spk01: Sure. Thank you. One moment for our next question. We'll come from the line of Jade Romani with KBW. Your line is open.
spk05: Thank you very much. Regarding the credit, can you hear me?
spk04: Yep, here you're fine.
spk05: Okay. Thank you. Regarding the broader credit outlook, can you just make any comments on what you're expecting and related to that, you know, away from the focus list assets which you've spent some time talking about, you know, the ones with specific CECL reserves and also on which there's been some disclosure, maybe talk about, If you're expecting any further deterioration in performance elsewhere, I noticed two loans moved to risk-rated four. Maybe if you could just comment on the credit outlook.
spk04: Yeah, look, at a high level, you know, I guess I'd say from an accounting perspective, if I was truly worried about something today, accounting doesn't let me decide when I want to reflect my concern. I would need to reflect it now. So I would, you know, I think you should interpret our disclosure and what we've done from a rating perspective as indicative of what we're truly losing sleep over today. I think, you know, I think at a high level of We've managed through a lot of, you know, what we would describe as the focus assets still work to be done on some of them. Um, you know, I think we, like everybody else are trying to figure out where the economy is ultimately headed. I would say. The market generally speaking is functioning in the, to the extent that if people need more time to execute their business plans, I think they recognize that they don't get. more time for free and there are very productive discussions around extensions in exchange for partial pay downs etc but i would say um you know i don't think our credit view has changed a lot over the last quarter or two other than um i think we've gotten paid off on some things that we're happy to have gotten paid off you heard me reference an office building in london Obviously, resolving Miami Design District made sense, but there's no obvious warning lights other than beyond what we've addressed previously at this point. Okay, thanks.
spk05: Technical question. On the non-accrual loans, there's $581 million. There's Atlanta, 111 West 57th, Cincinnati. Are there any other loans? Because when I add up the specific CECL reserves, it's around $345 million, and then there's $234 million to get to that $580 million of total non-accrual loans. I think it's probably pieces of 111 West 57th, but are there any other loans that should be included in there in the non-accrual bucket?
spk04: No, that's it, Jay. It's pieces of 111 West 57th, Liberty Center, which is the Ohio asset, and Atlanta. Thanks for that. Sure.
spk05: Looking at upcoming maturities, how are you feeling about those? You know, just going through the disclosure you provide, some of the deals would include the Cincinnati retail loan has a September maturity. I suspect performance there has been improving given the uptick in bricks and mortar retail. Chicago office, not sure about that one, and a few others.
spk04: Yeah, I think, look, I think Liberty Center is definitely performing better. Occupancy levels are up. There's a few things on the edges vis-a-vis adding some greater density vis-a-vis potentially hotel or multifamily that will help as well. But Liberty Center, while it's a maturity, right, the end game on Liberty Center at some point is we sell the asset, right, because we are effectively – the beneficiary of what economics remain. I would say asset is performing better, getting close to the point where perhaps later this year, early next year, a sale could make sense. But I think it's also somewhat dependent on interest rate environment and what financing would be available for a purchaser of the asset, but definitely moving in the right direction. I think on some of the other repayment activity that you mentioned, I would say generally speaking, sitting here today based on our dialogue with the relevant borrowers slash sponsors, I would say there seems to be a reasonable path towards full or partial repayment in those situations, and obviously a partial repayment will be some sort of consensual discussion around incremental time for something that allows us to get to a basis level where we're comfortable remaining in the transaction. And that includes the Chicago office assets that you referenced.
spk05: Okay. Thanks for commenting on that.
spk01: Sure. Thank you. One moment for our next question. Line of Eric Hagan with BTIG. Your line is open.
spk02: Hey, thanks. Good morning. Maybe just following up a little bit more on the reserving and credit. How strong of a connection would you say there is between conditions in the CMBS market, financing markets more generally, and the amount of reserving that you're doing? Like, are there scenarios where the macro could maybe hold up okay, but the capital markets are more dislocated, and how that maybe impacts the amount of reserving you're doing?
spk04: I guess I'd say at a high level and without making it specific about the CMBS market, I think there's plenty of liquidity in the real estate credit environment in general.
spk02: Yeah, okay. And then a separate question here. It's been typical historically for the company to split loans with other lender counterparties, which I think can be a nice way to offer opportunities that you might not otherwise have. The two questions there, I mean, how does the splitting of loans impact any negotiating power in the case of a loan extension or a recapitalization or a modification? Is there more friction in a tougher environment as a result of splitting those loans? And then second, how available will that opportunity be going forward? Is there going to be as much appetite from others to have that, to take on that opportunity to split loans? Thank you.
spk04: Yeah, I guess I'd say at a high level, At a high level, generally, our splitting of loans has actually migrated away from splitting with other parties and more the para-pursue splitting of ARI and other Apollo-affiliated capital. And to the extent we're talking about para-pursue interests, it's generally not a lot of pressure or divergence of opinion vis-a-vis dialogue. Historically, we have done some senior-junior sharing of loans, and obviously in any instance where you're sharing a senior-junior piece or creating senior-junior structures, the inter-creditor agreement is pretty clear in terms of whose rights are what as you work through a situation so I would say today not overly concerned and there's one particular situation that comes to mind which was a sharing of a large loan amongst us and several non-affiliated financial institutions and again pretty consensual and constructive in getting to a point that worked for all three given that everybody held para-pursue interests, and as a result, you need to get to a point where something works for everybody. So, again, I appreciate the question, and, you know, nothing has come up on our radar screen in doing this for 14 years now that leaves us overly concerned about the ability to resolve things.
spk02: Yep. That's helpful. Thank you guys very much.
spk01: Perfect. Thank you. One moment for our next question. And that will come from the line of Rick Shane with JP Morgan. Your line is open.
spk07: Hey, everybody. Thanks for taking my question. Steve Delaney made an important observation in terms of spread income. And frankly, in some ways, the wider spreads are offsetting some of the impact of credit. But when we think about that, to some extent that's been for borrowers so far relatively free because they've enjoyed rate caps on their loans. I'm wondering as we move into an environment where loans are extending and some of those caps are expiring, how you think about that and how you work with your borrowers to mitigate the risk from higher rates that will start to impact them now?
spk04: Good question, Rick. Look, the short answer is there are no extensions without the purchase of a rate cap to cover the remaining term of a loan. I think you highlight an important issue, which is beyond potentially rebalancing the loan balance of a loan, The increased cost of caps is certainly another challenge for owners slash borrowers these days. I would say in certain instances where you've heard me refer to paydowns in exchange for extensions in a consensual fashion, you should assume that when I say paydowns, I am referring to both principal pay down and the purchase of additional caps as necessary. And you can also infer from my comments that at times the capital necessary to do that might not come from the original borrower, but it might actually come from capital that's willing to take a mezzanine piece or a preferred piece in between our original borrower and our senior position.
spk07: Got it. Okay, that's helpful. And again, remember, we're not in the market shopping for caps. Can you give us some context on, you know, take $100 million notional, what a transaction would have cost, what a cap might have cost three years ago and what it would look like versus what it might cost today?
spk04: You know, not exact numbers, but I would say ballpark. hundreds of thousands of dollars versus millions of dollars today. Okay, that's helpful. Thank you, guys.
spk01: Thank you. One moment for our next question. And we do have a follow-up question from Jade Romani with KBW. Your line is open.
spk05: Thank you very much. With the stock down around 5% today, and the strong distributable earnings, ex-credit items, it seems the market's not overly concerned or shouldn't be overly concerned about dividend coverage. That's not really the issue. However, book value did decline by around 2.5%, and there was a further reserve on 111 West 57th. That loan still seems to be, I would assume, the major issue that the market is concerned about. So can you just remind us, I know that you made some initial comments in the opening about the methodology there, but what's the last dollar basis? You know, the junior mezzanine A position and the senior mezzanine position, they're very large, both north of $190 million. So ignoring the junior mezzanine B position, which now has been written down to $15.5 million, What's the last dollar basis or what's a way to think about and get confidence with the approach to coverage on that position?
spk04: You're talking about the senior loan and the senior meds position, Jade?
spk05: I'm just on a first junior meds position is $255 million. So that's also quite large. The three of those sum to $720.8 million. Um, I mean, it would seem that the junior mezzanine B position of 15.5 million, you know, there's a good chance that faces further reserves, but could there also be reserves on the junior mezzanine A position? You know, what would be the last dollar basis or price per square foot or some, some metric that you think about?
spk04: I mean, the way we think about it, Jade, if you look at the senior loan and the senior mezz position, um, net of sort of what's taken place to date already. You're talking about from ARI's perspective, you're talking about $430 million of basis. If you think about the fact that we actually have a partner in the senior loan with another financial institution, you're talking about 570 million dollars of value in the remaining units to get those two pieces fully paid off okay and how many remaining units are there like something in the range of 40 or a little less than 40. okay and they're going for around 20 million a piece i mean it you can have units at 10 million you can have units at 50 million just tell me what you and your family want to move into, and we'll find the right unit for you.
spk05: But what do you think? I mean, an average, just to qualify that basis, of $575 million.
spk04: Let's put it this way. I would say at $575 million of value, you are inside 60% on a loan-to-net sellout basis, including selling costs, et cetera.
spk05: Okay. Okay. So how much risk is there to the junior mezzanine? So it seems like you're suggesting that there's the $575 million, that's your senior position plus the other senior.
spk04: Plus the full senior mortgage. It's our mortgage, right? It's the full mortgage, which is shared, plus our senior mezz position.
spk05: Okay. The $575 is... ARI's senior loan and senior mezzanine position plus the other partner's senior loan. Yes. So then the risk that you are suggesting is in the junior mezzanine A and B positions. Those collectively total $270.6 million. I mean, would it be fair to haircut those two positions?
spk04: I think what Anastasia was trying to explain, and I don't want to be cavalier about this, The way we see the world now, even if you assume certain haircuts to get assets sold or units sold on a nominal basis, we still think everything is covered. From an accounting perspective, which requires a DCF analysis, not just a nominal basis, you could have a situation where there is some incremental allowance in the future. based on pacing, not based on any changed view of what units will sell for, but then you'll actually recover that allowance when units are sold and you actually receive the nominal pricing.
spk05: Yeah, I mean, we could expect there could be, you know, a 20-year life to recovering, but I mean, I think it makes sense to take a haircut.
spk04: It's all based on your view of timing.
spk05: I agree. Okay.
spk04: Okay.
spk05: Great. Well, I appreciate the color. Thanks so much. Sure.
spk01: Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back to Mr. Rothstein for any closing remarks.
spk04: No comments at this point. Thanks, Operator.
spk01: Thank you all for participating. This concludes today's program. You may now disconnect.
spk00: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1.
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