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4/30/2025
Good day and welcome to Blackstone Mortgage Trust first quarter 2025 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.
Good morning and welcome everyone to Blackstone Mortgage Trust first quarter 2025 Earnings Conference Call. I am joined today by Tim Johnson, Global Head of Breds, Katie Keenan, Chief Executive Officer, Tony Morrone, Chief Financial Officer, and Austin Peña, Executive Vice President of Investments. This morning, we filed our 10Q and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. I'd like to remind everyone that today's call may include forward-looking statements which are subject to risks, uncertainties, and other factors outside of the company's control. Actual results may differ materially. For discussion of some of the risks that could affect results, please see the risk factor section of our most recent 10K. We do not undertake any duty to update forward-looking statements. We will also refer to certain non-GAP measures on this call, and for reconciliations, you should refer to the press release in 10Q. This audio cast is copyrighted material Blackstone Mortgage Trust and may not be duplicated without our consent. For the first quarter, we reported a GapNet loss of effectively zero and distributable earnings of 17 cents per share. Distributable earnings prior to charge-offs were 42 cents per share. A few weeks ago, paid a dividend of 47 cents per share with respect to the first quarter. Please let me know if you have any questions following today's call, and with that, I'll turn things over to Katie.
Thanks, Tim. Amidst a dynamic backdrop, the XMT's first quarter results demonstrate continued progress across every aspect of our business, building on the momentum from last quarter. As outlined then, the XMT's forward trajectory is propelled by three key drivers. One, portfolio turnover through repayments and redeployment into high-quality new credit opportunities. Two, resolution of impaired loans, and three, optimization of our balance sheet. All play a critical role in unlocking future earnings potential and further positioning BXMT for performance, and we took a proactive approach on each this quarter, putting the company on very strong footing in the current environment. Starting on the macro, while tariff policy has created greater uncertainty and a slowdown could weigh on the broader market over time, we believe that real estate is well positioned to outperform. In contrast to other sectors, real estate already went through its cycle, with values resetting lower and many challenge deals addressed. We're still in the recovery phase, far from the pitfalls of over leverage or overbuilding that proceeded prior real estate downturn. Though tariffs may pressure goods prices, other key components of inflation are coming down. And critically, real estate cash flows over time should benefit from diminished supply, which is already at historically low levels and likely to fall even further. Real estate capital markets have functioned well through this period. Capital is broadly available, and while spreads have widened marginally, overall cost of capital is still around 40% lower than peak. Many banks, insurance companies, and investors are under allocated to real estate, underpinning continued lending demand. The public markets, which react most quickly, have already started to digest, with spreads settling down and several CMBS and RMBS deals pricing into healthy demands in the last week. And on the private side, new financings continue to attract robust bidding pools, both on the direct lending and back leverage side. Notably, for well positioned investors, volatility creates opportunity. And here at BXMT, we are capitalizing. In a turbulent market, we provide certainty and can grow our share while benefiting from the incrementally better risk adjusted returns available as the market retrenches. And our large scale global origination footprint gives us a tremendous advantage in identifying the most compelling investment opportunities as the market evolves. We took a big step forward in portfolio turnover in Q1, the first of our key priorities, with $1.8 billion of repayments, including 86% in office, and $1.6 billion of new investments, our highest level of quarterly originations in more than two years. We have another $2 billion closed or in closing so far in Q2. Our investment strategy in this environment has been clear. Minimize credit risk while leveraging our platform and cost of capital advantages to generate target returns. And we are executing. Looking at the total 3.5 billion of 2025 activity, 90% is backed by multifamily properties or cross collateralized industrial portfolios. These deals set up to an attractive levered return of 900 basis points over base rates on average with well protected credit profiles. 64% average LTV on today's reset values, benefiting from a combination of diversification, premier sponsorship and robust underlying fundamentals. Our capital allocation strategy has translated to improved credit composition on our overall asset base. Our portfolio is 95% performing today, up from 88% of the trough. US office exposure, once nearly 40%, is down to just 21% today, while multifamily, industrial and self storage are now nearly half. QQ closings will further this trend. We are well diversified geographically with over 40% of our investments abroad. And while macro volatility may slow repayment some, we have consistently seen that our short duration, high quality assets show continued liquidity, even in markets far more dislocated than this one. Our repayments averaged over $750 million per quarter through the slowest period of the rate hike cycle. We're harvesting differentiated opportunities from across our broad sourcing channel, in the US, Europe, Canada and Australia. And this quarter, we also commenced our net lease investment strategy, acquiring 27 properties. The profile of these deals is highly attractive, concentrated in defensive businesses in the essential use and service retail sectors, with average 18 year lease terms, 2% rent bonds, three times in place EBITDA coverage and 7 to 8% cap rates. Net lease is a naturally resilient sector in periods of volatility and complimentary with our broader lending business, creating another cylinder for enhancing and diversifying our overall portfolio positioning. Turning to our second key driver, resolution of impaired assets. We had another quarter of strong forward progress. With $400 million of resolutions closed this quarter, we've now addressed 1.5 billion of impaired assets in the last six months, at a premium to aggregate carrying value. This relentless approach to asset management has reduced our impaired loan balance by 58% from the peak and recaptured a significant tailwind to earnings power. And over this period, resolutions have collectively contributed to a $64 million reversal in our Cecil Reserve, providing incremental book value support and contributing to a positive economic shareholder return. Our impaired loan balance is now at its lowest level in seven quarters. And while we are mindful of potential macro driven risks on the horizon, we also see incremental resolutions ahead, including one closed just this week and another under hard contract for sale. Finally, turning to the further optimization of our balance sheet. We're in great shape today. We ended the quarter with $1.6 billion of liquidity and 3.4 times DE, our lowest leverage level in three years. We have 14 credit facility lenders with market leading structure and pricing earned via our strong track record as a borrower over time. Our robust balance sheet is a critical advantage in this environment, providing both staying power and firepower to propel investment activity and asset management execution. Over the past two quarters, we have moved nimbly and aggressively to execute on our capital markets priorities, turning out our corporate debt in November and closing a $1 billion reinvesting CLO in March. With deep capital markets expertise and a talented dedicated team, we can act quickly when market conditions are favorable, a competitive advantage, particularly in a world of quickly shifting crosswinds. As a result, we benefit today from a well-structured balance sheet, which is nearly 70% non-mark to market, a laddered corporate debt structure with no material maturities until 2027, and substantial dry powder. Our banks remain highly supportive of our investment activity, continuing to quote and close deals constructively throughout the last month. Today, many of our largest banks are seeking to grow their lending books, having collected substantial repayments in the last several quarters. Credit facility financing to large scale platforms like BXMT is one of their best ways to rebuild exposure and earnings power efficiently and at optimal capital charges, with the confidence in the strong credit performance they've seen in this product cycle. As a result, our house lenders are looking to grow and new lenders are looking to enter the space, together yielding a strong competitive dynamic for our borrowing activity. To conclude, BXMT has demonstrated the strength of its cycle tested business model several times over in just the last five years. Today, BXMT's competitive advantages and balance sheet positioning once again set us up well for a wide range of macro scenarios. Scale, insight, capitalization, portfolio, and quality of platform always drive value, but never more so than in periods of change. And here at Blackstone, we have shown time and again, the ability to outperform in volatility and emerge stronger. Thank you, and with that, I will turn it over to Tony.
Excuse me. Thank you, Katie, and good morning, everyone. In the first quarter, BXMT reported a gap net loss of effectively zero and distributable earnings for DE of 17 cents per share. DE prior to charge-offs, which excludes a realized loss from an impaired loan resolution, was 42 cents per share. As Katie outlined, BXMT continues to make significant progress on the key initiatives that we expect will drive the long-term earnings potential of our platform as we move past near-term headwinds. I will highlight two of these headwinds in the context of this quarter's results. The first is the timing mismatch between when repayments are received and capital is subsequently redeployed into new investments. In the first quarter, we collected $1.8 billion of repayments, which on average closed two weeks into the quarter, while $1.7 billion of loan fundings were closed an average of eight weeks into the quarter. As a result, our average portfolio size was nearly $1 billion lower than our 331 balance, which had a notable impact on DE for the quarter. With $2 billion of loans closed during closing so far in the second quarter, we are firmly playing offense and expect the timing headwinds we face this quarter will shift to tailwinds and two-queue, all else equal. The second earnings headwind is the drag from the remaining capital invested in our non-earning assets. We continue to demonstrate significant momentum with impaired loan resolutions, completing $1.5 billion over the past two quarters at a premium to our aggregate carrying values. Q1 resolutions of $406 million included one new cash flowing REO asset and two loan restructurings, where we received nearly $50 million of incremental cash equity from our borrowers and had significantly reset the basis of our A notes at well-protected levels. As we execute our resolution strategies, we expect to see immediate positive impacts on earnings as we begin to recognize income from these previously non-earning assets with even greater long-term upside potential as capital is redeployed into new investments at target returns over time. Our impaired loans today represent $970 million, or 5% of the portfolio, and remained burdened by $0.07 of interest expense in Q1. Bending on credit, trends in our portfolio remained positive in Q1, with performance improving to 95% from 93% quarter over quarter, driven by limited new credit migration and continued execution of loan resolutions. We upgraded seven loans this quarter, including two risk-graded four office loans, where our credit position was enhanced by a large paydown in one and continued business plan execution supporting property cash flow on the other. By contrast, we downgraded only three loans this quarter, including one new impairment of an Atlanta office loan. We foreclosed on one previously impaired loan in Q1, bringing the acquisition date fair value of our REO portfolio to $691 million across eight assets. Our REO assets stand at just 3% of our overall portfolio and generated $7 million of DE in Q1, with further potential upside in the future. Our CESA Reserve ended the quarter at $754 million, or .9% of our portfolio, both stable versus 1231. Our General Reserve increased modestly by $33 million quarter over quarter due to strong new origination activity, which was largely offset by the net decline in our asset-specific reserve. In addition, we continue to reduce our basis in impaired loans, with $19 million of cash interest received this quarter and applied as cost recovery proceeds, reflecting the 76% of impaired loans that remain current on contractual interest payments. Book value ended the quarter at $21.42 per share, which benefited from accretive impaired loan resolutions and $32 million of common stock repurchase at a discount to book value, bringing total repurchases to over $60 million since establishing our program in 2024. Considering the change in book value and our 47-cent per share dividend, the XMT delivered a positive economic return for the second consecutive quarter. Turning to the balance sheet, we continue to maintain best in class liabilities, which we believe are particularly valuable in more turbulent market conditions. In a market environment where investors naturally have concerns around rate volatility, capital markets volatility, and foreign currency volatility, we benefit from rate and duration matched financing, with no capital markets, -to-market provisions, and a capital structure that is fully hedged against foreign exchange rates. The XMT achieved several balance sheet milestones this quarter. We issued a $1 billion CLO, our fifth transaction, but the first with a 30-month reinvestment feature. We believe this feature will be particularly valuable as we continue to collect repayments of our existing loans and actively deploy capital in today's attractive environment. We closed the CLO in late March, locking in well-priced, non-recourse, -to-market financing, and enhancing the optionality and diversity of our capital structure. With this new CLO, our -to-equity ratio declined to 3.4 times its lowest level in three years. Taken together with our strong liquidity of $1.6 billion, BXMT has the flexibility to navigate volatility and capitalize on attractive investment opportunities across real estate credit markets globally. Considering our Q1 results and position going forward, we believe BXMT is a compelling investment in this uncertain market environment with our strong balance sheet, ample dry powder, and an origination platform informed by the insights and experience of Blackstone's global real estate business. This dynamic has driven the outperformance of our stock year to date, which continues to offer attractive value with a trading price approximately 10% below book value and a 10% dividend yield. Thank you for joining today's call. I will now ask the operator to open the call to questions.
Thank you. As a reminder, please press star 1 to ask a question. We ask you limit yourself to one question and one follow-up question to allow as many callers to join the queue as possible. We'll take our first question from Rick Shane with JPMorgan.
Hey, guys. Thanks for taking my questions this morning. Look, I think, you know, you talked about the migration of, I believe it was three, four rated loans back to three this quarter. When we think about the four book, how many loans are currently in that category? What's the value? And when you think about the path on fours, what's sort of the historical transition from four to five versus four to three? Because I think four is sort of the in-between zone and they ultimately wind up in one bucket or the other.
Sure. So, you know, I think as we look at our four book, our main focus, as we've said in the past, is really on the non-modified four rated office. The rest of it, you know, we've either modified loans with very significant capital in the door. Or to your question, a lot of fours have really just persisted as fours for a long time. I would say in general, we're pretty conservative with our risk ratings. And as a result, we have fours that we moved to that category in COVID over time. And they've sort of continued performing, continued ticking along. We don't see material upticks in performance. And so we keep them as fours, but we also don't see material down ticks in performance. I'd say on the non-modified four rated office, that's around 500 million. It's down significantly from a year ago, it was a billion. It was higher than that before. And that's really where we focus our attention. It's where we're focused on mods. We have mods ongoing and conversations on a couple of those deals that should move them into the sort of post-modification category. There's others that, you know, we'll see which way they go. But it's really a very diminishing universe of assets that I think are truly in that sort of cusp zone.
Got it, okay, thank you. And again, I'm assuming that with the sort of a non-sequitur, but given the 30 month reinvestment period on the new CLO and favorable terms, that's going to allow you to really be forward leaning in terms of originations from here.
Yeah, I mean, look, I think we have many, many options for a creative financing of our new originations. We have great relationships with our lenders. They're very active in wanting to lend to us. We also now have the reinvesting CLO. So I think what it really gives us is optionality, which as you know, we love diversification. We love optionality in terms of how we finance our new originations. And I think that having one more tool, one more avenue of optionality is always a good thing. But I think, say generally, you know, we see very good liquidity, very good sort of capital markets access for various ways to finance the new originations that we're pursuing.
Got it, and at the risk of annoying my peers who are listening, I'm assuming given the timing of that transaction, it probably couldn't be recreated as easily today in this volatile environment as it was at the end of March.
Yeah, I mean, we're obviously really pleased to have gotten it done. I think it's a testament to how quickly we moved, you know, seeing the market was open, the sort of capacity and strength of our team, getting that deal up and down, you know, very quickly, as early as we could in the first quarter. You know, the market's settling down, so I won't be surprised to see the CLO market sort of return over the coming months if the trajectory continues. But, you know, certainly looking at it today, we're very happy to have executed that transaction, and I think it'll be a good one for our CLO investors as well.
Great, thank you for taking all my questions.
We'll take our next question from Tom Catharwood with BTIG.
Thank you, and good morning, everybody. It was great to see Originations ramping. Obviously, repayments in one queue were boosted by the spiral refinancing. When you look out over the next three quarters of 2025 and assuming repayments moderate, how much do you think you can grow your loan book from here?
Yeah, so I mean, I think that it's interesting. The pace of repayments clearly impacted by overall capital markets' liquidity, but I would tell you, again, as we sit today, the pace of repayments is continuing. We've had $200 million so far this quarter, nothing that we anticipated repaying has fallen out. We continue to have repayments tracking. So, you know, I think in terms of the premise, you know, if we think about, you know, whether things have changed materially, it doesn't feel that way today. That being said, you know, I think that we're under-invested today, as Tony mentioned. We have $2 billion in closing. You know, we'll continue to look for great new investment opportunities. And I think that in terms of growth, you know, we're looking to grow the portfolio from here up towards that $20 billion number we talked about last quarter. And, you know, we'll obviously be very mindful around credit, as we mentioned on the scripts. That's our primary focus, obviously, but we're seeing a lot of opportunities.
I appreciate that. And maybe beyond the $2 billion that's in closing that you mentioned, Katie, how has your origination pipeline shifted since tariff announcements, either in terms of volume or sector or geography?
Yeah, I can take that, Tom, so Austin. You know, I think really it hasn't shifted per se. I think our strategy has been consistent, you know, as alluded to or as mentioned earlier, you know, 90% of our activity is in profiles that we think are quite resilient, multifamily, cross portfolios of industrial and storage. You know, these are the types of investments that we wanted to do going back several months. And I think, you know, that still remains the case today. And if you look at our pipeline, that's also very, very similar in profile. So, you know, I think our strategy remains consistent. I think in a more uncertain world, that strategy feels even better. But I don't think, you know, it's
really changed very much over the last few weeks. Got it, appreciate the answers. Thanks, everyone.
We'll take our next question from Jade Ramani with KBW.
Thank you very much. First question would be on the repo market. A huge strength for BXMT has been its relationship with credit facility providers. Could you talk to what trends you're seeing with respect to BXMT's own counterparties and its relationships, but then perhaps the broader, you know, market? I suspect that BXMT's wherewithal has continued to demonstrate itself, but there could be some turbulence, you know, with other smaller, less well-capitalized lenders. So if you could comment on any trends you're seeing, that would be helpful. Thank you.
Sure, thanks, Jade, and, you know, appreciate the comments. I definitely, you know, we're really pleased by our relationships with our lenders and how we've seen that through this period especially, and really, you know, throughout the last couple of years. I would tell you that, you know, the dynamic that we've heard from banks around, you know, desire to generally grow their credit facility exposure because of how well it works from their capital charge perspective, because of how well it works and their overall business model. We have not seen any change in that, either, you know, in word or in deed. You know, they're saying the same things and they're doing the same things in terms of quoting deals. You know, we're out to the market constantly with our pipeline. We're constantly getting multiple quotes at competitive levels from different banks. We have new facilities sort of in closing where banks are looking to, you know, grow relationships with us. And I think it is all driven by, certainly our performance and our track record, but also the broader trend towards this being a very high quality product for the banks. You know, I can't speak too much to other people's experiences, but I think that, you know, the large banks like this business, they're looking to expand it. You know, the sort of more medium sized banks are curious about it and looking to get into it. And I think that's going to benefit the space, but I agree with you that sort of how that plays through will be across the spectrum, you know, depending on the strength of the platform, the strength of the performance, you know, in the various, you know, in the various platforms.
Thank you very much. Secondly, you mentioned real estate has already gone through its cycle, but really what we went through was an interest rate shock and then stress in the office sector that had been building, you know, for years, especially post COVID. Hospitality, multifamily and industrial, however, were pretty strong despite the interest rate hikes. We saw operating performance hold up well. So could you comment on those three sectors and what you're seeing there is performance holding up and maybe start with hospitality since that's the most interest rates, I mean, sorry, economically sensitive.
Sure. So I think for sure, you know, as we look across the sectors today and think about areas of potential impact with the macro, I think hospitality is probably the area we're most focused on. It obviously resets most quickly, you know, most correlated with overall economic activity. Now, I think the good news for us is that our hospitality exposure has come down quite a lot. Our US hospitality is only .5% of the portfolio as a whole. We've got a couple of big cross portfolios in Europe that are doing very well. But I think that, you know, it's something that we're watching. You know, the various, you know, you have TransAn, you have, you know, leisure versus business. You obviously have currency impacts. The weaker dollar, you know, could result in some change in, you know, we've seen some negative trends in terms of international inbound travel in recent days, but you could also see the dollar having some impact of that over time. So I think it's a little too soon to tell, but I agree that, you know, hospitality is one of the sectors that we're watching. You know, I think on the multifamily side, the performance there has been very resilient and the big story there was obviously the wave of supply that, you know, came in over the last year. That supply is really rolling over and, you know, the first quarter, you know, across the sunbelt where a lot of the focus has been, we saw positive net absorption. Obviously, new starts are way down, but deliveries are coming down. And so, you know, I think multifamily is kind of moving in the right direction from that perspective. And we, you know, we have a lot of conviction in investing in that asset class, obviously, as you can see from our pipeline. You know, and then I think on the industrial side, you know, we continue to see that as relatively resilient. I mean, I think there's going to be some markets that are very oriented towards international trade, maybe on the West Coast. We have basically no exposure there that see a bit of an impact, but there's also a balance in that, you know, there's going to be probably more reshoring, more inventory building up. And I think generally, again, you know, the long-term tailwinds in terms of e-commerce and goods sort of sitting in warehouses versus sitting in stores, you know, that really continues. So, you know, I think that you can see from how we're investing, you know, how we're thinking about, you know, what sectors we're interested in and where we see the risks and opportunities going forward. And it really comes down to, I think what Austin said, like multifamily and we like diversification, we like resilience asset classes. NetLease certainly falls in that category, and that's sort of where our perspective sits today.
Thank you very much.
We'll take our next question from Harsh Chimnani with Green Street.
Thank you. One of the things we've sort of seen post these status announcements is that construction costs, you know, value-add business plan costs are increasing for real estate owners. And so, have you seen a shift at all post 1Q in the types of borrowers that are coming to you for new loans and the type of business plans that they're trying to look at? Are they, I guess,
less
heavy transitional than
1Q?
Yeah, absolutely. I'll let Austin take that one.
Yeah, I think Harsh, you know, really, we started to see that even before the last few weeks. You know, when we look at the profile of the investment we're making today, certainly much more light, light value-add business plans, less, you know, sort of transition or heavy transition. And I think it really is reflective of, you know, the challenges, you know, of already seeing those cost pressures. I think that that could potentially increase. And I think, as Katie said, we could expect to see supply come down even more. And so, it's really a continuation of that trend more than anything else.
Yeah, and I think I would also add, you know, as we think about how we want to invest, you know, we're taking shorter duration business plan risk, less business plan risk. The way the market has moved, we're able to, you know, invest at our target returns, fundamentally in less transitional, you know, assets. I think part of that is our view. And I think part of it is the fact that, you know, construction is really hard to pencil today. You know, to your point, value-add business plans with a lot of construction-oriented aspect to it, also hard to pencil. That's been the case for a long time. And certainly the tariffs are going to make that more so, but the broader impact is often mentioned. And as, you know, as I talked about in the call, it's really just going to be even less new supply, which fundamentally makes the value of existing assets that we lend on better.
Great. Maybe one more from me. Have you, it sounds like loan volume and also repayment volumes haven't really been slowing down post that announcement. Maybe how have the spreads on new loans changed for you? And is it perhaps fair to say that you're looking at your financing costs at this time, given the reinvestment option in the CLOs that stay constant, but the spread on your new loans have been widening a little bit post-1Q?
Yeah, I would say,
you know, during the first quarter spreads, we did start to see at the beginning of the quarter pre-volatility tightening in both the asset side lending spreads as well as where we, our cost of financing and where we borrow. You know, I think that's obviously changed over the last few weeks. You know, spreads are probably out on the asset side, 10 to 20 basis points, but similarly on the financing side. And so they tend to be more, you know, pretty correlated. I think the advantage of our platform, as Katie mentioned, having 14 different credit facility providers, having the advantage of having the reinvesting CLO, we have a lot of options on the financing side. And so, you know, that really gives us an opportunity. We think capture some opportunities in this environment. I think being a stable and certain provider of capital to our borrowers is a really powerful tool in an environment like this. And having diversified sources of capital and strong liquidity, you know, I think that
creates a lot of opportunities for us. Go ahead. Thank you.
We'll take our next question from Don Fendetti with Wells Fargo.
Yes, your international exposure, it gives around 41%. Are you sort of capped or not capped? Is that likely to just sort of hang out in that level, maybe come down? And then how are you feeling about credit internationally versus the U.S. just given all the tariff movements?
Yeah, so, you know, I think that our ability to harness investment opportunities globally is one of our biggest strengths. And, you know, I think that, you know, it's something that we've seen create great opportunities for relative value over time. It's certainly something that others in the space are trying to do. We have the advantage of having been deeply present in Europe for over a decade. We have a fantastic team there, great borrow relationships. And I think we've seen that, again, in periods of volatility and in periods of stability, the ability to look around and find the most compelling investment opportunities anywhere in the world allows us to create a better portfolio from a risk-adjusted return perspective. We feel very good about our European exposure. It's primarily crossed industrial portfolios, you know, some crossed hotel portfolios that I mentioned are doing well, some multifamily. You know, the lending market in Europe tends to be quite stable, relatively low leverage. We are able to benefit from a cost of capital advantage in Europe that allows us to create, I would say, better risk-adjusted returns. And the overall competitive dynamic in Europe is different than the U.S. The CNBS market is much less active. There are many fewer platforms like ours that can achieve the types of investments that we can, and therefore, you know, we're able to create some excess return. So, you know, we feel good about that portfolio. We also think it provides, you know, a nice balance and a period of uncertainty. And, you know, we've seen over the history of the business that it's always been around 35 to 40 percent. We have no particular cap, but I think the relative size of the markets and the activity have sort of proved out over time that that's generally where it sits. I doubt it's going to change materially in either direction.
Thank
you. We'll take our
next question from Chris Muller with Citizens Capital Markets.
Hey, guys. Thanks for taking the questions. So, it's nice to see the CLO market coming back to life in the first quarter, but Katie touched on this a little bit. But I guess how has the recent market volatility impacted new CLO issuance? And I guess the meat of my question is, could we see another CLO from you guys at some point this year if the market does accommodate?
Yeah, I think it's a great question. So, you know, in the first weeks of the market volatility, you know, there were some CLOs that had sort of been out there that got put on the shelf, you know, as was the case across, you know, CNBS market. But what we've seen in the recent weeks is really a settling down. There's capital in the market, I would say, if anything. There's, you know, as many buyers as sellers at wider spreads in this market, perhaps more buyers. So, I wouldn't be surprised if we saw CLOs coming back into the market. I think there are a couple that were privately placed, you know, earlier this week, maybe. So, you know, we will, I think the CLO market will, you know, will settle out just as we're seeing the CNBS market settle out. There were a couple of conduit deals that came last week that priced quite well. And so, I think, again, there's plenty of capital in that market. It needs to adjust to slightly wider spreads as the overall lending market has. But those markets are outperforming relative to, you know, corporates and other parts of the credit market. And I think it's a testament to the desire for capital to come in. And yeah, the CLO market settles out in it, and it looks like a good option for us. You know, the origination volumes that we're creating are obviously, you know, very conducive to potentially coming back to the CLO market later in the year. We like that as a potential capital source, and, you know, we'll certainly be monitoring it.
Yeah, that's very helpful. And then I guess on the remaining impaired loans, is it fair to assume that you continue resolving those at a similar pace? And I know they can be chunky, so maybe asked a little bit differently. Do you think you guys will resolve the bulk of that bucket at some point through 2025, or could some of that slip to 26?
Well, it's certainly our goal, and they are chunky, and they all have their own story. I mean, we've certainly resolved a lot of them, and sort of naturally as the universe shrinks, you know, each individual one, the timing has more impact. But as I mentioned on the call, you know, we already have resolved another asset this week. We have one under hard contract for closing. We have a clear path for a couple of others. So we certainly see the continued trajectory as positive in terms of resolving the existing impaired assets. And that's a huge focus of our asset management team. So, you know, we're optimistic. We're, you know, cracking through that as one of our highest priorities. And, you know, there will be some idiosyncrasies in timing, you know, one quarter versus another. But I think we should continue to see the benefit of the resolution processes that we have in flight, you know, coming through.
Got it. Very helpful. Thanks for taking the questions.
Thank you. We'll take our final question from Doug Harder with UBS.
Thanks. I'm hoping you could put a little context about around the general reserve increase in the first quarter. You know, does that reflect the conditions as of 3-31, or does that, you know, are you able to incorporate any of the kind of early April volatility into that? I
would say we come up with these reserves in April, right, as we're closing the books. It is as of 3-31. But the way we come up with our reserve, for one, it's not meant to capture short-term volatility. It's not a -to-market standard where you would expect any change in capital markets would necessarily come through. So we're looking at the long-term credit risk profile. And we think that the way we've ratcheted the risk profile in our general reserve as of 3-31 basically reflects the market. We'll see how things play through for the rest of the second quarter. And if that needed a slight notch up or if things move in a different direction, a slight notch down. But I wouldn't expect any dramatic change in the second quarter as a result of some of the things we've seen in April.
Great. Appreciate that. And then, is there, can you give us any context around the size of the two loans, you know, the loan that you resolved this week and the one you have under hard contract? And then, I guess, just further on loan resolutions, how are you thinking about the pace of resolving, you know, and sort of moving on from the, you know, the REOs, you know, and kind of moving back into loans? Or, you know, could those be longer-term holds?
Sure. So, you know, as far as the resolutions we have in closing, it's around $200 million in total, the two that I mentioned. In terms of the REO, you know, the assets we took REO, we generally made that decision because we see the opportunity to implement a business plan and improve value over time. And that's not necessarily an overnight thing. So, you know, we're, it's 3% of the portfolio or 3% of our overall, you know, business, not a huge number. They're not necessarily assets that are going to require a lot of capex. In a lot of cases, it's more pursuing a business plan, change of use, something like that. And we're going to, we're going to focus on driving return over time as opposed to sort of a quick thing. That being said, they're all different. I mean, I think we have a couple that we might be able to exit pretty soon. I think we have others that we may, you know, have for longer. But I think the overarching theme is it's a small part of the portfolio. There are actually a number of assets there that have pretty good cash flow and potential cash flow trajectory. You know, we recognize that cash flow as it comes through in earnings. And I think we're just focused on maximizing value over time for those assets, you know, however long that may take. And if we see an opportunity to exit at a good level, obviously we'll take it.
Great. Appreciate that. Thank you.
Thank you. With no additional questions in queue, I will turn the call back over to Mr. Hayes for any additional or closing remarks.
Thank you, Katie, and to everyone joining today's call. Please reach out with any questions.
That will conclude today's call. We appreciate your participation.