Franklin BSP Realty Trust, Inc.

the equity pool is right now, I would point you to a transaction that we are currently selling in the Sunbelt from one of our managed equity vehicles. The property was marketed by a national brokerage firm, and we received 324 executed confidentiality agreements, conducted 46 site tours, and ultimately received 47 written offers, 21 of which were inside of a five cap. That is a staggering amount of participants looking to put equity to work and reminds me of late 2009 and early 2010 in terms of demand meaningfully outweighing supply coming out of a financial shock. Let me be clear, there is no lack of demand for stabilized multifamily assets. What the market is experiencing is a lack of willing sellers. Moving on to slide 13, during the quarter we originated 18 loans at a weighted average spread of 318 basis points. We continue to see solid opportunities this quarter, and the forward pipeline is strong. The transactions we are adding to our portfolio offer highly accretive terms with better underlying credit metrics versus loans written over the past several quarters. Our conduit platform was also active in the second quarter, although it generated lower income quarter over quarter. We do expect conduit revenue to contribute to earnings in the coming quarters. We view the conduit as an excellent earnings enhancer in good times, but also as a gain on sale business that can offset core balance sheet losses in more difficult market conditions. SBRT is on a very short list of mortgage REITs that benefit from having this gain on sale business. Slide 14 is a summary of our watch list. We ended the quarter with seven loans on our watch list. Five loans are risk rated four and two loans are risk rated a five. While neither of the five rated loans are in default, nor have ever been in default, given our recent appraisals, it was difficult not to downgrade these two positions from last quarter. Subsequent to quarter end, we had positive updates on several of our watch list loans. The borrower sold a Dallas hospitality asset very close to our basis. We modified a 272 unit Fort Worth multifamily loan, resulting in an additional principal pay down and a new rate cap being purchased. and we came to a verbal agreement with the borrower on our Charlotte, North Carolina multifamily property to pay the loan down and extend the loan further. We expect that extension will be executed shortly. The remaining loans on Watchlist are a portfolio of multifamily assets and various locations in the Sunbelt. This was a $147 million cross-collateralized loan backed by 15 multifamily assets. The loan has been paid down to approximately $102 million through five asset sales, and five of the remaining 10 assets are currently under contract to be sold, with the remaining five assets in various stages of the sale process. We are not accruing interest on a monthly basis on this loan, but we are sweeping all cash and recognizing cash income, or excuse me, recognizing interest income as it's received. A 176-unit apartment community in Fort Worth, Texas, that we have commenced foreclosure proceedings but are in active dialogue with the borrower. The CBD high-rise office building in Denver, Colorado. This is the loan that we took the majority of our specific CECL provision against in the second quarter. We made a significant modification to the loan, collateralized by this office building, and as part of that modification, we obtained a new appraisal for the collateral. The valuation difference between the appraisal and our loan balance drove the increased reserve. The loan has not been in default and has remained current on debt payments. The asset is now on our books at a substantial discount to its original principal value. I personally toured this asset just last week and I'm pleased to report the institutional sponsor has kept the property in very good condition and we will continue to work with them in coming quarters. The final loan on our watch list is a suburban Class A office building in Alpharetta, Georgia. The loan is not in default, and the borrower has contributed millions of dollars of equity to pay down the loan and keep it current. We also have this asset appraised and took a specific reserve to adjust for the value differential. With regard to the rest of our office portfolio, excluding our largest office loan, a triple net lease headquarters and distribution facility, Our pre-2024 originated office exposure has been reduced to only 178 million, or 3.3% of our core portfolio, with our second and third largest office loans having principal repayments in just the last 60 days. In addition, excluding the Denver and Alpharetta office assets, our weighted average in-place debt yield of our pre-2024 originated office portfolio is approximately 13.2%. We will continue to actively work towards zero exposure to pre-2024 originated office loans. Lastly on office, just a quick note on the market and our 2024 originated office loan. That loan is performed exactly as expected with seven properties sold since origination and our original $55.8 million loan participation in FBRT has been paid down to 18.1 million. We could not be happier with the progress so far. Sentiment for office is clearly off the lows. While the realization of losses has likely only just begun, the CMBS market is open for stabilized office buildings with good narratives, and we've begun to see bridge lenders dip their toe back into the sector. In fact, a CRE CLO was just priced last week that had an 8% office contribution. Lender appetite for office credit is opening up again, albeit very, very slowly and only for the right opportunities. Moving to slide 15, we held six foreclosure REO positions at quarter end. These positions are a Portland office property, which we continue to believe is not the right time to exit the asset. A 426-unit apartment community in Cleveland, Ohio. This asset was taken via Mez foreclosure and was one of the resolutions to last quarter's watch list. Our asset management team is onsite regularly, and we have installed the largest property manager in the country to manage day-to-day operations. A 471 unit apartment community in Raleigh, North Carolina. This asset was also taken via foreclosure together with two other multifamily assets in Mooresville, North Carolina and Chapel Hill, North Carolina. We have installed one of the largest property managers in the country to run all three of the North Carolina assets. overseen by our internal equity asset management group. Mooresville is nearing 90% occupancy and should be headed to the market for sale shortly. As for the Raleigh and Chapel Hill assets, I also visited these properties just a few weeks ago. These are very solid assets and good locations. We will take the time needed to improve the assets, stabilize the assets, and look to liquidate them in the future. The Lubbock multifamily property Occupancy is up 30 points in the last 90 days, and our asset management team continues to meaningfully improve the asset. We expect to be in a position to liquidate the asset in the coming quarters. And our last foreclosure REO is our Walgreens portfolio, which Rich and Jerry have already covered, but I will happily reiterate that we only have five locations remaining. I want to add a note regarding our liquidation of the multifamily assets we've taken back as REO. While I previously mentioned the mountain of equity looking for multifamily acquisitions, there is a meaningful pricing gap between stabilized assets and non-stabilized assets. We firmly believe that taking over an asset, stabilizing it, and liquidating it will result in higher recovery value than a loan liquidation or an as-is sale of a non-stabilized asset. In addition, we continue to be overall bullish on the next few years in the multifamily market. With rates hopefully declining and new supply burning off, owning some real estate right now isn't necessarily a bad thing. Lastly, contrary to prevailing view, not all multifamily loans originated in late 21 and early 22 are problematic. Property location, vintage, and loan structure influence loan performance, asset liquidity, and value. Year to date, we have been successfully repaid on approximately $521 million in multifamily loans. of which 462 million, or almost 90%, were originated in Q3 and Q4 of 2021 or Q1 of 2022. While we acknowledge challenges exist within this vintage, it is inaccurate to generalize about the entire vintage other than to collectively agree it was a recent peak valuation for the multifamily sector. As we look at the company's overall positioning, we believe FBRT will emerge as a market leader once this repricing cycle at hand plays out. Current industry challenges will likely persist for the next several quarters, and our asset management team is working to resolve loans and REO in a manner that will ultimately maximize recovery value for shareholders. To conclude, we will continue to lead with transparency, and we will provide updates as we make progress on final loan and REO resolutions. The current opportunity in CRE credit has been and continues to be compelling, and we are excited by what this vintage of new loans adds to our portfolio. And with that, I would like to turn it back to the operator to begin the Q&A session.

Thank you, and we will now begin the question and answer session. If you would like to ask a question, please press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And at this time, we'll pause momentarily for the first question. Our first question today will come from Matthew Erdner with Jones Trading. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Jerry, the first one's for you. Can you kind of repeat what happened with the Walgreens and that kind of $25 million that's going to hit next quarter?