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spk09: Good morning and welcome to the KKR Real Estate Finance Trust Inc. Third Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead.
spk05: Thanks, operator, and welcome to the KKR Real Estate Finance Trust earnings call for the third quarter of 2022. As the operator mentioned, this is Jack Switala. Today, I'm joined on the call by our CEO, Matt Salem, our president and COO, Patrick Mattson, and our CFO, Kendra Deschis. I would like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the investor relations portion of our website. This call will also contain certain forward-looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10-Q for cautionary factors related to these statements. Before I turn the call over to Matt, I'll provide a brief recap of our results. For the third quarter of 2022, we reported gap net income of negative $48.4 million, or negative 70 cents per diluted share. Distributable earnings this quarter were $34.4 million, or 50 cents per share. The rising interest rate environment served as the primary driver behind our strong distributable earnings. supporting a dividend coverage ratio of over 1.1 times relative to our 43 cent per share Q3 dividend. Book value per share as of September 30th, 2022 was $18.28, a decline of 5.6% quarter over quarter. This was driven by an increase in our CECL allowance by $1.16 per share to $1.66 per share. This increase was primarily driven by higher reserves on watch list loans. Finally, in September, we paid a cash dividend of 43 cents per common share with respect to the third quarter. And based on yesterday's closing price, the dividend reflects an annualized yield of 10.2%. With that, I'd now like to turn the call over to Matt.
spk07: Thank you, Jack. Good morning, everyone. Thank you for joining us today. KRF generated another quarter of strong distributable earnings of 50 cents per share, equating to greater than 1.1 times dividend coverage ratio. Our earnings continue to benefit from rising interest rates, and we expect further increases in base rates to serve as a tailwind for KRF's earnings heading into the fourth quarter and 2023. To put this in context, we have stated in our supplement that 100 basis point increase in base rates from 3.04% at quarter end would result in an increase of 21 cents in annualized distributable earnings per share based on our 930 portfolio, with all else being equal. The forward rate curve is projecting more than 100 basis points of increases with 55 basis points already realized to date. The macro environment has continued to deteriorate, which has caused a corresponding negative impact to commercial real estate values. This was further accelerated by the September Federal Reserve meeting. Real estate values are declining in real time as the market digests the higher cost of capital combined with potential slowing demand and a recession. KKR's integrated real estate business, which manages over $60 billion of AUM, affords us a robust view of the current operating environment. While valuations are changing, fundamentals across most of our portfolio remain strong and are characterized by high occupancy and rent growth. Nearly half of our portfolio is secured by multifamily, And another 19% is in the high growth segments of industrial and life science. Over 70% of our originations are secured, of our 2022 originations, are secured by either multifamily or industrial properties. However, 27% of our portfolio is secured by office properties. And this sector has the added risk of uncertainty around long-term tenant demand given work-from-home preferences. Over the past quarter, we have witnessed a significant decrease in liquidity in the office sector, as well as capitulation by owners. In response to this, we have materially increased our CECL reserve and added three loans to our watch list for a total of five loans. In addition, we now have two loans, which are risk-rated of five, and have increased our dialogue with those sponsors. We will use our extensive experience across our KKR platform to optimize these resolutions. I'll conclude my comments by discussing our market positioning. KREF was built for times like this. Our conservative lending strategy is concentrated in growth property types. and geographies, and owned by institutional investors. Our portfolio is financed with best-in-class, non-mark-to-market facilities. Since the beginning of the year, we have been transitioning to a more defensive posture. To highlight a number of these steps we have taken, we raised approximately $345 million of net primary proceeds through common and preferred equity offerings as well as our atm program we increased our revolver to 610 million dollars and extended its term to five years and added nearly two and a half billion dollars of non-marked market financing year to date and we currently stand at 70 76 percent of total outstanding secured financings that leaves us today with over 900 million of liquidity which does not include 370 million of unlevered senior loans on the balance sheet. While this market has a favorable lending environment, as we stated on the last call, we will continue to operate KRF with lower leverage and higher liquidity and anticipate only originating loans to match repayments. With that, I'll turn the call over to Patrick.
spk10: Thank you, Matt. Good morning, everyone. I'll focus today on our efforts on the capital and liquidity front and provide an update around our CECL reserve and watch list loans. As discussed in the past, creating a diversified liability structure built on non-mark to market financing has been a top priority for KREF. And I'm pleased to note that since the beginning of Q3 last year, we have added over 4 billion of non-mark to market financing capacity. including two CRE CLOs, five bespoke facilities, an upsize of our secure term loan B, and an extension and upsize to our corporate revolver. Specifically in the third quarter, with the help of our partners in KKR Capital Markets, we entered into a new $266 million bespoke nodal note financing facility in connection with one of our loan originations. And we completed a second upsize on one of our existing match term financing facilities from $750 million to $1 billion. Subsequent to quarter end, we closed a new $125 million match term non-recourse facility. Importantly, as of quarter end, 76% of financing remained fully non-mark-to-market. The resilient financing we developed much of which has been done on a bespoke basis, buffers us during times of capital markets volatility. In addition to the fully non-mark-to-market features associated with these structures, we've also achieved an attractive cost of capital relative to other means of financing that can be sourced today. As the CLO market has cooled over the past nine months, and as spreads in the CLO market have widened, our mix of alternative sources of financing away from some of the more public capital market sources, remains a major differentiator for KREF. In terms of capital management strategy, KREF is preserving flexibility in operating at the lower end of our target leverage range, given the broader market backdrop. Our debt-to-equity ratio was 1.9 times, and total leverage ratio was 3.6 times as of quarter end. and we expect to maintain total leverage in the mid-threes over the coming quarters. Our approach to managing the balance sheet allowed us to start the fourth quarter with a record level of liquidity in excess of $900 million. Additionally, at quarter end, KREF had $370 million in unencumbered senior loans on the balance sheet. Turning to our CECL reserves and watch list, This quarter, we recorded an increase in our CECL reserve of $81 million to $115 million, or 156 basis points based on the funded loan portfolio. As a reminder, the change in reserves is unrealized, is non-cash. It does not reduce distributable earnings in Q3. However, if such amounts are deemed non-recoverable in the future, we would recognize a loss through our cash metric of distributable earnings. We have five loans on the watch list as of quarter end, all of which are secured by office properties, and consistent with past quarters, we highlight those loans in our earnings supplement. Two loans were downgraded to a risk rating of five and account for nearly half of the $115 million in total CECL reserves. We have not disclosed the individual CECL reserves around the five-rated loans in order to not disadvantage us as we continue discussions with our sponsors and other market participants. Some additional details on the five-rated loans. First, the Philadelphia loan is secured by a four-building portfolio comprised of approximately 600,000 square feet of office and includes a 500-space parking garage. Hovering from the COVID-19 pandemic and return to office in the Philadelphia market has been relatively slow compared to some other major US cities. Current occupancy at the property is approximately 50%, down from the low 60s at closing. The loan's initial maturity date is May 2023, but in recent conversations, the sponsors indicated it does not want to continue the business plan. The loan remains current, however, and KREF is evaluating alternatives to maximize value, including a potential sale of the loan or properties. Second, the Minneapolis loan is secured by a 1.1 million square foot two-building Class A property. Our loan supported the refinance, remaining CapEx, and subsequent lease-up of the property from an occupancy of 62% at closing to an occupancy rate of 88% today. NOI from the property generates a current debt yield of over 8%, fully covering the debt service on our loan. However, the loan has an upcoming final maturity date in December 2022, and the sponsor has indicated an inability to refinance the loan given current market conditions. We're continuing to dialogue with the sponsor and are considering a number of options. With regard to the broader portfolio, 89% of our loan portfolio remains risk rate at three or better, and we collected 100% of scheduled interest payments across the entire portfolio in Q3 and through the first payment period in Q4. In summary, KBREF finished the quarter with a $7.7 billion total funded portfolio, which has grown by approximately 33% on a year-over-year basis. We originated two senior loans in Q3 for a total of $458 million and have over $400 million in loans under exclusivity. This quarter and subsequent to quarter end, we sourced and closed two new non-mark-to-market and match-term financing facilities, and completed a second upsize on one of our existing non-market-to-market facilities to $1 billion. Finally, we repurchased approximately 600,000 shares of common stock at a weighted average price per share of 1742 in Q3 for a total of over $10 million. Over the last two reported quarters and subsequent to quarter end, we have been opportunistic in utilizing our share repurchase program. with year-to-date purchases of 2.1 million shares for a total of 36 million. Our record liquidity puts us in a strong position to efficiently manage in this current environment and to further capitalize on the market opportunities ahead of us. Thank you for joining us today. Now we're happy to take your questions.
spk09: Thank you. We will now begin our question and answer session. To ask a question, you may 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. At this time, we will pause momentarily to assemble our roster. And the first question will be from Jade Ramani with KBW. Please go ahead. Thank you very much.
spk11: Great. Thank you very much. There's definitely indications that credit is turning. Do you agree with that? How do you expect the cycle to play out? And specifically what I'm interested in understanding is with rates this high and credit spreads extremely wide, many borrowers are going to have difficulty refinancing at today's levels. So in my view, modifications become very important, which means capital wherewithal. You noted the $900 million of liquidity. Working with lenders, I know KRF has a high percentage of non-mark-to-market financing and assessing borrower commitment to the property. So as you approach credit overall and asset management, is that going to be your primary focus? And can you also touch on upcoming loan maturities, which I believe you spell out in the slides, is that all encompassing about what you expect for the remaining part of this year and next year?
spk07: Oh, great, Jay. Thanks for the question. It's Matt. I can take it. And then, you know, Patrick, if you want to jump in on the second point around the repayment profile. First of all, just with the credit dynamics, I think it's a little bit market and property type specific. If you look at most of our portfolio, it's in growth markets and obviously multifamily being the largest component of that. But we have positions within industrial and life science as well. And we're still seeing strong growth there, strong rental, strong tenant demand. And so I'm not sure – you know, that will be a big part of a default cycle, if you will. I agree with your point that there could be modification discussions there over time, but we're really not seeing, just from a property fundamental or a cash flow perspective, you know, anything that would lead us to suggest that there's issues in those markets. I think office is different, and as we've highlighted, you know, certainly within our prepared remarks, the lack of liquidity there and the uncertainty in that particular sector is very high. And as it relates to workout strategies, it's going to be very fact dependent. If there's a sponsor that's operating the property well and is willing to invest more capital then certainly we'd be very open-minded to modifications and extensions because we think that could maximize value. If the opposite is true on either one of those, then obviously we're going to have to create our own liquidity for that potential position. And so I think we've got a range of options available to us as we kind of go through this credit cycle. But again, it'll be very fact dependent on the individual property circumstances.
spk10: Jay, I'll take the second part of that question with regard to the maturities that are coming up. And we have a page in our supplement, page 21, which details the loan maturities. And as you asked, what we're reflecting here are the final maturities. So in 2022, you can see that $194 million is the Minneapolis loan, which we talked about on the opening remarks. But you can see a lot of the maturities are backdated. A lot of the portfolio has been originated over the last couple of years, and so that's reflective on this chart. So as we look out into 2023 and 2024, it's relatively light in terms of upcoming final maturities. Thank you. I'll get back in the queue. Thank you.
spk09: Thank you. And the next question will be from Steven Laws from Raymond James. Please go ahead.
spk06: Hi, good morning. Maybe to follow up on the office stuff, you know, can you talk about how those are financed? Are any in CLOs? Are they all on credit facilities? And assuming the latter, you know, how are your discussions with those counterparties going with regards to, you know, credit marks, advance rates, things of that nature?
spk10: Sure. Good morning, Stephen. It's Patrick. I'll take that question. So these loans are financed across a variety of our facilities. I think, as we've talked about repeatedly, we're very focused on a diversified financing structure. So as you might assume, our office loans and our portfolio in general is really diversified in where these loans reside. On the office sector in particular, we're financing some of those assets in the CLO. some of our non-mark-to-market facilities. We also have some assets that are unencumbered right now, so obviously a lot of flexibility there. In terms of discussions, not a lot to date. I think if you look at the performance, as we've noted, 100% of the interest payments have been collecting, so the loans are paying, are performing. As we get closer to these maturity dates, both on the extension final, I expect us to have increased conversations. But given the liquidity that we discussed, we feel well-positioned to kind of manage through those discussions regardless of what the outcome is.
spk06: Thanks, Patrick. You know, Matt, I want to shift over to a comment because, you know, there's a couple of things going on, right, with benefits of higher rates and obviously any repayments on CLOs can be replaced at wider accretive spreads. On the flip side, a lot of concern over portfolio performance going forward. You know, when you think about kind of in reference to your statement of 100 basis point increase would add 21 cents annualized to the NII. you know, what type of portfolio deterioration does it take to offset that? I mean, in an oversimplified way, if those office assets are 11%, you know, and you just take out 11% of interest income, you know, that's still not 21 cents per share. So kind of curious how you think about those two opposing forces as you look out over portfolio performance going forward.
spk07: Yeah, Stephen, you know, happy to cover that. We think that the portfolio performance should be pretty resilient here as it relates to convexity to increasing interest rates. And we have modeled a number of scenarios, especially as it relates to what you're bringing up in terms of some of these five-rated loans. And we still think that, you know, the coverage certainly versus the dividend will be, you know, will be quite strong even when factoring in, you know, the existing kind of watch list assets of those five-rated loans. So, listen, it's a very good market right now to be investing. Agree with your comment on, you know, just the existing portfolio. We're going to have to watch that closely. But I think it's mostly going to be concentrated in these in this office sector. And again, that's one of the smaller pieces of our overall portfolio. And a lot of that is located in growth markets and we still feel pretty good about it despite the overall office market. And one thing I'll highlight is we got a repayment on an office loan that we had just recently. So there's still some liquidity out there for the right assets in the right markets.
spk06: Thanks, Matt. And that leads me to our final question. You mentioned attractive new investments. And I know, I believe as Patrick mentioned, kind of mid three is leverage going forward. So that's kind of part of the equation. But how do you balance those attractive returns on new investments versus the stock buyback, which you've been pretty active with obviously year to date?
spk07: Yeah, and I think it's a fair question. And I think you've seen us do both recently, right? Where it's not just one or the other, where we think they're both attractive. We think it's the right thing to do. from a fiduciary and shareholder perspective to try to buy back shares when they look very attractive. And obviously the other component that we're weighing here is just liquidity, overall liquidity in a market like this. So that takes precedent and always will take precedent, but to the extent we've got excess liquidity, then that's when we're really evaluating the relative value between making a new loan and buying back stock. The other component really is through some of the existing financing facilities that we have. As you mentioned, to the extent we have open spots, if you will, in the CRE CLOs, those are very attractive opportunities to create a creative return. So it may just be like where do we have liquidity and where can we finance it? That's kind of weighing into the decision whether we buy back stock or or make a loan. So hopefully that answers a little bit of the question, but there's no hard and fast rule in terms of IRR. We're looking at the return on either and comparing them.
spk06: Appreciate the comments, Matt. Thank you.
spk09: The next question is from Donald Vendetti from Wells Fargo. Please go ahead.
spk08: Good morning. This is Steve on for Don. Can you talk about your expectations for multifamily performance going forward? with rates going up in the macro softening? And then secondly, what property types are you still seeing attractive lending opportunities, if any? Thank you.
spk07: Sure. Just to start out on the multifamily side, as I mentioned earlier, we're still seeing very strong performance across, really across the board there in terms of high occupancies, good leasing environments. and strong rental growth. The growth has come off a little bit from the peak. So we were seeing caught double-digit type of growth in year-over-year releasing spreads. Now that's releasing rents. That's really come down to call it high single digits in some of these growth markets. So Whether that's a function of the Fed activity or whether that's a seasonally adjusted issue, it's unclear at this point. But let's say there's a little bit of growth coming out of that market, but still very strong. And values are changing there, of course, just like all real estate values are adjusting to the new cost of capital or the new interest rate environment. So the values are called down 10% to 15% in some of these growth markets. And in terms of just where we're focused lending, honestly, it hasn't shifted that much over the course of the last few years. I would say certainly we're much more focused on these growth areas in terms of property types. So you'll continue to see us lend and multifamily, industrial, and life science, which we think are kind of the strongest from a tenant demand perspective. But just given the market environment and the competitive landscape, what we're doing is very much a lender's market today. So the loans that we're creating today are lower leveraged. They're higher returns. They have more structure. And you're at some points lending on less transition as well. You've got higher starting occupancy or cash flow per unit of debt. So certainly a good market, but I think you'll continue to see us focus on these growth segments.
spk09: Thank you. And the next question will come from Steve Delaney from JMP Securities. Please go ahead.
spk04: Good morning, everyone. Thanks for the question. Your $81 million CECL reserve addition in the quarter, can you comment on any part of that that was specific on any of your five-rated loans, or should we view it all as just general unallocated reserve? Thanks.
spk01: Hi, Steve. It's Kendra. Thanks so much for the question. Sure. Maybe taking a step back for a second to talk about how we – create the CECL Reserve. So, we take a very conservative approach, I think, as you've seen in the past. The CECL Reserve is evaluated and adjusted each quarter and considered on a loan-by-loan basis. And individual facts and circumstances are taken into account when considering the, you know, future possible estimated losses. And most loans are calculated using historical loss rates, third-party model, and macro scenarios. Others do take into account other factors to estimate possible losses, which are based on what we know currently, and those factors could evolve over time. We personally look at the reserve individually, but probably more so holistically in terms of where it sits vis-à-vis the entire portfolio. So we really think of it more, as I said, on a holistic basis. And Patrick mentioned in his comments earlier with respect to a couple of the five-rated loans in particular, we prefer not to disclose more on the build currently to protect some of our commercial interests.
spk04: Totally understand not to show your hand, obviously, when you're negotiating with a sponsor or borrower. That makes sense. Thank you for that, Kendra. On page three of the deck, you say that 100% of interest was collected in the third quarter. Does that include five-rated loans where there's still maybe an interest reserve on the loan that has not yet been exhausted?
spk10: Steve, it's Patrick. I'll take that question. Hi, Patrick. Good morning. Yes, so 100% was collected in the third quarter. We've obviously had the October payments. We've collected 100% there. You know, regardless of whether the loan is risk-rated three, four, or five, in some cases, right, there's interest reserves on all these loans. We have a five-rated asset that doesn't require an interest rate reserve. It's covering its debt service. Obviously, that was collected. We have other three risk-rated loans that might have debt service just given where they may have a carry reserve just given where they are in the business plan. And those were sort of collected. All of the loans have some form of structure to allow us to either there's cash flow in place or structure to hold cash to cover any interest shortfalls. And those get replenished now and then as we sort of project what, you know, future shortfalls are. So hopefully that addressed your question.
spk04: That does. Thank you. Lastly, on the new life science focus and the two new loans that you made, with that product, obviously we noted they were construction loans, so pretty early in the process. Do you normally find significant pre-leasing commitments in place for the specialized properties such as that, or should we view these as more spec buildings?
spk07: I can jump in on that one. It's Matt. On the construction lending we've done, there's a range. Some are for lease-up, some there's an actual tenant in place. On these particular two, these are both lease-up strategies and obviously located in very strong markets and really catering to the most institutional and largest markets. companies within the life science segment.
spk04: Thanks. Appreciate the comments. Thank you.
spk09: The next question is from Eric Hagen with BTIG. Please go ahead.
spk02: Hey, thanks. Good morning, guys. Hope you're well. First one is can you just discuss how you stress loans during the underwriting process for both NOI growth and a takeout through refinance or an asset sale? Like what are the variables that you're using and thinking about? especially with respect to interest rate risk management for the sponsor?
spk07: Eric, it's Matt. I can take that. Well, just first of all, our loans obviously have interest rate caps in place, so that's probably the number one mitigate in terms of the existing portfolio to stresses on cash flow or coverage. But just in terms of how we're underwriting today, You know, we're really just looking at the current rent environment and the current occupancy environment and, you know, trying to stabilize at a debt yield that's, you know, well north of today's cap rates because our view is, you know, those are gravitating higher over time as the equity market kind of adjusts to, again, the new interest rate environment. So our base case really doesn't give credit for kind of future rent growth. Of course, we're looking at the sponsors underwriting, and that will typically, certainly in the growth areas of multifamily and industrial, those will typically include some type of future rent growth. But we're really just looking at it today. And then we put on, I mean, really it's market dependent and property type dependent, but we're putting on a range of declines in both rent and occupancy, and of course, stressing cap rates as well to try to consider downside scenarios. And you've seen over the course of this year certainly an entire market, and we're included in this, really start to decrease leverage pretty materially just given where, you know, where we think values can go. So it's been to some extent a debt lead. decline and market leverage availability. So hopefully that gives you just a little bit of context of how we're underwriting things. But certainly we look at primarily debt yield, but we'll also look at coverage in a market like this and make sure we're stabilizing it north of a 1.0 coverage on these adjusted all-in coupons.
spk02: Got it. That's helpful detail. And then at a very high level, if investors have the option, if you will, to concentrate towards assets which are nearly stabilized versus construction assets, where do you think you're getting the better relative value, especially when you factor in the liquidity and the funding for one versus the other in this environment? Where do you think shareholders or investors are picking up the better value? How do you guys think about that? Thank you.
spk07: Sure. Well, we certainly put a higher premium on assets. on construction lending, just given the nature of the future funding. Like you're saying, not all our dollars are getting into the ground day one, and obviously there's incremental risk associated with building an asset as opposed to in place. And construction overall is a small piece of our portfolio. So I'd say on a whole, most of what we do, just given the nature of KREF, is going to be you know, predominantly funded built, you know, built assets that create a mostly funded loan. But when we see opportunities for development on, you know, certainly in markets that we like with really, really strong sponsors and have that financing kind of built in with that, which we have in the case of the two loans we had this quarter, you know, those can be very attractive opportunities. But again, They come at a premium, and they'll always be a small piece of the overall portfolio.
spk02: Gotcha. That's helpful. Thank you guys very much.
spk09: Thank you. And the next question is from Kaylee Wang from Citi. Please go ahead.
spk03: Thank you. Most of my questions have been asked and answered, but just in terms of share repurchase, how should we think about the pace of that going forward? Thank you.
spk07: It's Matt. I can jump in. Thank you for the question. You know, I think what you've seen over our history really is we've been really a market leader in terms of buying back shares. You saw it at the outset of COVID. Obviously, we highlighted what we've done over the course of this year. And as I mentioned, I think Steven asked the question earlier, you know, we're continuing to evaluate What's the relative value of share buybacks versus making a loan? And sometimes, again, making the loan equation is going to factor in where we have financing available and what type of returns we're able to generate through that. And then finally, again, the biggest piece of this puzzle right now is really liquidity and just making sure that we've got liquidity and running at a lower leverage point to One, just be defensive in a very volatile market environment, but two, be positioned for opportunities that are going to come out of this volatility. So we'll continue to weigh these, but hopefully our track record gives you some indication of how we think about share buybacks.
spk03: Thank you.
spk09: And the next question is a follow-up from Jade Romani with KBW. Please go ahead.
spk11: Thank you very much. On the Minneapolis office, last quarter it was risk-rated two, and now it's risk-rated five. What really changed? Was it the interest rate shock and the timing of the upcoming maturity? And what does your dialogue with the borrower currently suggest?
spk10: Thanks, Jade. It's Patrick. I'll take that question. Yeah, timing is a real big factor here. Each of these loans is going to have a different sort of approach to them. Just for a little bit more context, this was an asset that was under contract in the spring for a good premium relative to our debt. That contract fell out over the summer and now we're at a maturity date in December. And so I think what you're seeing here in terms of the risk rating is a reflection of the fact that there's likely going to be a near-term event here just given that maturity. All of the options are on the table, including extending the loan, but they're not free options. And if we... There aren't free options, and so as we get to this maturity date, if we feel like there's a better approach to maximize shareholder value, we're going to explore that path. And so we're in dialogue with the sponsor, and I expect us to continue to dialogue throughout this process as we think about financing, as we think about how do we maximize the return back to KREF.
spk11: Thank you very much. You mentioned, Matt, that multifamily values in growth markets, you believe, are down 10% to 15%. What would you say is the case for office, clearly big bifurcation in the office space, but maybe if you could generalize, and also for commercial real estate prices overall?
spk07: Well, I think the challenge in office today is nobody knows, right, in that there's just not a lot of liquidity outside of the highest, maybe the highest end, you know, very class A or trophy type of, type of asset. So, and that's, that's the challenge, right? And that's why I think why you're, we're talking about this, this potential Minneapolis asset, right? Where it's just, where is their liquidity at what, at what level? So it's hard for me to say exactly where the office market, you know, is generally, but yeah, Listen, if growth markets are down 15%, you can obviously guess that office is going to be down significantly more than that. So just given the uncertainty there. But I think, like you say, the whole real estate markets are adjusting to this new interest rate environment. But I wouldn't want to speculate on just like what's the overall U.S. What's the U.S. real estate value decline? That would be a tough one to – to figure out.
spk11: Okay. Some other questions we've all, I believe, gotten on the space in general, but where does margin call risk back rank in terms of, you know, issues you're managing too?
spk07: I can jump in there if you want. You know, for us, it's not, you know, it's not a big factor for us. I mean, The vast majority of our portfolio is financed on a non-mark-to-market basis. We have a lot of liquidity, and we certainly haven't seen any margin calls. I haven't heard of any, nor have we experienced any through this cycle. One can imagine that you could see that if the market continues to be volatile, but just given our positioning and how we choose to finance our portfolio, it's not You know, it's not a big concern of ours.
spk11: And in terms of the access to capital, clearly some positive initiatives or additions in the quarter, the new asset-specific financing facilities. Where do things stand in terms of talking to non-U.S. banks? Are they interested in gaining exposure to to dollar-denominated U.S.-based assets, and is that an area that could help create accretive financing opportunities?
spk10: Go ahead, Patrick. I was going to say, you know, there's several different paths, I think, that we've got in this market. I think one of the areas of growth potentially is in that, you know, non-U.S. institution. And so if we look at this past year and where we've seen some of the growth in our financing capacity, it's come from that. That's not the only area, but we think it is one of the areas that could help support this market.
spk11: Thanks, Matt. Did you have anything to add?
spk07: No, I think that's well said.
spk11: Great. Thank you for taking the questions. Thanks, Jay.
spk09: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.
spk05: Well, great. Thanks, Operator, and thanks, everyone, for joining us today. Please reach out to me or the team here if you have any questions. Take care, everyone.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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