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spk10: Greetings and welcome to the Ready Capital Corporation third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. Our question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Andrew Albarn, Chief Financial Officer. Please go ahead, sir.
spk08: Thank you, Operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2022 earnings release and our supplemental information, which can be found in the investor section of the Ready Capital website. In addition to Tom and myself on today's call, we are also joined by Adam Zausmer, Ready Capital's Chief Credit Officer. I will now turn it over to Chief Executive Officer Tom Capassi.
spk09: Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. Before we dive into the numbers, a few observations on the macro backdrop. Since late first quarter of 22, the historic velocity of the Fed's rate increases has led Ready Capital to pivot to a defensive posture in the event of a recession. However, we believe Ready Capital's multifamily sector-focused and diversified business model afford strength in our liquidity, credit, book value, and earnings in a stressed economic environment. First, in terms of liquidity, as of 9-30, ReadyCap had $1 billion in unencumbered assets, including $200 million in cash and an additional $2.4 billion in available warehouse capacity. Further, recourse leverage of 1.6x is within our 2-to-1 target, and critically, short-term repo returns That $392 million is only 4% of total debt and is primarily secured by floating rate short-duration assets subject to low price volatility. Additionally, only 16% of our debt is subject to mark-to-market, and the average maturity of our warehouse lines is two years. Finally, near-term maturities on corporate debt are modest, with 10% of the outstanding $1.1 billion due in August 2023, and the balance laddered after April 2025. Second is credit. Our historical sector focus on lower middle market multifamily, which comprises 72% of our current CRE portfolio, will benefit from the shock in housing affordability, which has tilted the buy versus rent calculus to rent. The doubling in mortgage rates to 7% has increased the U.S. mortgage to rent ratio from the 103% prior 10-year average to 159% today. This will support lower vacancy rates and positive rent growth, even in a recession, particularly in our affordable multifamily niche. In terms of our small business segment, our credit team forecasts an increase in delinquencies from 1.5% currently to approximately 3.5%, for which we are adequately reserved. This segment represents 4.5% of equity, and as such, net credit loss exposure would be modest. In the event of a recession, a big differentiator versus the peer group is portfolio diversification. The 10 largest loans equate to only 9% of the total loan portfolio. And we notably have no exposure to the CBD office. Our office allocation is only 5% of our portfolio with a 2.4 million average balance. Third is book value. Given the first two factors, a hallmark of ReadyCap since COVID has been stable book value. Post the first quarter 2020 application of CECL, book value has actually increased 7% to $15.40 per share. This contrasts with the 15% to 30% year-to-day book value declines in the residential REIT sector, as well as write-downs of CREITs with significant CBD office exposure. We view book value preservation and growth as a key metric in evaluating ReadyCAP's return. To that end, given the strength of our liquidity, we repurchased 3.6 million shares since September 30th, resulting in approximately 16 cents per share accretion. Finally, dividend yield. As we've been communicating for a few quarters, we expect earnings to normalize over the coming quarters due to the runoff of the COVID stimulus revenue from PPP and the decline in mortgage banking. These declines will be moderated by lending and acquisition activity with a 300 to 500 basis point increase in ROE in the current distressed environment for core commercial real estate. Over the last two years, ReadyCap has paid and covered a dividend yield of 11.6% on average book value, which is in excess of the peer group average. As we look forward, we expect our business model to be capable of continuing to deliver a peer group premium, albeit at levels more similar to pre-COVID quarters. Our Board of Directors plans to realign the dividend in the fourth quarter to ensure our go-forward dividend is covered by normalized distributable earnings. Now, reflecting industry trends, CRE lending volume was down 34% quarter over quarter at $831 million. However, this vintage features a significant yield premium with a more conservative underwriting compared to 2021. In terms of pricing, spreads on new production increased 80 basis points to SOFR plus 480, which, even with the wider CRE CLO spreads, equates to a 15% levered ROE. These higher yields are despite a defensive pivot in credit. 83% of volume was in cash-flowing multifamily and 70% in Tier 1 and Tier 2 markets, migrating to our strongest sponsors. Additionally, under-written stabilized yields on new production increased 8%, while loan-to-values decreased 65%. Quarterly production in Europe increased with $75 million closed across five deals in the UK, sourced via the three strategic European partnerships executed over the last year. The loans have a similar credit profile as our U.S. bridge lending products, but feature a 200 basis point yield premium. Our near-term defensive strategy positions CRA lending volumes to stabilize near third quarter levels as we harvest excess liquidity for higher ROE opportunities in the distressed secondary markets. Investment in distressed small balance commercial real estate loans is a differentiating factor in our business model. We were a top three buyer of distressed small balance loans from banks post the GFC, acquiring $3.4 billion, and we note a new supply in this recession from the post-GFC surfeit of 250-plus private credit funds. In the quarter, the CRE portfolio increased 2% to $9.6 billion across 2,300 loans. A number of credit metrics position the portfolio to outperform in a recession. Weighted average LTVs of 66%, with 84% of the portfolio concentrated in lower-risk sectors, cash-flowing multifamily, mixed-use, and industrial versus office. Current 60-day delinquencies remain low at 2.8%. Lastly, from an earnings perspective, 84% of the portfolio is floating rate. In our small business lending segment, 7A production increased to $134 million, split 85% between our large loan and 15% in our emerging loans. small loan segments, pricing average prime plus 190 basis points. On the volume side, we expect a cyclical decline in 7A volume from $26 billion at FYE 930, but are projecting continued growth in our volume due to market share gains, especially in our small loan segment. This is evident in our money up pipeline of $225 million as of quarter end. Now, as discussed in prior quarters, we have leveraged our fintech rebranded as iBusiness, to drive efficiencies and volume in the small business lending segment, particularly the SBA 7a small and micro loan sectors, which are major policy acts for the Biden administration in terms of reaching minority and women-owned businesses. Beyond application to our own production, we began marketing the technology as a separate lending as a service profit center. Seeding these technologies within our lending ecosystem and creating scale with a longer-term potential spinoff provides another avenue for creating shareholder value. Our residential mortgage banking business, GMFS, continues to be impacted by rising rates and lower refinancing volume with originations of $534 million for the quarter. Despite compressed margins averaging 74 basis points and volume declines of 28%, GMFS remains profitable due to its servicing retained strategy. As discussed in prior quarters, we continue to pursue and evaluate initiatives which may include strategic transactions. With that, I'll turn it over to Andrew.
spk08: Thanks, Tom. Quarterly gap earnings and distributable earnings per common share were 53 cents and 46 cents, respectively. Distributable earnings of 58.2 million equates to a 12.7% return on average stockholders' equity. Absent the effects of PPP, quarterly interest income increased 28% to 172 million, with net interest income increasing 5% to $57 million. As of quarter end, 85% of the portfolio is floating rate with an average spread of 320 basis points. A continued climb in short-term rates increases profitability on our existing loan book with each 50 basis point movement in rates equating to an 8 cent increase in annual EPS. The rise in interest expense was due to both an increase in average debt throughout the quarter and a 7 basis point increase to warehouse financing spreads. The provision for loan losses totaled 3.4M with the majority of the increase due to a deterioration of macro assumptions used in modeling reserves on our performing loan book. Included in the 3.4M were specific reserves of 900,000 related to two non-performing office assets, which we expect to liquidate in the fourth quarter. Realized gains from gain on sale production were off 3.5 million quarter over quarter to 12.1 million. The changes due to both a $18.6 million reduction in Freddie Mac SBL production as well as a 100 basis point reduction SBA 7A premiums, which averaged 8.6% in the quarter. Net contribution from residential mortgage banking activities declined 60% to 3 million. Other income items of note include the continued contribution from PPP, which totaled 11.8 million, 7 million of fees related to the processing of employee retention credits, for our small business customers, and mark-to-market reductions of assets held within unconsolidated joint ventures. On the balance sheet, we continue to prioritize increasing liquidity levels, limiting mark-to-market debt, and managing to prudent leverage ratios. In the quarter, we closed a $100 million 7 3⁄8 senior unsecured note, and subsequent to quarter end, completed our 10th CRE CLO, $860 million deal with an expected retained yield in the low teens. Total and recourse leverage ratios equaled 4.9 times and 1.6 times respectively, and mark-to-market debt totaled 16% of total debt. In addition to normal items flowing through the balance sheet, we also completed an update to the business combination accounting related to the Mosaic merger. These changes included a $63 million reduction in the value of the asset portfolio offset by a corresponding reduction in the contingent equity right valuation. These updates were primarily related to assets that were either liquidated or where new information has provided clarity on the expected value of an asset. Since the merger, we have reduced the MOSAIC portfolio by 19%. Despite the reduction, 24% of that portfolio remains underperforming the broader business. We estimate the reinvestment of capital at current levels to equate to earnings of 14 cents per share upon liquidation of those assets. The challenging markets notwithstanding, we continue to make good progress on these efforts and expect to have made considerable progress as we work through the first half of 2023.
spk04: With that, we'll open up the line for questions. Thank you.
spk10: At this time, we'll be conducting a question and answer session. If anyone would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. We have a first question from the line of Steven Laws with Raymond James. Please go ahead.
spk07: Yes, hi, good morning. You know, first maybe on the resi side, you know, it gets a lot of attention, you know, in the media. But, you know, with where rates are, you know, we saw a shift, 80% purchase, I believe now. How is your outlook for volumes? Where do you think we trough and get to a level there in that process?
spk09: It's a good question and obviously the big topic of conversation, but the bottom line is if you look at the refinanceable universe, that is borrowers that have mortgages that are in the money for an equity rate refinance, it was upper 80s, the total mortgage universe, in the summer of last year. Today, it's under 1%. And even if rates rallied 150, that number would get up to around 8% to 10%. So the bottom line is we're probably... at the trough, but we're going to be in this kind of desert for quite some time unless there's a major reversal in the 10-year, more to that kind of like below 3% level.
spk07: Along the lines of realigning the dividend, how much PPP income is remaining? And when we think about that, it was a great opportunity and generated great returns. As we look forward and you think about realigning that dividend, how do you think about new investment returns available in this market, repurchasing something in your common stock or something in your own capital stack versus setting that new payout ratio? Aaron, do you want to touch on that?
spk08: Yeah. So as of quarter end, There is $20 million of remaining income to flow through the income statement. The expectation is that the majority of that rolls off in the fourth quarter. I think as we and the board think about the go-forward dividend, you know, certainly setting it in line with our historical targeted return of right around 10%. And so when you look at the dividend level pre-COVID for the company, it was right in line with those return goals. So I think that what we'll see is that the dividend starts to triangulate to levels similar to pre-COVID, certainly with some thought around establishing a level that is covered with consistency.
spk07: That's helpful. Thanks for framing that. You know, and then I guess, you know, on a trade-off, you know, I think increased authorization. You've been quite active, more active quarter to date than I guess late last quarter. But on the share repurchases, you know, how do you think about returns there versus, you know, new deployment returns or new investment returns?
spk08: Yeah, you know, as you know, the board did increase The repurchase program to $50 million, the entirety of that was built in the fourth quarter. When we think about repurchases, it's triangulating not only on the return difference between where we can invest new money today and obviously the returns produced by the share repurchase, but also the liquidity levels in the company and given where the shares were trading at the early part of the quarter and the liquidity levels in the company, certainly thought the repurchase of those shares made a lot of sense. I think as we look forward, maintaining significant liquidity levels is important. We're starting to see and have for the last couple months investment opportunities with ROEs significantly higher than where those opportunities existed at the beginning part of the year. So it'll be a balance between those three items.
spk04: Great. Appreciate the comments this morning. Thanks, Stephen.
spk10: Thank you. We have next question from the line of Stephen Delaney with JMP Securities. Please go ahead.
spk01: Good morning, Tom and Andrew. Congrats on a very solid quarter in these challenging times. Excited to see that you were able to get FL-10 off. I mean, not seeing much in the CLO world. Your average spread on those loans was 414 basis points. Well, let's just say that's per the commercial mortgage alert table. That's my data source. I was curious, and you said low teens on that. Your pipeline of loans appears to be SOFR plus about 550, 559 basis points. How should we look at that? I guess the question is, what you learned from FL10 has probably led to some repricing of your new originations. I guess my comment is, would it be possible with your pipeline in this market, do you think an FL11 can be executed And with 550-ish basis points of average spread, could you possibly beat low teens? Thanks.
spk09: Well, I'll defer to Adam to maybe comment on pricing in the bridge transitional, the lower middle market transitional loan market. But I think one of the hallmarks of ReadyCap is we're very, with the support of the external manager, Waterfall, we're very attuned to the capital markets. So we reprice daily. our retained yield based on the spread at which we can execute the AAA tranches for the CRE CLOs. Those were pre-COVID, I'm sorry, pre-rate cycle. They were, you know, Adam, what was it, probably around 175 over. Today, they're more in the 250 to 300 over for the industry. We've been printing at about 270. So with that in mind, we've... repriced our spread on the production side to achieve an IRR that's probably, for the bridge product, probably in the 15-plus zone, as opposed to where we were in the first quarter before the impact on the credit spreads for securitized products. We were more in that 13% area. So it's widened on our core product 200 to 300 basis points in terms of ROE. Got it.
spk01: Thank you.
spk09: Yeah.
spk01: That's encouraging. Thank you. And just one follow-up, a quick one. 92% of that collateral in FL10 was multifamily. We've been reading about Freddie trying to reactivate or crank up its Q-series shelf. Given your product mix and that program, is there any fit there for you? Thank you. That's my last question.
spk06: Adam, you want to field that? Yes. Sure. Yeah, sure. We're certainly talking to the Freddie folks regarding contributing some of our product to the Q shelf. And what's interesting about that shelf is that we can contribute new originations across all of our multifamily products and then also through our acquisition strategy. So we think that that could be a nice alternative to the CLO space. We're certainly exploring both avenues in this market.
spk01: Great. Thank you all for your comments. Thank you.
spk10: Thank you. We have next question from the line of Christopher Nolan with Leidenberg Salomon. Please go ahead.
spk00: Hey, guys. Andrew, what was the PPP revenues in the quarter?
spk04: On a net basis, it was $11 million.
spk00: Correct. And also on the dividend realignment, is it going to be – I understand Tom's comments. You're targeting a lower ROE. given the absence of PPP and RESI. Is that a fair assessment of it?
spk08: I would say that the target return is certainly lower than where we are running just due to the magnitude of PPP, but is in line with where the historical targets were pre, you know, all the COVID stimulus programs, so right in that 10% range. Okay.
spk00: And then for fourth quarter and so forth, should we expect cash on the balance sheet to continue to rise?
spk08: Yeah, certainly one of the priorities here is to increase liquidity levels to make sure we're in a position to take advantage of what we believe will be numerous opportunities in the secondary markets. So the timing of those opportunities is a little bit in flux. But in general, the expectation is liquidity is that 5% or greater of stockholders' equity at any given time.
spk00: Okay, final question. I think in the comments was reduction in the mark-to-market borrowings. What area of the balance sheet should we expect borrowings to go down with respect to that?
spk08: Yeah, but certainly the majority, you know, the mark-to-market liabilities on the balance sheet, say, are limited. You know, the majority of our warehouse lines are either non-marked or credit mark only. I'd say, you know, as we move into our next CRE, CLO, certainly that'll, you know, help to transfer some of our warehouse balances into securitized debt. And so it'll be those activities that really drive the reduction. Okay. Thank you.
spk04: Thank you.
spk10: We have a next question from the line of Crispin Love with Piper Sandler. Please go ahead.
spk05: Thanks. Good morning, Tom and Andrew. So I actually have a follow-up on the realigning the dividend as well. So I'm just curious if you could give just a little more detail there. Looking forward, or I guess in the fourth quarter, does that mean you expect a decrease in the dividend here, or are you confident in core earnings covering that 42 cent level, just considering some potential tailwinds from loan acquisitions and rate increases flowing through interest income?
spk08: Yeah, I mean, if you look at book value today, you know, post-share repurchase record around, you know, 1550 and a 10% retarget, a 10% target, you know, setting a dividend around that level is the most likely scenario. You know, 42 cents on that 1550 certainly applies a dividend yield in excess of that target. So the expectation is that 10% targeted return is the driving factor of setting a dividend going forward.
spk05: Okay, thanks. Thanks, Anja. That makes sense. And then just a little bit more broadly, what are you seeing in the multifamily market currently? It's been a popular asset class over the last several quarters, but do you expect that to continue given home affordability issues for single-family home ownership, or has demand or could demand a pullback meaningfully just given the cap rates compared to debt costs in the market here for borrowers?
spk09: Well, I'll just make one observation and then let Adam comment on it. But what we're seeing in the broader multifamily space is a definitive reduction in transaction volume, widening bid-ask spreads, which is leading to the trades that do occur with price reductions in the 5% to 15% zone. And a lot of that has to do with the so-called negative leverage i.e. the cap rates are lower than the debt cost. And that'll reprice. Prices have to go down. But the key thing here is a lot of that pain is going to be on the larger balance of CBD, you know, urban locations and that, you know, that have much higher rent price points. Our market is more of the lower Is workforce affordable? Middle income, just given our small balance focus. And that also benefits suburban and more desirable locations post-pandemic. And then in those markets, they have been brutalized by the increase in affordability. Affordability in residential housing, which we track at the external manager, has increased. gapped out in terms of the time it took, i.e., three or four months, is the biggest gap adding out in 50 years. So anyways, with that, it's going to make the rent versus buy decision, as we quoted. It was running at about 103%, the mortgage to rent ratio. Today, it's at 159%. Anyways, long-winded way to answer your question, but we think that the If there's a recession, the impact on rent, and therefore cap rates and returns, will be a lot more muted in our sector versus the broader multifamily space.
spk05: Thanks, Tom. All helpful there. Just one last question from me. Just on loan acquisitions, how are the opportunities that you're seeing there changing? whether it's banks selling CRE assets or non-core assets or other opportunities in loan acquisitions. Just looking at your investment detail, it doesn't look like you've picked up activity in loan acquisitions yet, but just curious how you're looking at the opportunity set as we are in a recession or moving towards it.
spk09: Yeah, it's a good question. Our investment committee just was posted on that a few days ago. But What we're definitely seeing is two funnels for potential distressed assets going into the, to some extent, the end of this year, but definitely into the first quarter of next year. One is, not surprisingly, banks that have, in particular, very large, where the ratio of CRE to Tier 1 capital exceeds 250. The regulators are starting to press them on that. as they typically do entering a recession. So we're seeing banks approach us for actual portfolio sales, or they're getting more creative with credit risk transfers and seller financing. So we actually bid on a few of those. So that's the bank channel. That will increase. But the other interesting one is the boom in private credit funds in the transitional loan market. We track over 250 funds, and a lot of them aren't going to make it. You know, they were trying to do series CLOs. They're, you know, they're startups in a way in the capital markets, and there's going to be opportunities to buy those bridge assets at that discount. So those are the two things our trading desk is tracking that we think will provide ample investment capacity going into the first half of next year.
spk04: Thank you, Tom.
spk05: I appreciate you taking my questions.
spk10: Thank you. We have next question from the line of Jade Romani with KBW. Please go ahead.
spk02: Thanks very much. Follow up on that last comment about transitional lending. Are you seeing M&A opportunities in the mortgage REIT space? There's a number of commercial mortgage REITs trading at pretty low price to book values and could be in that category of needing you know, I don't know, rescue capital or some kind of financing to get loans off credit lines, help with margin calls, help with the distress that seems to be beginning to play out.
spk09: Yeah, Jay, that's a good question. It's interesting. This time, it's more of a slow-moving train wreck on credit, in particular office, and other potholes in the market, like, for example, hard money lending on single-family homes. But we aren't seeing a liquidity crunch. There's a few of them we've seen there. But this time, I think the REIT sector and REIT sector learned its lesson. But yeah, all that being said, it's really more of a credit bleed, and we're seeing a lot of... I don't know if capitulation is the right word, but preliminary conversations around accretive M&A transactions for their shareholders and for ReadyCap. And as you know, we look at things first strategically, like Mosaic, and then secondarily in terms of capital raising. But yeah, there's definitely going to be, I would say, material M&A increase in the first half of next year.
spk02: And would you venture outside of the small loan market
spk09: siri space or the foothold that uh ready capital already has i think we're more of the turtle than the hair so we stick to our our knitting so we'll stay we might go up upstream a little bit to middle market on the bridge side and consider you know for example small a small commercial lending in europe which we've been doing and uh obviously the whole uh there's there's a whole revitalization of uh application of FinTech into the SBA space that we're ahead of the curve on. So I think to answer your question, we more likely than not would stick to our core commercial real estate lending business.
spk02: What do you expect for home prices? I know there's a lot of media reports about home price declines, especially in the high growth markets, the most high velocity markets. But there's also a lack of inventory on the existing home side, not necessarily on the new home side. And at a 7.5% mortgage rate, that could be a big limiting factor on the volume of transactions. So in that kind of framework, what would you expect for home prices?
spk09: Actually, the external manager has spent a lot of time in this. We have our own models, and we buy a lot of, you know, distressed residential. And the bottom line is that I think you kind of hit the nail on the head. Affordability typically, if you look historically at Case-Shiller going back to the 70s, an increased gapping out in affordability like this normally would knock home prices down 10% to 15% from the peak. But because of what you pointed out, the fact that supply in relation to demand inventory is so low, and also the tail risk in the mortgage finance system is gone because of, you know, the post-GFC non-QM and other rules. There is no subprime tail. And really what drives prices is distressed sales. And finally, over roughly half of all U.S. homeowners have an LTV less than 50. And 85% of them are locked into a fixed-rate mortgage three points below the, you know, below the... the current rate. So anyways, long-winded way of saying our projection for home prices is down 4% to 5% in 2023, and then up 2% to 3% for the three years thereafter. So given all those factors, that won't have a material impact on mortgage credit defaults. That one caveat being the pandemic baby boom markets, sorry, the ones that benefited from the pandemic boom of migration, like Boise, Idaho, those could experience price declines of upwards of 20%. So there can be a lot of skewness. You've got to look at local markets, but that's our more broader macro forecast.
spk02: Thank you very much. And overall, in terms of volumes, are you expecting, I think Stephen Law has asked the question, but pretty light fourth quarter and then perhaps a pickup maybe in the first or second quarter? Or what would you expect overall, CRE lending volumes?
spk09: Yeah, Adam, you want to comment on your views there?
spk06: Yeah, sure. So, you know, we're certainly being more selective in this environment and maintaining credit discipline to focus on less volatile asset types. You know, we're certainly taking advantage of the environment and deploying capital only into higher yielding opportunities. We expect to close roughly 700 to 900 million of commercial real estate in Q4. which is just under what we executed in Q3.
spk04: Thank you very much. Sure. Thanks, Ed. Thank you.
spk10: The final question comes from the lineup. Eric Hagen from BTIG. Please go ahead.
spk03: Hey, thanks. Good morning, and thanks for taking my question. Maybe just a couple of follow-ups. On conditions for CLOs, maybe you can comment on the stability you have for funding loans on balance sheet and whether you're anticipating any costs on the warehouse lines that you have changing in any meaningful way. And then what are the target assets in Europe and how much capital do you think you can eventually see yourselves operating with there? And what is a snapshot of a targeted investment that you're making in Europe look like relative to something that you'd target domestically in terms of cap rate and LTV and borrower quality and such? Thank you very much. Oh, good question.
spk09: Yeah, Adam, maybe – I'm sorry, Andrew, maybe touch on the funding, and then Adam, maybe touch on the kind of the credit profile of our – the bridge product we're originating in the U.K. versus here.
spk08: Yeah, so, you know, Tom's remarks still roughly, you know, $2 billion in available capacity on warehouse lines today. In the third quarter, you did see average spreads, you know, increase roughly 10 basis points. I think what we're finding is as lines are rolling, you know, advance rates are staying fairly in line with previous levels and pricing is moving anywhere from 25 to 50 basis points. So I do think you're going to see a slight increase in costs as those lines roll. But certainly I think, you know, given where we're pricing loans today, still very attractive returns. an ample capacity to fund our pipeline.
spk06: And then, hey, this is Adam, so on the European question, so we're certainly focusing on deals in geographic areas where the legal framework is easier to navigate and where we can rely on the jurisdictional expertise of our local partners in Europe. Definitely interested in opportunities located in gateway cities like Dublin, where there's really a material housing shortage similar to what we see in the US. I'd say we're certainly focused similarly on how we're lending in the US. We're focused on less volatile asset classes that have shorter duration leases, which really serve as a hedge against inflation. specifically in the multifamily sector where there also tends to be a shortage of good quality affordable housing, again, similar to the United States. And with that said, there are other property types we focus on and are looking at opportunistically, such as industrial and self-storage assets.
spk04: Got it. That's helpful. Thank you guys very much. Thanks.
spk10: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back over to Tom Capacity, CEO, for closing remarks. Over to you, sir.
spk04: Yeah, we thank everybody for their continued support and look forward to the fourth quarter earnings call next year.
spk10: Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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