Jade Rahmani

Jade Rahmani asked about the $12 million provision for credit loss in the quarter, future expectations for such provisions, and the specific characteristics driving the positive leasing performance of the Alyfe Park life science project. He also inquired if NREF is observing a broader uptick in life science leasing activity outside of this particular project.

Answer

Paul Richards, Executive Vice President and Chief Financial Officer, clarified that one-third of the credit loss provision was a general reserve update to align with peer groups, including a severe downside component, while two-thirds related to existing preferred deals. He expects provisions to level off in 2026. Matt McGraner, Executive Vice President and Chief Investment Officer, attributed Alyfe Park's success to its purpose-built infrastructure, slab-on-grade design, and prime West Cambridge location on mass transit lines, noting the 'cluster effect' from anchor tenants like Lila Sciences. He also mentioned broader optimism in the life science sector post-JPMorgan, with increased capital allocation decisions and growing demand from AI companies for purpose-built lab spaces.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) inquired about credit trends in the Freddie Mac B-piece portfolio, the pro forma occupancy and loan details for the AIOY life science project following a new lease, and the company's perspective on the seniors housing sector.

Answer

Paul Richards, CFO, stated that the B-piece portfolio remains solid, with only a few loans in the 2021 floating-rate vintage being monitored. Matt McGraner, CIO, added that market liquidity should help troubled assets find bids. Regarding the life science project, McGraner confirmed a new lease would bring the first phase to two-thirds occupancy. He attributed the project's success to its 2024 origination timing, significant sponsor equity, and the new lease, which provides superior financing options. McGraner also expressed strong agreement on the improving fundamentals in the seniors housing sector, noting NREF finds it an attractive space and has reviewed potential deals.

Jade Rahmani of Keefe, Bruyette & Woods inquired about the drivers behind a notable credit loss provision, the impact of macro uncertainty, details on a key life science project's leasing, and the company's forward-looking investment strategy, particularly regarding residential assets, preferreds, and CMBS B-Pieces.

Answer

Paul Richards, EVP & CFO, explained the credit loss was split evenly between a new CECL reserve methodology and a proactive reserve on a specific private preferred asset. He also confirmed a $40 million remaining funding commitment for the life science project. Matthew McGraner, EVP & CIO, noted temporary macro headwinds in life science due to policy uncertainty but expressed strong optimism for the residential sector. He detailed that a key life science project is expected to be two-thirds leased to two tenants, achieving a debt yield over 10%. McGraner added that future investment focus will be on Freddie Mac K-deals and stretch senior loans for multifamily assets in the lease-up phase.

Jade Rahmani questioned the large Cambridge life science deal, asking if it was entirely speculative, its leasing status, and what provides confidence given market oversupply concerns. He also sought clarification on a bid for the loan, the company's 'no forbearance' statement in light of other comments, and the specific delinquency rate in the Freddie Mac K-Series portfolio.

Answer

Matthew McGraner, EVP & CIO, confirmed the Cambridge development is speculative but noted significant pre-leasing tour activity and expects to report traction by Q3/Q4. He expressed confidence due to the asset's prime location, a low 25% loan-to-cost basis, and a bid for the loan from a strategic REIT. He clarified that a borrower is being given a 90-day grace period on interest to complete a payoff, which is not a formal forbearance. Paul Richards, EVP & CFO, stated that delinquencies in the Freddie Mac K-Series portfolio are extremely small, with perhaps two loans out of all B-pieces being 30-60 days delinquent.

Jade Rahmani of KBW inquired about intra-quarter book value trends amid rising rates, credit performance in multifamily given recent industry delinquency upticks, and the current competitive landscape for debt investments.

Answer

Paul Richards, VP of Originations & Investments, reported that the CMBS book has been flat to slightly positive intra-quarter. Matthew McGraner, EVP & CIO, expressed a positive outlook on multifamily fundamentals, citing strong absorption and a favorable supply dynamic for 2025-2026. He also noted that while the debt market is competitive, NREF differentiates itself through sponsor relationships and its ability to be selective without pressure to deploy capital.

Jade Rahmani inquired about Walker & Dunlop's credit trends, specifically the proactive measures taken regarding potential fraudulent loans with Freddie Mac, and the overall health of the loan portfolio. He also asked for quantification of non-recurring operating cost headwinds impacting the 2026 Adjusted EBITDA outlook and questioned the potential positive and negative impacts of Artificial Intelligence (AI) on Walker & Dunlop's business, particularly in light of FHFA Director Pulte's recent comments.

Answer

Willy Walker, Chairman and CEO of Walker & Dunlop, reiterated confidence in the credit portfolio's scale and performance, emphasizing proactive measures, full transparency, and enhanced internal processes despite recent loan losses. Greg Florkowski, EVP & CFO, stated that the 2026 guidance includes continued carry costs for repurchased and affordable assets, estimated at $4 million-$5 million per quarter, with a gradual reduction expected throughout the year. Mr. Walker further explained that W&D's strategy focuses on deeper engagement in commercial real estate capital markets, where human interaction, technology, and processes differentiate, noting their acquisition of GeoPhy in 2021 for internal process streamlining and data analytics. He also distinguished AI's potential impact on single-family versus multifamily business within the GSEs.

Jade Rahmani asked about Walker & Dunlop's credit trends, the proactive approach taken regarding potential fraudulent loans with Freddie Mac, and the overall health of the loan portfolio.

Answer

Willy Walker (Chairman and CEO) reiterated confidence in the credit portfolio's scale and performance, emphasizing the company's proactive and transparent actions, including enhanced processes. He noted that Freddie Mac is still reviewing one portfolio of loans, with an expected update within 90 days. Greg Florkowski (EVP & CFO) later clarified the impact of non-recurring operating costs on the 2026 adjusted EBITDA outlook.

Jade Rahmani from Keefe, Bruyette & Woods (KBW) asked about the outlook for the Q3 transaction pipeline following staggering Q2 growth and questioned the strategy behind the company's new European initiative.

Answer

Chairman & CEO Willy Walker stated that the Q3 pipeline looks 'great' with 'sustained velocity,' driven by the market's need to recycle and deploy capital. Regarding the European expansion, Walker explained the strategy involves both originating transactions within the European market and leveraging the strong W&D brand to facilitate global capital flows over the long term. CFO Greg Florkowski added that the company feels good about its path to achieving its full-year guidance.

Jade Rahmani of Keefe, Bruyette & Woods asked for insights on current investor behavior, including underwriting assumptions and eagerness to transact, and queried whether Fannie Mae and Freddie Mac are expected to reach their lending caps.

Answer

CEO Willy Walker stated that despite market volatility, deal flow has remained strong, with clients recognizing that waiting may not be advantageous. He noted the 10-year treasury's movement is more impactful than tariffs. CFO Greg Florkowski added that Fannie and Freddie are competing more aggressively than they have in three years, indicating a strong push to deploy capital.

Jade Rahmani of KBW inquired about Walker & Dunlop's potential for formal partnerships with alternative asset managers, the outlook for the low-income housing tax credit (LIHTC) syndication business, Fannie Mae volumes year-to-date, and the opportunity to increase its business with Freddie Mac.

Answer

Willy Walker, Chairman and CEO, stated that while partnerships are always a possibility, the company is confident in its ability to scale its asset management business independently. He expressed optimism for the LIHTC business, citing recent management changes and the hiring of a new affordable housing team. While declining to provide mid-quarter volume guidance, Mr. Walker acknowledged a significant opportunity to grow their Freddie Mac business and improve their league table ranking after finishing fourth in 2024.

Jade Rahmani of Keefe, Bruyette & Woods asked for an outlook on transaction volumes if the 10-year Treasury reaches 5%, inquired about potential GSE processing bottlenecks in Q4, and sought clarity on the 2025 growth prospects for the tax syndication business. He later asked for confirmation on a specific large, low-fee transaction.

Answer

CEO Willy Walker stated the company doesn't predict interest rates but noted that higher rates could reinforce multifamily demand by making homeownership less affordable. He emphasized that rate stability is more critical for transaction activity than the absolute rate level. Walker addressed GSE capacity, distinguishing Walker & Dunlop's control over its Fannie Mae DUS underwriting from competitors' potential bottlenecks with Freddie Mac's Optigo program. He expressed confidence in the tax syndication business for 2025, expecting a rebound from a slow Q3. CFO Greg Florkowski and CEO Willy Walker confirmed that a large, highly competitive brokerage deal in the quarter had a lower-than-typical fee, impacting the revenue-to-volume ratio.

Jade Rahmani inquired about the risks of property-level data becoming public, particularly for low to middle-market assets, and how proprietary data combined with AI advances both experienced and younger teams within Newmark.

Answer

CEO Barry Gosin acknowledged that some data is confidential but Newmark possesses an enormous amount of proprietary data, which offers numerous opportunities to create value for clients. He explained that AI, combined with proprietary data, will benefit both older, established teams by enhancing efficiency and younger talent by increasing opportunities and client engagement.

Jade Rahmani inquired about the risks of property-level data becoming public, particularly for low to middle-market assets, and how Newmark's proprietary data combined with AI advances 'star quality' teams and helps younger teams compete. She also asked for a breakdown of the 2026 revenue growth outlook for leasing, management services, and capital markets.

Answer

CEO Barry Gosin acknowledged some data confidentiality but emphasized Newmark's vast proprietary data for evaluations and client value, seeing no shortage of opportunities. He confirmed AI and data benefit both experienced and younger teams by increasing efficiency and opportunity, aligning with Newmark's talent strategy. For 2026, Gosin expects capital markets to be above the midpoint, management/servicing roughly in line, and leasing slightly below the midpoint of the guidance.

In a follow-up, Jade Rahmani asked for commentary on the competitive environment for recruiting talent and Newmark's own plans for growing its commission-driven staff.

Answer

CEO Barry Gosin positioned Newmark as a "go-to company" for talent, emphasizing a strategy of "high revenue per capita, more with less" rather than just adding headcount. He stated that the company is incredibly competitive, that most recruiting is going their way, and highlighted recent success in European expansion as evidence of the brand's appeal to top professionals.

Jade Rahmani of Keefe, Bruyette & Woods inquired about the potential for large bank loan portfolio sales in the market and requested a breakdown of the growth assumptions for capital markets and leasing within the 2025 guidance.

Answer

CEO Barry Gosin anticipates a steady, multi-year trickle of loan sales from banks rather than a large wave, noting a broader shift of debt to private capital. CFO Michael Rispoli clarified the 2025 guidance, stating that at the midpoint, capital markets revenue is expected to grow slightly faster than the 9% company average, with leasing growing slightly slower.

Jade Rahmani asked for an outlook on capital markets, questioning the dynamic between investment sales and commercial mortgage growth, demand for traditional assets, and the drivers behind the strong GSE multifamily debt business.

Answer

CEO Barry Gosin noted a very active sales pipeline that is sensitive to interest rates, while the debt business is gaining market share from strategic hires. He confirmed interest across all asset classes, including office, where conversions are reducing inventory. Both Barry Gosin and Michael Rispoli attributed strong GSE volume to a combination of market share gains, a higher debt capture rate on sales, and a broad pickup in market demand, though year-end closing capacity is a variable.

Jade Rahmani questioned Starwood Property Trust's overall view on credit trends, asking if credit quality is improving or deteriorating, noting recent migrations in multifamily and industrial assets, distinct from the previously scrutinized office sector. She also inquired about the expected timeline for the company to achieve dividend coverage through distributable earnings, including any anticipated outsized gains in 2026.

Answer

Jeffrey DiModica, President and Managing Director, stated that overall positives outweigh negatives, suggesting a turn in the credit cycle, despite some idiosyncratic issues in industrial and studio assets. He noted that multifamily losses are generally 'paper cuts' and would be immaterial with lower SOFR rates. Barry Sternlicht, Co-Founder, Chairman, and CEO, acknowledged market confusion but pointed to tailwinds like falling interest rates and declining multifamily supply. He explained that the company's long-term strategy involves repositioning foreclosed assets for better value, and that accounting for non-cash losses and cash drag, the company already has the earnings power to cover the dividend. Rina Paniry, CFO, confirmed a 9% carryover rent growth for affordable housing. Barry Sternlicht also mentioned the potential to spin out the net lease business if equity markets don't recognize its value.

Jade Rahmani with KBW sought an overall view on credit trends, asking if credit quality is improving or deteriorating, particularly noting recent deteriorations in multifamily and industrial assets rather than office. She also inquired about the expected timeframe for Starwood Property Trust to consistently cover its dividend, asking if distributable earnings (DE) are projected to meet or exceed the dividend by Q4 2026, and if any outsized gains are anticipated.

Answer

President and Managing Director Jeffrey DiModica stated that overall credit positives outweigh negatives, suggesting the credit cycle has turned, despite some idiosyncratic issues in studio and industrial assets. He anticipates multifamily losses to be minimal if SOFR remains low. Chairman and CEO Barry Sternlicht added that real estate generally performs well during equity market volatility and noted tailwinds from falling interest rates and declining multifamily supply. Regarding dividend coverage, Mr. Sternlicht indicated that earnings are expected to improve "a little better every quarter." He asserted that excluding non-cash losses and cash drag, the company already possesses the earnings power to cover the dividend. He also mentioned the strategic option to sell assets from their highly appreciated affordable housing portfolio (Woodstar Fund) or spin out the net lease business to unlock value, emphasizing their long-term approach. CFO Rina Paniry confirmed a 9% rent growth carryover for the affordable housing portfolio.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) asked if credit in the portfolio has stabilized, what the outlook is for asset resolutions, and for commentary on the hotel loan exposure. He also noted the company's prudent avoidance of the life science sector.

Answer

President Jeffrey DiModica expressed confidence in the hotel portfolio, stating there are no 4 or 5-rated hotel loans and that the book is performing well. Regarding overall credit, he suggested that if the forward curve holds and SOFR declines toward 3%, the industry is likely over-reserved, but risks remain if rates stay higher. Chairman & CEO Barry Sternlicht added that the company was cautious on life science conversions and remains selective in its hotel lending, focusing on assets they would be comfortable owning.

Jade Rahmani asked for clarification on whether the timing of loan closings impacted Q1 interest income and inquired about the strategy for executing on subordinate debt opportunities.

Answer

President Jeff DiModica responded, confirming that a significant volume of loan originations closed late in Q1, the earnings from which will be more fully realized in Q2. He expects the strong investment pace to continue. Regarding subordinate debt, DiModica clarified that their primary strategy is to create subordinate-like risk exposure by originating senior loans and applying leverage, rather than purchasing secondary subordinate securities, unless unlevered yields on those securities rise to more attractive levels of 11-12%.

Jade Rahmani of KBW asked for details on the life science loan downgrade and the outlook for that sector, given oversupply. He also inquired about potential new initiatives in GSE multifamily lending, including the possibility of a joint venture.

Answer

President Jeffrey DiModica addressed the life science loan, noting the company has minimal exposure and sees challenges in the sector due to oversupply and the potential for AI to reduce lab space needs. Regarding GSE multifamily, both DiModica and CEO Barry Sternlicht expressed interest but highlighted the high cost of entry and difficulties in finding partners whose credit standards align with their own, making organic growth in other segments a current priority.

Jade Rahmani from KBW asked about the potential risk the volatile treasury market poses to the commercial real estate recovery and questioned if the recent investment mix, weighted toward non-CRE assets, represents a new strategic direction.

Answer

President Jeff DiModica stated that while higher long-term rates impact cap rates, a stronger economy driving those rates would be a net positive through increased leasing and rents. He clarified that the recent investment allocation was a "moment in time" and expects the core CRE lending business to return to approximately 70% of new activity as the market recovers.

Jade Rahmani from KBW asked about the potential for AI disruption in the low to middle market commercial real estate segment, contrasting it with the institutional market, and sought a breakdown of JLL's business by market size. He also inquired about JLL's current AI applications across its platform, the businesses benefiting most, and a quantification of revenue or earnings from data center management services. Additionally, he explored whether network effects, such as JLL's ecosystem for transaction deal flow and management services, serve as another buffer against AI disruption.

Answer

President and CEO Christian Ulbrich stated that scaled businesses with data are better protected from AI disruption, and while less sophisticated deals might theoretically be at risk, human interaction remains crucial. He affirmed JLL's focus on high-value transactions and prime assets, seeing no immediate disruption. Ulbrich detailed AI's role in driving efficiency across all business lines and functions, contributing to margin expansion, and noted strong growth in data center-related business, which doubled year-over-year in workplace management and saw significant transactional activity in Q4, though he refrained from providing specific revenue figures. He further explained that clients are consolidating service providers to reduce complexity, benefiting large, trusted players like JLL, whose growing proprietary data from extensive transactions and managed buildings provides unique, protective insights.

Jade Rahmani questioned the potential for AI disruption in the low to middle market commercial real estate segment and asked for a breakdown of JLL's institutional versus low/middle market business. He also inquired about JLL's current AI utilization across its platform, which businesses benefit most, and the revenue/earnings contribution from data center management services. Later, he asked if network effects serve as another buffer against AI disruption.

Answer

Christian Ulbrich, President and CEO, asserted that scaled businesses with data are better protected, foreseeing no significant AI disruption for JLL's focus on high-quality assets and large transactions. He explained AI drives efficiency across all business lines and functions, contributing to margin performance, and noted data center work doubled year-over-year across multiple service lines, but declined to provide a specific revenue figure. He also agreed that network effects, driven by clients consolidating service providers and JLL's data collection, provide a significant protective mechanism.

Jade Rahmani inquired about the expected margin upside in the Capital Markets business and sought details on the multifamily loan losses, specifically the context of fraud instances and the impact on CECL reserves.

Answer

Kelly Howe (CFO) indicated significant upside potential for Capital Markets margins, attributing it to a strong producer cohort and platform leverage. She clarified that the $7.2 million charge included expenses related to two previously discussed fraud-related loans, with one fully closed out in Q3 and the other sold in October 2025. She noted that a little more than half of the charge was related to these fraud issues, with the remainder for CECL reserve adjustments, which can be volatile but are up $700,000 on a trailing twelve-month basis.

Jade Rahmani asked about the expected margin upside for the capital markets business, seeking parameters for the near to medium term, given its historical high-margin profile. He also inquired about the multifamily loss, specifically if the charge was related to newly uncovered fraud issues or legacy instances, and requested commentary on broader credit trends in multifamily.

Answer

CFO Kelly Howe stated that JLL sees significant margin upside in capital markets, attributing it to maintaining a strong cohort of producers during the downturn and leveraging the platform for increased productivity. Regarding the multifamily loss, Howe clarified that the $7.2 million charge was primarily associated with two previously discussed fraud-related loans, with a little more than half related to these specific instances. She noted that one loan was completely closed out in Q3, and another repurchased from Fannie Mae was sold in October 2025. Howe also mentioned that a portion of the charge covered CECL reserve changes, which can be volatile, but on a trailing twelve-month basis, net CECL reserves were up $700,000, indicating a modest impact not indicative of broader deterioration.

Jade Rahmani of Keefe, Bruyette & Woods, Inc. sought clarification on the comment that margin expansion would not be 'linear' and asked about the comparative growth outlook for Capital Markets in the U.S. versus international markets.

Answer

CEO Christian Ulbrich explained that 'non-linear' margin expansion means they expect stronger margin gains in the second half of the year, consistent with typical seasonality. Regarding Capital Markets, Ulbrich noted that while European interest rates have fallen, slow economic growth remains a headwind, making the U.S. the dominant driver of activity. CFO Kelly Howe added that the Capital Markets business is split approximately 60% in the Americas and 40% in the rest of the world.

Jade Rahmani asked for signs of a market pullback, notable geographic trends in APAC, and whether to expect slower growth in H2 2025 due to tough comparisons.

Answer

CEO Christian Ulbrich noted market resilience, highlighting strength in the U.S., Japan, Korea, and Australia, and a trend of Asian capital shifting to the U.K. CFO Karen Brennan acknowledged that tough H2 comps and macro uncertainty suggest a moderation in growth rates, but she reiterated the company's full-year adjusted EBITDA guidance.

Jade Rahmani of Keefe, Bruyette & Woods asked if the office market recovery is broadening beyond Class A properties and inquired about the profitability timeline for JLL Technologies and the reasons for recent write-downs in that segment.

Answer

CEO Christian Ulbrich explained that while the office recovery remains a 'flight to quality,' a lack of new supply is creating opportunities for upgraded Grade B buildings. Regarding JLL Technologies, he stated a clear goal for full-year profitability in 2026, balanced with ongoing investment. He attributed the recent write-downs to a specific investment in the venture portfolio, noting the portfolio remains strategically important.

Jade Rahmani asked for an outlook on the commercial real estate recovery, the potential impact of higher treasury rates, the strategic rationale for the property management realignment, and the sustainability of growth into 2025.

Answer

Global CEO Christian Ulbrich characterized the 2025 recovery outlook as between 'modest' and 'very strong' and does not expect a negative impact from higher treasury rates in the near term due to strong international demand. He explained the property management realignment aims to capture synergies with the Workplace Management business. CFO Karen Brennan deferred providing a specific 2025 growth outlook until after Q4 results.

Jade Rahmani asked for views on where book value per share might trough, given its sharp decline, and the expectations for the risk of future losses. He also inquired about the vintage and performance of the multifamily property type, especially after a recent downgrade in that sector.

Answer

Jack Taylor, President and CEO, stated that while risks are assessed and embedded in reserves, he expects ongoing workouts and delinquencies for the industry, including potential upgrades and downgrades. Stephen Alpart, Chief Investment Officer, added that the majority of the portfolio is performing well, with ongoing resolutions, particularly in the office sector. He noted one new five-rated loan in multifamily but expressed overall positive sentiment for the multifamily sector medium to longer term, despite a slower recovery in some markets like Atlanta.

Jade Rahmani, Equity Research Analyst at KBW, questioned Granite Point Mortgage Trust's outlook on where book value per share might trough in the current cycle, seeking expectations for future loss risk given recent declines. She also asked for commentary on the vintage and performance expectations for the multifamily property type, especially following a recent downgrade in that sector.

Answer

Jack Taylor, President and CEO, acknowledged the ongoing risk of credit migration and potential future losses, noting these are embedded in current reserves. Stephen Alpart, Chief Investment Officer, elaborated that while the majority of the portfolio performs well, the company is actively working through remaining resolutions, particularly in the office sector, and observes a constructive capital environment. For multifamily, Mr. Alpart described varying maturity timelines for loans and stated that the recent Atlanta downgrade was an exception. He expressed a generally positive medium-to-longer-term outlook for multifamily, citing improving supply dynamics and positive sentiment despite a sluggish recovery.

Inquired about the company's plans to restart originations, including timing and expected volume for 2025-2026, and asked for an update on trends in the broader office portfolio.

Answer

Management expects to begin quoting new loans in Q4 2025 and start closing them late 2025 or early 2026, targeting $750 million to $1 billion in originations through 2026. They see slow but steady improvement in the office sector and feel their portfolio is well-positioned.

Asked a series of detailed questions regarding loan portfolio maturities, the specific CECL reserve amount on risk-rated 4 loans, the likelihood of future credit provisions, and details about a Miami office property taken into REO, including its basis and potential for a future gain.

Answer

The company clarified that the 0.6-year maturity figure from the 10-Q excludes extension options and that about 20% of the portfolio matures in 2025 on a fully extended basis. The reserve on risk-rated 4 loans is $13.1 million on a $174 million balance. It is too early to predict future provisions. The Miami REO property is a quality asset whose prior owner was distressed; the company is actively leasing it, took it on the books at $72.5 million, and believes a gain is possible upon resolution.

Questioned the timing of a major credit downgrade on an old loan, the company's high loss severities, and the overall capital management strategy, suggesting a dividend cut and a more aggressive approach to taking assets into REO instead of share buybacks.

Answer

The downgrade was triggered by the recent conclusion of a long, confidential arbitration process that GPMT was not party to. The company asserts its asset management is active, with many older loans having been modified. Regarding capital strategy, the dividend is maintained with the expectation of future coverage. They prefer working with cooperative borrowers on resolutions over taking assets into REO to preserve valuable financing and sometimes gain a share of future upside.

Jade Rahmani asked about the margin outlook for the BOE (Building Operations and Experience) and project management businesses, specifically if there's room for further improvement and expected margin expansion in 2026. She also inquired about CBRE's experience with agency servicing business loan putbacks from Fannie Mae and Freddie Mac due to fraud.

Answer

Emma Giamartino (CFO) noted satisfaction with 2025 BOE margins, which expanded due to cost efficiencies. For 2026, BOE margins are expected to be flat due to investments for sustained growth, with incremental expansion anticipated beyond 2026. Project management is expected to see some margin expansion in 2026. She confirmed CBRE has not experienced fraud-related loan putbacks, attributing it to rigorous underwriting, with loan loss reserves increasing steadily with the loan book.

Jade Rahmani asked about the margin outlook for the BOE (Building Operations and Experience) and project management businesses, specifically if there is room for further improvement and expected margin expansion in 2026. She also inquired if CBRE has experienced loan putbacks from Fannie Mae and Freddie Mac in its agency servicing business due to fraud or other issues.

Answer

Emma Giamartino, CFO, stated that BOE margins were strong in 2025 due to cost efficiencies, and while there's some operating leverage in 2026, proactive investments in growth areas like data centers and Industrious will offset it, leading to flat BOE margins for the year. She expects continued incremental margin expansion beyond 2026 and some margin expansion in project management for 2026. Regarding agency servicing, she confirmed CBRE has not seen any fraud in its portfolio and maintains a rigorous underwriting process, with loan loss reserves increasing steadily with the loan book, but without the spikes seen elsewhere.

Jade Rahmani followed up on the strength of the U.S. office sector, asking if the recovery is primarily driven by Class A and new developments or if it's becoming more widespread to Class B assets in secondary submarkets. She also asked about the drivers of growth in the industrial sector, which had previously faced oversupply and negative absorption. Finally, she inquired about expectations for full-year EBITDA margins beyond 2025.

Answer

CEO Robert Sulentic explained that the office recovery is spreading from Class A to upgraded lower-class buildings and new development, with demand moving into secondary/tertiary markets. For industrial, Mr. Sulentic cited big leases in prime buildings and renewals in smaller, older spaces, expecting vacancy to decrease by mid-next year. CFO Emma Giamartino stated that advisory margins are near peak and sustainable, while BOE and project management are expected to see continued margin expansion next year due to synergies.

Jade Rahmani inquired about the drivers of strength in the U.S. office sector, specifically whether the recovery is concentrated in Class A/A+ spaces or becoming more widespread to Class B assets and secondary submarkets, and the outlook for new development. He also asked about the industrial market's turnaround from oversupply and negative absorptions, and the factors contributing to its growth in the quarter, finally asking about the outlook for EBITDA margins beyond 2025.

Answer

CEO Robert Sulentic confirmed the office recovery is spreading from Class A to upgraded lower-class buildings and new development, citing examples in Dallas and New York, and attributed industrial growth to large leases in prime buildings and renewals in smaller, older spaces, expecting vacancy rates to decline by mid-next year. CFO Emma Giamartino stated that advisory margins are near peak and sustainable, while BOE and project management are expected to see incremental margin expansion next year due to synergies.

Jade Rahmani of Keefe, Bruyette & Woods, Inc. asked about the strategic focus on growing higher-multiple businesses like infrastructure, inquired about capital allocation targets for this area, and questioned if quarterly free cash flow met expectations.

Answer

President, CEO, and Chairman Robert Sulentic confirmed a strong focus on growing infrastructure exposure across the company but said no specific allocation targets have been set. CFO Emma Giamartino explained that free cash flow was on track, with timing differences between Q1 and Q2, and the full-year conversion target remains intact.

Jade Rahmani asked for the drivers behind strong margin gains in the Advisory and BOE segments and questioned if there was a slowdown in data center activity or changes to investment strategy due to construction costs.

Answer

CFO Emma Giamartino attributed margin gains to strong incremental margins on high-margin transaction revenue in Advisory and cost-saving initiatives in BOE. CEO Robert Sulentic stated the data center services business had a strong quarter and is not materially impacted by hyperscaler pullbacks. He also explained that construction cost risks for the development portfolio are well-mitigated by GMP contracts, contingencies, and the nature of project costs.

Jade Rahmani requested commentary on several discrete financial items, including integration and cost reduction charges, the effective tax rate, and details on recent share repurchase activity.

Answer

CFO Emma Giamartino clarified that significant 2024 restructuring costs are now complete and will not recur, meaningfully narrowing the gap between GAAP and core earnings in 2025. She stated the tax rate will normalize to 22% in 2025 from 18% in 2024. Of the ~$800 million in recent buybacks, she confirmed $500 million occurred in Q4 2024, with the remainder in early 2025.

Jade Rahmani asked about Trammell Crow Company's strategy for repurposing industrial land for data centers and whether CBRE would consider a strategic transaction, such as a spin-off of TCC, to unlock value.

Answer

Chair and CEO Bob Sulentic confirmed that TCC is actively capitalizing on converting logistics land sites for data center use. However, he firmly stated that CBRE is not contemplating a spin-off of TCC, highlighting its high returns and critical synergies with other business lines, such as seeding a $5 billion investment fund and enabling large-scale development ventures with Turner & Townsend.

In a follow-up, Jade Rahmani asked about the possibility of instituting a regular quarterly dividend, given that resilient businesses contribute 60% of profits.

Answer

CFO Emma Giamartino responded that while the company evaluates a dividend over time, it currently prefers the flexibility of share buybacks for capital return. She stated that as long as they can continue executing on buybacks, a dividend is not considered necessary.

Jade Rahmani asked about the future of the dividend post-portfolio sale, specifically if there would be a period without a dividend or if it would be a return of capital, and sought agreement on broader themes for creating an entity that trades above book value.

Answer

CEO Stuart Rothstein confirmed an envisioned Q1 dividend consistent with past rates ($0.25/share), but stated future Q2 decisions would involve board discussions on dividends, ongoing strategy versus dissolution, and capital return, acknowledging the 'return of capital' point. He agreed on debating price-to-book versus multiple-of-earnings models for future growth, emphasizing the pursuit of a strategy with 'more legs' than a one-off capital deployment, aiming for continued growth, outsized returns, or platform value.

Jade Rahmani first asked about the dividend policy post-portfolio sale, specifically whether there would be a period without a dividend and the implications for book value. He then followed up on the future strategy, proposing that to trade above book value, ARI would need to generate higher returns, potentially through mezzanine/construction lending, leveraging Apollo's access to financing, or investing in operating companies, and sought Stuart Rothstein's agreement or additional insights.

Answer

CEO Stuart Rothstein confirmed the intention to pay a Q1 dividend of $0.25 per share, subject to board approval, but noted that future dividends beyond Q1 would involve further board discussions regarding the interplay between ongoing strategy, dissolution, and potential return of capital. Addressing the strategy question, Mr. Rothstein broadly agreed with the themes, emphasizing the debate between price-to-book and multiple-of-earnings models. He stressed the goal of identifying a strategy with long-term growth trajectory, outsized returns, or platform value, rather than a short-term capital deployment.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) asked about potential upside from land parcels near "The Brook," the expected year-end basis for the 111 West 57th Street loan, and the company's future leverage strategy as it converts non-earning assets.

Answer

President, CEO & Director Stuart Rothstein confirmed discussions are ongoing for adjacent parcels at The Brook, which could offer upside but are too early to predict. Regarding 111 West 57th, he noted the current basis is ~$270M and expects it to decrease by year-end but declined to give a specific number. He stated that leverage is expected to remain in the current ballpark, with capital redeployment from focus assets driving meaningful earnings growth.

Jade Rahmani from Keefe, Bruyette & Woods requested updates on four specific assets: the Berlin and Chicago offices (risk-rated 4), and the Manhattan office and Cleveland multifamily (risk-rated 3). He also asked for clarification on the loan balance changes for 111 West 57th Street.

Answer

Chief Investment Officer Scott Weiner provided detailed updates, noting progress on modifications, new equity infusions, and leasing at the Berlin and Chicago office assets. For the Manhattan office, he mentioned a potential recapitalization and multifamily conversion. On 111 West 57th, Weiner explained the Q1 balance increase was due to pre-reserved funding for retail tenant improvements. Both Weiner and Stuart Rothstein confirmed Rahmani's pro forma balance calculation after pending sales was in the right ballpark and that 11 units remain to be sold.

Jade Rahmani of KBW inquired about current investment themes, including attractive geographies and property types, and asked for an update on the monetization outlook for the company's REO hotels.

Answer

Chief Investment Officer Scott Weiner noted increased activity across all sectors, highlighting newly built multifamily, senior housing in the U.S. and U.K., student housing, and data centers as key opportunities. He clarified these are primarily acquisition and refinancing situations, not distressed deals. Regarding the REO hotels, Weiner stated the D.C. property is performing well and may be marketed later in 2025, while the Atlanta asset is still being evaluated. Both are cash-flow positive, allowing for a patient approach to sale.

Jade Rahmani of Keefe, Bruyette & Woods asked about the rise in interest expense, the sales and retail lease status at 111 West 57th, and potential benefits from the Apollo-Atlas business combination.

Answer

CFO Anastasia Mironova deferred the interest expense question for a follow-up. Executive Stuart Rothstein reported strong foot traffic at 111 West 57th, with four units under contract expected to yield ~$55 million in net proceeds. He also confirmed the retail space is fully leased to Bonhams. CIO Scott Weiner noted the Atlas combination has been a net positive, helping source business through introductions, though ARI is not currently buying B-pieces of securitizations.

Jade Rahmani inquired about the outlook for the REO portfolio, potential upside in key assets, and specifically requested details on a New York office REO acquired in December 2025, noting its attractive basis.

Answer

President Austin Peña explained that REO decisions are based on a go-forward return analysis, leveraging unique data. He noted improved fundamentals and investor demand in New York, confirming the specific asset is held at a significant discount to its original loan value. He anticipates potential exits for several REO assets, including one in Texas, over the year, with positive trends also observed in San Francisco. For the New York REO, he added it was originated pre-COVID, is well-leased, and the company would evaluate CapEx for further leasing opportunities, expecting potential upside given prior reserves.

Jade Rahmani asked for Blackstone Mortgage Trust's perspective on its REO portfolio, including potential upside in key assets and specific details on the New York office REO acquired in December 2025.

Answer

President Austin Peña explained that REO decisions are based on go-forward return analysis, leveraging unique data. He noted improving fundamentals and investor demand in markets like New York, where the office asset is held at a significant discount to its original loan value. He anticipates several assets, including one in Texas, are well-positioned for exit in 2026, with potential for additional upside. The New York loan was originated pre-COVID, is well-leased, and further CapEx for leasing would be analyzed for accretion.

Jade Rahmani inquired if Blackstone Mortgage Trust has observed any spillover effects from broader economic weaknesses into the CRE market and whether the company is adopting a more defensive posture. He also asked if the pace of 3Q investments was muted due to liability management activities.

Answer

Tim Johnson, Chair of the Expertise Board and Global Head of BREDS, stated that they are not seeing spillover effects in real estate credit, noting the market has already been tested and is in recovery with higher credit standards. Austin Peña, EVP of Investments, clarified that while 3Q saw $1 billion in investments, the pipeline remains robust with $1.7 billion in closing, attributing any modest impact to seasonal volatility rather than liability management.

Jade Rahmani with KBW asked if Blackstone Mortgage Trust has observed any spillover effects into the commercial real estate (CRE) market from broader economic weaknesses, such as in consumer spending, jobs, or C&I lending, and what defensive measures the company is taking. She also questioned if the pace of 3Q investments and originations was muted due to extensive liability management activities, such as establishing new repo lines, tightening term loan spreads, and calling the CLO, in preparation for stronger future originations.

Answer

Tim Johnson, Chairman and Incoming CEO, stated that they are not seeing spillover effects in real estate credit, as the market has already navigated a significant downturn and is now in recovery, making it "battle-tested" with higher credit standards. Austin Peña, EVP of Investments, noted that while the company made $1 billion in total investments in Q3 and has $1.7 billion in closing, indicating a robust pipeline, there might have been a modest seasonal impact from spring volatility on transaction timings. He affirmed strong transaction activity is expected going forward.

Jade Rahmani of Keefe, Bruyette & Woods inquired about trends in the repo market, both for BXMT's counterparties and the broader market. He also asked for commentary on the performance and outlook for the hospitality, multifamily, and industrial sectors, given the view that real estate has already undergone its cycle.

Answer

CEO Katharine Keenan affirmed that bank relationships remain very strong, with lenders eager to grow their credit facility exposure to high-quality platforms like BXMT. Regarding sectors, she identified hospitality as an area to watch due to economic sensitivity but noted BXMT's exposure is low. She expressed conviction in multifamily as supply pressures ease and viewed industrial as resilient, with long-term tailwinds balancing trade impacts.

Jade Rahmani asked if recent interest rate volatility has created new credit challenges and questioned if accessing unsecured debt was a goal of the new net lease strategy, as well as its potential scaling timeline.

Answer

CEO Katharine Keenan stated that rate volatility has not had a material negative impact and has actually driven more capital into credit markets, improving liquidity. She confirmed that accessing diverse financing markets, including ABS or corporate debt, is a benefit of the net lease strategy. She noted the strategy will be scaled thoughtfully based on investment opportunities, following a 'build, not buy' approach.

Jade Rahmani from Keefe, Bruyette & Woods questioned the confidence that credit problems are contained within the 4- and 5-rated loan buckets, asking about the risk of further downgrades from risk-rated 3 loans. He also requested a status update on the large legacy deals in Spain and Australia.

Answer

CEO Katie Keenan expressed confidence that the momentum has shifted, noting that the remaining 3-rated U.S. office loans are primarily high-quality new construction or have high cash flow. Regarding specific deals, she said the Spain portfolio continues to pay down steadily, while the Australia portfolio is on a "positive trajectory" after significant capital investment.

Jade Rahmani inquired if the open securitization markets offer an opportunity to unlock capital and asked if BXMT's new investment strategy would change, for instance, by taking smaller pieces of large deals.

Answer

CEO Katie Keenan confirmed that the resurgence of CMBS and CLO markets is a positive trend that aids repayments and is being monitored for strategic financing. She stated that while the core credit focus remains, the firm is always innovating on how to access risk-return tranches and views episodic bank loan portfolio sales as an attractive opportunity.

Jade Rahmani inquired about the anticipated timing for repayments from the Brooklyn residential condominium project, specifically when sales closings might occur in 2026, and later asked for context on the current debt yield for the Chicago office loan and the demand for such assets.

Answer

CEO Bryan Donohoe explained that while difficult to predict, they hope to see a smooth sales process and proceeds returning to the company in the second half of 2026, following a lag from marketing to contract to sale. CFO Jeffrey Gonzales added that initial proceeds would first pay down debt, then return as liquidity. Regarding the Chicago office loan, Mr. Donohoe noted the divergence between 'have and have-nots' in office assets, emphasizing their focus on resolving this loan, but did not provide a specific debt yield.

Jade Rahmani inquired about the anticipated timing for repayments from the Brooklyn residential condominium project, assuming sales commence in the first half of 2026, and when closings might occur. She also asked for context on the current debt yield for the Chicago office loan and observed demand for this asset type, noting its strong occupancy and weighted average lease duration.

Answer

CEO Bryan Donohoe explained that while difficult to predict, they anticipate a lag from marketing to contract to sale for the Brooklyn project, with hopes for smooth sales and proceeds returning to the company in the second half of 2026 after initial debt repayment. CFO Jeffrey Gonzales clarified that initial proceeds would first pay down debt, providing immediate interest savings. For the Chicago office loan, CEO Bryan Donohoe highlighted the divergence between 'have and have-nots' in office assets, noting the property's stable occupancy above 90% and 8-year weighted average lease term provide patience for resolution, but did not provide a specific debt yield.

Jade Rahmani from Keefe, Bruyette & Woods (KBW) asked for ACRE's perspective on the competitiveness of the CRE lending market, the stability of real estate fundamentals, and specific trends in the multifamily sector.

Answer

CEO & Director Bryan Donohoe described the current lending environment as attractive, with a reset in asset values providing better attachment points. He noted relative stability in fundamentals, with a favorable forward supply-demand outlook for multifamily and industrial. For multifamily, he acknowledged a current 'digestion phase' but expressed optimism for modest rent growth.

Jade Rahmani of Keefe, Bruyette & Woods, Inc. requested an update on the Life Science project in Boston and asked for clarification on what was meant by "strategic initiatives" in the prepared remarks, connecting it to the recent GCP acquisition.

Answer

CEO Bryan Donohoe acknowledged that the Boston Life Science market has struggled but noted they are in discussions with the sponsor and feel the reserve is appropriate. He clarified that "strategic initiatives" primarily refers to evaluating capital deployment options like new investments and share buybacks. Regarding the GCP acquisition, Donohoe highlighted that it expands Ares' vertical integration and expertise in asset classes like data centers and self-storage, which benefits ACRE.

Jade Rahmani of KBW asked for details on the challenged Boston Life Science loan and for broader commentary on credit trends within the multifamily sector.

Answer

CEO Bryan Donohoe explained the Boston loan was downgraded due to a business plan pivot from life science to traditional office use, which impacts rents and valuation amid market supply growth. An executive added that the reserve on this asset was increased. Regarding multifamily, Donohoe noted that fundamentals remain exceptionally positive, and while higher rates have muted transaction volumes, ACRE feels well-protected as a lender in the sector.

Jade Rahmani asked about the impact of treasury market volatility on refinancing, the 2025 maturity profile for the office portfolio, and whether positive leasing trends are evident in ACRE's assets.

Answer

CEO Bryan Donohoe acknowledged that higher funding costs are impactful but believes improved capital flows and rent inflation in key sectors should provide an offset. Regarding the office portfolio, he confirmed ongoing dialogue with sponsors and noted that while business plans are taking longer, they are seeing fundamental market improvements and more leasing conversations for their own assets.

Jade Rahmani asked about Ladder Capital's strategy in response to 2026 market volatility, including jitters around AI's impact, big tech CapEx, and tightening CRE loan spreads. He also inquired about achievable ROE within the current capital structure, the projected year-end loan portfolio size, and plans for growing the real estate equity portfolio.

Answer

Brian Harris, CEO of Ladder Capital Corp, stated the company does not plan to change its strategy due to volatility, viewing it as an opportunity. He emphasized Ladder's independence and focus on 'bricks and mortar' assets over data centers. For earnings growth, Mr. Harris confirmed plans to selectively grow the real estate equity portfolio, aiming for a loan portfolio exceeding $6 billion by year-end, and an achievable ROE of 9-10%, with potential for higher ROE from asset gains and no anticipated negative surprises.

Jade Rahmani inquired about Ladder Capital's strategic adjustments in response to 2026 market volatility, including jitters from AI/CapEx spend, interest rate fluctuations, and tightening CRE loan spreads.

Answer

Brian Harris (CEO, Ladder Capital Corp) stated that Ladder does not plan to alter its strategy due to market volatility, noting that early-year spread tightening is typical. He emphasized Ladder's focus on stable, 'bricks and mortar' real estate assets over speculative tech investments like data centers, viewing volatility as a source of opportunities. Rahmani also asked about achievable ROE, projected loan portfolio growth, and plans for the real estate equity portfolio. Harris confirmed plans to selectively grow the real estate equity portfolio, particularly in opportunities with reset valuations, projecting the total asset portfolio to exceed $6 billion by year-end and an achievable Return on Equity (ROE) of 9-10%, potentially higher with one-time gains.

Jade Rahmani asked if Ladder Capital would contemplate launching a securities fund, leveraging the potential for 15% returns with leverage, and if the New York office equity investment was a long-term hold, also asking for its size.

Answer

CEO Brian Harris acknowledged that Ladder has run investment portfolios before and that a levered yield of around 15% on securities is attractive but comes with high leverage, which is not Ladder's primary strategy. He mentioned considering spinning off the triple net portfolio due to valuation. Regarding the New York office equity investment (783 Third Avenue), he stated it was a $13 million or $14 million minority equity investment, now over 90% leased, and is considered a long-term hold, with potential for future debt involvement. He also noted that Ladder is looking at similar, larger situations.

Jade Rahmani inquired about changes in Ladder Capital Corp's loan origination strategy following its investment-grade rating, specifically regarding deal size, stabilization, and competitive advantages over non-bank lenders. He also asked about the composition of recent fundings and commitments, including any construction loans or significant CapEx projects.

Answer

CEO Brian Harris explained that Ladder Capital Corp is now considering slightly larger transactions with greater stability due to the investment-grade rating. He noted an improvement in asset quality, focusing on newly built Class A apartment complexes and new industrial portfolios, primarily through acquisitions at reset bases rather than cash-out refinances. Mr. Harris clarified that recent wider spreads were not due to construction or heavy CapEx, as the company generally avoids construction loans.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) asked if the new investment grade rating would lead Ladder to consider different, potentially lower-yielding, investment types like stabilized real estate or fixed-rate loans. He also inquired about plans for the net lease portfolio and the importance of managing its weighted average lease duration.

Answer

CEO Brian Harris stated that the investment grade rating primarily enhances profitability by lowering the cost of funds, rather than changing their investment strategy. He affirmed they will stick to their core credit discipline and not chase higher-risk assets. President Pamela McCormack added that the flexible capital structure allows them to originate their preferred loan types. Regarding the net lease portfolio, Harris explained that acquisitions are driven by the arbitrage between cap rates and financing costs, not just lease term, and emphasized their focus on asset quality and low dollar-per-foot exposure.

Jade Rahmani inquired whether Ladder expects loan originations to maintain or exceed the pace set in the first quarter and asked about the long-term strategy for the net lease portfolio, including plans for growth or dispositions.

Answer

CEO Brian Harris stated he expects loan originations to exceed the Q1 pace, viewing the quarter as a starting point for redeployment. Regarding the net lease portfolio, he described an opportunistic approach, noting all properties are for sale but not actively marketed. He anticipates the portfolio may shrink slightly in the near term but could grow later if a steeper yield curve creates favorable arbitrage opportunities.

Jade Rahmani of Keefe, Bruyette & Woods asked about the opportunity to grow the CMBS conduit business as regional banks pull back, and also questioned the decision to maintain the CECL reserve level despite significant loan repayments.

Answer

Executive Brian Harris explained that the CMBS conduit business is more attractive with a steeper yield curve, and other investments currently offer a more profitable allocation of capital. Regarding the CECL reserve, he noted that while the loan portfolio's denominator has shrunk, the specific loans with potential issues have not paid off, justifying the stable reserve. He added that a future release of reserves is more probable than an increase.

Jade Rahmani of Keefe, Bruyette & Woods asked for color on the factors that weighed on Ladder's Q3 origination volumes, contrasting it with the surge reported by major brokers and peers, and also inquired about the firm's interest in pursuing loan portfolio sales from banks.

Answer

CEO Brian Harris explained that originations are a lagging indicator and expects volumes to show up in Q1/Q2 2025. He cited valuation discipline as a key factor, stating Ladder avoids over-leveraged deals and takes cues from the securitization market. President Pamela McCormack added that Ladder's volume is now increasing with the uptick in new acquisitions, as they have avoided riskier 'bridge-to-bridge' loans. On bank loan portfolios, Harris confirmed interest but noted they haven't seen many opportunities, though recent calls suggest that might be changing.

Jade Rahmani from Keefe, Bruyette & Woods suggested KREF pivot its focus to value creation through loan sales, share repurchases, and unlocking portfolio gains (e.g., Mountain View REO) to address the stock's discount to book value, rather than solely continuing the current strategy. She also inquired about KREF's strategy for life science assets, given the sector's long recovery timeline and potential AI impact, asking for a target basis for these assets. Additionally, she asked for an estimate of capital investment and potential gains for the Mountain View asset and sought comments on specific 2021/2022 vintage risk-three office loans in Washington D.C., Plano, and Dallas.

Answer

CEO Matt Salem affirmed that KREF is already implementing many suggested value creation strategies, including loan sales, accelerating REO gains, and share repurchases, while balancing optimal selling times. He expressed optimism that the stock discount is not permanent, expecting market repricing post-portfolio repositioning. Regarding life science, he acknowledged the long recovery but noted market dynamics can shift, and AI could be positive. He confirmed the need for a lower basis, expecting significant sponsor capital or considering REO, but declined specific basis targets due to ongoing negotiations. For Mountain View, he couldn't quantify CapEx/TI without a lease but indicated significant value above current carrying. He clarified that not all risk-three office loans are problematic, expecting repayments from seasoned assets and considering note sales or deal recuts for others.

Jade Rahmani explored the potential for KREF to pivot its strategy towards value creation, including loan sales, share repurchases, and unlocking gains, given the perceived arbitrage between public and private markets and the sharp discount to book value. Rahmani also questioned the long-term outlook for the life science sector, citing Alexandria's 5+ year turnaround timeline and AI's potential impact, asking about KREF's target basis for life science assets.

Answer

CEO Matt Salem affirmed that KREF is already pursuing many of the suggested strategies, including loan sales for watchlist and select office assets, accelerating REO gains, and share repurchases. He emphasized optimizing the timing of sales to maximize value and expressed confidence that repositioning the portfolio with newer loans will lead to market re-pricing. Regarding life science, Salem acknowledged the potential for a long road but noted that market conditions can change, citing Mountain View as an example. He stated KREF is 'eyes wide open' about needing a lower basis and expects sponsors to commit significant capital for paydowns, often involving 'hope notes,' to reduce KREF's basis.

Jade Rahmani followed up on the life science loan portfolio, asking for an update on sponsor dialogues and the specific reasons for the Cambridge loan downgrade. He also questioned if KKR Real Estate Finance Trust had conducted an NPV analysis comparing holding sub-performing assets versus selling them to reinvest in new deal flow, and inquired about interest in a CMBS conduit business or M&A opportunities for scale.

Answer

Matthew Salem, CEO, explained the Cambridge downgrade was due to modification negotiations with the sponsor, while other 3-rated loans were in normal course. He confirmed that NPV analyses are conducted quarterly, especially for REO, to maximize outcomes, noting patience has been beneficial for quality assets like the Silicon Valley office. Mr. Salem stated there are no current plans for a CMBS originations business due to client base differences, but acknowledged potential industry consolidation and the desire for growth to improve stock liquidity and cost of capital, while having no active M&A discussions.

Jade Rahmani inquired about KKR Real Estate Finance Trust's interest in a CMBS conduit business, given its capital-light nature and healthy securitization outlook, and also about opportunities for combining with other public or privately held mortgage REITs to gain scale and improve dividend consistency.

Answer

CEO Matthew Salem stated that while they have the expertise, there are no current plans for a CMBS originations business, primarily because it doesn't align with their existing client base and credit DNA. Regarding M&A, he acknowledged the potential for industry consolidation and the benefits of scale for stock liquidity and cost of capital, but noted no current opportunities are being actively pursued.

Jade Rahmani of Keefe, Bruyette & Woods inquired about the return on equity (ROE) levels KREF can achieve in the current market, seeking details on loan spreads and all-in yields amidst rising competition. He also asked about expected origination volumes for the second half of the year and if any upcoming loan maturities pose a concern.

Answer

CEO Matt Salem responded that the lending pipeline is near record levels, with spreads for institutional transitional loans in the mid-200s, around 2.65%. He noted that while competition has returned, the opportunity is attractive, with ROEs ranging from the mid-11s to the 13s. Salem stated KREF aims to match the nearly $1 billion in expected second-half repayments with new originations, while managing leverage. He added that there are no significant near-term maturity concerns.

Jade Rahmani of Keefe, Bruyette & Woods inquired about the return on equity (ROE) and loan spreads KKR Real Estate Finance Trust is achieving amid increased market competition. He also asked about origination expectations for the second half of the year, given the projected $1 billion in repayments, and any concerns regarding upcoming loan maturities.

Answer

CEO Matthew Salem acknowledged that competition has compressed spreads to the mid-200s basis points range, similar to pre-tariff announcement levels. He noted that recent deals, while tighter, were on highly stabilized assets, and ROEs remain attractive, ranging from the mid-11s to 13s. Regarding capital deployment, Salem stated the goal is to actively reinvest the nearly $1 billion in expected repayments into new originations while managing leverage. He added that there are no significant near-term maturity concerns.

Jade Rahmani inquired whether other builders are cutting prices and expressed concern about potential price wars. He also asked if KB Home has identified a specific pool of communities for option walkaway charges and if further such charges are anticipated in 2026.

Answer

President and COO Robert McGibney stated that other builders are primarily discounting spec inventory with rate buy-downs rather than cutting base prices, and KB Home sees little competition for its built-to-order (BTO) focus. Chairman and CEO Jeffrey Mezger (or EVP and CFO Robert Dillard) explained that option walkaway charges are a normal part of land procurement, reflecting stringent underwriting standards and market characteristics, and are not expected to be a "normal way thing" in a fulsome market.

Jade Rahmani asked if other builders are adopting KB Home's transparent pricing strategy (cutting price over incentives) and expressed concern about potential price wars. He also inquired about a potential pool of communities where options might not be exercised and if further option walkaway charges are anticipated in 2026.

Answer

President and COO Robert McGibney stated he has not observed other builders following KB Home's transparent pricing, noting most still use incentives to clear spec inventory. He sees little competition for KB Home's Built-to-Order focus, especially in the first-time buyer segment. Chairman and CEO Jeffrey Mezger explained that option walkaway charges are a normal part of land procurement, reflecting stringent underwriting standards and decisions not to proceed with certain contracts, viewing it as a characteristic of the current market.

Jade Rahmani of Keefe, Bruyette & Woods asked how much of the order weakness was related to rising existing home inventory and whether the company was losing prospects to that market. He also asked for a breakdown of the drivers for the change in average selling price.

Answer

President & COO Robert McGibney stated that while he lacked specific data on lost buyers, markets with higher resale inventory (6-7 months of supply) are more competitive, whereas markets with limited resale supply are performing better. EVP & CFO Rob Dillard clarified that the year-over-year ASP was actually up slightly in Q2, driven by regional and community mix shifts, but did not provide a specific breakdown of price versus mix.

Jade Rahmani asked about the company's target for its absorption pace, which dipped to 4.1 per month, and requested a characterization of demand trends in California during the quarter.

Answer

Chairman & CEO Jeffrey Mezger clarified that an absorption pace of 4.0 per month is considered a floor, not a ceiling. The company will allow the pace to run higher in strong markets to optimize assets. President & COO Rob McGibney characterized demand in California as strong, highlighting the Inland Empire as one of the company's best-performing divisions during the quarter.

Jade Rahmani asked about Sunrise Realty Trust's debt financing strategy, including plans for syndication, bank participation in repo lines, and bond issuance, as well as the expected cost of preferred stock. Rahmani also inquired about the underlying performance and trends of the portfolio's deals, particularly the largest construction projects.

Answer

Gabriel Katz, Chief Legal Officer, clarified that Sunrise Realty Trust is not pursuing repo lines, aiming for an investment-grade rating with lower leverage (1-1.5x) through expanding bank lines and potential preferred or unsecured debt offerings. He estimated preferred stock costs around 8%, noting a preference for unsecured debt or baby bonds over warehouse lines. Brian Sedrish, CEO, then stated that the portfolio is performing as expected, with construction activity and progression going well, and pre-sales/lease-up moving along normally, noting a recent pickup in for-sale projects in South Florida.

Jade Rahmani asked about Sunrise Realty Trust's debt financing strategy, including progress on syndication, bank participation, and plans for bond or preferred stock issuance, as well as the underlying performance and trends of the current loan portfolio, particularly for larger construction deals.

Answer

Gabriel Katz, Chief Legal Officer, and Leonard Tannenbaum, Executive Chairman, clarified that Sunrise Realty Trust is not pursuing repo or warehouse lines, instead focusing on achieving an investment-grade rating and expanding bank lines. They are actively exploring preferred or unsecured debt offerings (baby bonds) in the current or next quarter, targeting an 8% cost. Brian Sedrish, CEO, added that the portfolio is performing as expected, with construction and lease-up progressing well, and noted a recent pickup in for-sale projects in South Florida.

Jade Rahmani from Keefe, Bruyette & Woods asked for an updated view on the Florida residential market amid tariff concerns and supply increases, and inquired about the company's capital position and future financing plans.

Answer

CEO Brian Sedrish stated that while they are monitoring market softness and underwriting new deals more cautiously, their existing portfolio's sales are holding up well. Executive Chairman Leonard Tannenbaum affirmed they have ample capital through existing credit lines to execute their business plan and intends to pursue an unsecured debt raise in late 2025, market conditions permitting.

Jade Rahmani inquired about the current covenant on the unencumbered asset ratio, questioned the rationale behind continuing dividend payments and stock buybacks given upcoming corporate maturities and deleveraging plans, and asked if the 'other assets' category, including deferred tax assets, would be reevaluated at year-end.

Answer

CFO Andrew Ahlborn clarified that the company is well within its unencumbered asset ratio covenant, which is 1.1 for $350 million of debt. CEO Tom Capasse explained the company's aggressive balance sheet repositioning, outlining liquidity sources and stating that the dividend policy would be evaluated in December, prioritizing leverage reduction and asset sales. Andrew Ahlborn confirmed that deferred tax assets are reevaluated ongoing, including at year-end, with expectations for future profitability growth in related businesses or potential monetization.

Jade Rahmani asked about the current unencumbered asset ratio covenant, the rationale for continuing dividend payments and stock buybacks given upcoming debt maturities, and the evaluation of the 'other assets' category, particularly deferred tax assets, at year-end.

Answer

CFO Andrew Ahlborn clarified that the unencumbered asset test is well covered, with the covenant being 1.1 for $350 million of debt, not 1.25. CEO Tom Capasse explained that the dividend policy would be evaluated in December, prioritizing leverage reduction and asset sales for liquidity. CFO Andrew Ahlborn confirmed ongoing reevaluation of deferred tax assets, expecting profitability growth in related businesses and potential monetization within the TRS.

Jade Rahmani sought clarification on the Portland mixed-use asset, asking about its balance sheet valuation and the estimated quarterly carrying costs now that the company owns it. He also challenged the decision to maintain the dividend, suggesting the capital could be better used for debt repayment or share buybacks, given the company's deferred tax asset.

Answer

CFO Andrew Ahlborn confirmed the Portland asset's initial valuation and stated the Q2 negative carry of $5.3 million is a reasonable estimate for future quarters, though they are working to reduce it. Chief Credit Officer Adam Zausmer added that material future costs would be 'good news money' for tenant improvements. Regarding the dividend, Ahlborn acknowledged it was a fair question and stated the Board sees a path to earnings coverage and will continue to evaluate performance.

Jade Rahmani asked a series of questions covering the Portland asset strategy, expected SBA and Freddie Mac volumes and margins, the pro forma share count from the UDF merger, operating cash flow, and debt capital market receptivity.

Answer

Chief Credit Officer Adam Zausmer and CEO Thomas Capasse detailed the strategy for the levered Portland asset, which involves taking title to stabilize and sequentially exit its components, with the hotel and office expected to be liquidated sooner. On the SBA business, management guided for short-term volumes between $1.0B-$1.2B with stable ~10% gain-on-sale margins. Freddie Mac volumes were muted due to market-wide process changes but the pipeline is improving. Executives also confirmed the UDF share count, provided operating cash flow details, and expressed confidence in their ability to refinance upcoming debt maturities by utilizing their unencumbered asset pool if necessary.

Jade Rahmani asked about the company's strategy for its 2026 debt maturities, the rationale for the UDF IV merger, and credit trends within the SBA lending business.

Answer

CEO Thomas Capasse and Executive Andrew Ahlborn addressed the questions. Regarding maturities, they have already begun retiring 2026 notes and will use cash flow or access debt markets, noting the asset maturity ladder aligns with liabilities. For the UDF merger, Capasse stated the primary driver was its highly accretive, unlevered EPS profile, not the need for unencumbered assets. On SBA credit, Chief Credit Officer Adam Zausmer noted that 60+ day delinquencies remain moderate at 2.8% with no concerning trends observed, even with growth in small balance loans.

Jade Rahmani questioned the risk of write-downs in 'Other Assets,' specifically deferred loan fees, goodwill, and deferred tax assets, particularly in relation to M&A and nonperforming loan sales. He also asked for the current balance of nonperforming loans and REO, the dollar value of Q3 loan modifications, and the future trajectory of the high PIK interest income.

Answer

Executive Andrew Ahlborn stated there is no expected impairment on the deferred tax asset or goodwill, noting the Mosaic and Broadmark deals were bargain purchase gains. Chief Credit Officer Adam Zausmer broke down delinquencies to ~$400M originated and $150M M&A, with $160M in REO for sale, and noted ~$250M in bridge loan modifications occurred. Ahlborn explained the high PIK interest is temporary, as 77% of the related construction loan balance is expected to pay off or convert to cash-paying by year-end.

Jade Rahmani inquired about the reasons for lower-than-expected CapEx, asking if it was driven by construction activity levels, reduced builder activity, or better pricing from trade partners, and if this trend is expected to continue.

Answer

Lincoln Palmer, Chief Operating Officer, attributed the lower CapEx primarily to timing, with fewer move-outs in Q3 compared to the first half of the year. He also cited continued vigilance in cost controls within the stabilized portfolio, impacts from the Resident 360 program, an intentional focus on maintenance, inter-departmental cooperation, and the contribution of low-cost purpose-built single-family homes from the new development program as key drivers, summarizing it as "intentionality."

Jade Rahmani asked about D.R. Horton's view on interest rates, specifically if a step-down in mortgage rates would lead to further mortgage buydowns (passing on improvements to buyers) or alleviate incentive pressure. He also inquired about buyer preferences regarding incentive packages, asking if there's been a shift towards outright lower home base prices or other savings over mortgage buydowns.

Answer

Paul Romanowski, President and CEO, explained that D.R. Horton primarily solves for a monthly payment, and while lower market rates can reduce their cost for current offerings (like 3.99%), he expects a balance: they will step down further if needed to drive absorptions, but also take advantage of reduced incentive costs if rates drop. He added that for their buyers, the most attractive monthly payment, achieved through a lower rate, remains the preferred incentive, as it also benefits homeowners by paying down more principal over time.

Jade Rahmani asked about D.R. Horton's view on interest rates, specifically if a step-down in mortgage rates would lead to further mortgage buydowns (passing on improvements to buyers) or alleviate incentive pressure. He also inquired about buyer preferences on incentive packages, asking if there's been a shift towards outright lower home base prices or other savings over mortgage buydowns.

Answer

President and CEO Paul Romanowski stated that D.R. Horton will continue to prioritize solving for an attractive monthly payment, using lower rates to make purchases affordable. He expects a balanced approach: if rates drop, it could mean lower buydown costs for D.R. Horton, but they will also step down further if needed to drive absorptions. He noted that for D.R. Horton's buyers, the most attractive incentive remains a lower rate for a better monthly payment, which also benefits homeowners by increasing principal paydown.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) asked about home price trends across the market, including any observed price declines and future expectations. He also questioned whether competitors in both the new and existing home markets were cutting prices.

Answer

SVP Jessica Hansen stated that D.R. Horton prioritizes incentives over base price cuts, which are used more selectively on aged inventory. She noted that the homebuilding industry is generally taking a more rational and balanced approach to pace and price. EVP and COO Michael Murray added that local teams respond to specific competitive dynamics on a neighborhood-by-neighborhood basis.

Jade Rahmani of Keefe, Bruyette & Woods, Inc. asked about current home price trends across the market and whether competitors, including new and existing home sellers, were cutting prices.

Answer

SVP Jessica Hansen explained that D.R. Horton prefers using incentives over broad base price cuts, which are more targeted. EVP & COO Michael Murray added that local operators respond to market-specific competitive dynamics. Jessica Hansen concluded that, by and large, builders are taking a more rational and balanced approach to pace and price today.

Jade Rahmani of Keefe, Bruyette & Woods asked about the pricing environment and whether the company's guidance assumes any price cuts, seeking a reasonable range for the average sales price (ASP).

Answer

CFO Bill Wheat clarified that the ASP reflects the cost of incentives like rate buydowns, which are expected to be higher in Q2, leading to a slight downward movement in the net ASP. He noted that recent sequential changes have been modest, around 1-2%, and did not expect much more than that, declining to provide a specific ASP guide.

Jade Rahmani asked what level of mortgage rates would be needed to spur demand and get buyers off the sidelines. He also inquired about the specific annual percentage rate (APR) the company is currently offering on its mortgage promotions.

Answer

EVP & COO Michael Murray responded that rate stability is more important than any specific rate level for improving buyer confidence. President & CEO Paul Romanowski stated that current promotional offerings range from the mid-4% to mid-5% APR, with the average rate in the company's backlog just over 5%.

Jade Rahmani asked for the quantity or percentage of Lennar's year-to-date deliveries that originated from Milrose. He also inquired about the gross margin outlook beyond the fourth quarter, specifically whether the remaining 75% of deliveries (not from Milrose) would continue to reflect interest costs, and if an increasing proportion of Milrose deliveries would be an incremental headwind to margins.

Answer

Diane Bessette, CFO, estimated that approximately '25%' of year-to-date deliveries came from Milrose. She clarified that more deliveries from Milrose, due to its lower cost structure, would actually benefit Lennar's margins. Stuart Miller, Executive Chairman and Co-CEO, emphasized that Lennar focuses on managing option costs across its entire land banking environment, building certainty to reduce costs. Jon Jaffe, Co-CEO and President, added that a manufacturing approach with even flow and stability in land banking reduces capital costs, contributing to overall efficiency.

Jade Rahmani inquired about the gross margin outlook beyond Q4, specifically whether the increasing proportion of deliveries from Millrose would become an incremental headwind due to its associated annual interest costs.

Answer

Diane Bessette, CFO, clarified that more deliveries from Millrose, due to its low cost structure, actually benefit margins. Stuart Miller, Executive Chairman and Co-CEO, emphasized that Lennar's strategy involves a diverse range of low-cost capital providers to optimize cost structures across all land banking systems, not just Millrose.

Jade Rahmani of Keefe, Bruyette & Woods noted the seemingly muted outlook for second-half resolutions despite a strong transaction market, asked for the discounted payoff amount on the New York multifamily loan, and inquired about the strategy for refinancing the term loan, including the potential for issuing preferred equity.

Answer

Priyanka Garg, EVP of Portfolio & Asset Management, clarified that the resolution pace seems slower because the company accelerated activity in the first half and is now being more patient with regular-way repayments. She confirmed the NY multifamily loan had a discounted payoff at 90 cents on the dollar, a loss already reflected in book value. President and CFO Michael McGillis added that the term loan refinancing process is underway with private credit providers and a reduction in the loan size is expected. He viewed preferred equity as a future option once the company is in a stronger position.

Jade Rahmani of Keefe, Bruyette & Woods asked for updates on several topics, including the status of repo counterparty negotiations, clarification on private credit options for the term loan, portfolio health metrics, the expected volume and liquidity impact of REO conversions, and the potential for a strategic split of the company.

Answer

President and CFO Michael McGillis confirmed recent extensions of repo facilities with Wells Fargo and Goldman Sachs, noting counterparties have been constructive. He and CEO Richard Mack indicated private credit options for the term loan could offer greater flexibility. EVP Priyanka Garg stated that while traditional metrics like occupancy are less relevant for their transitional portfolio, the portfolio's composition is improving with a shift from construction to cash-flowing multifamily. Garg also noted the REO pipeline is fluid, with active management already improving asset performance. McGillis added that a new REO facility prevents immediate liquidity drains upon foreclosure. Mack acknowledged the strategic merit of splitting the company but stated there are no current plans to do so.

Jade Rahmani of KBW asked about CMTG's 2025 plans regarding leverage reduction, financing for REO assets, the secured term loan, the magnitude of deleveraging, and potential capital raises. He also asked about the stock's valuation relative to book value.

Answer

President and CFO John McGillis confirmed plans to deleverage by repaying higher-cost debt and is finalizing a financing facility for REO assets. He noted the Term Loan B would be addressed mid-year. He stated there are no current plans for an equity capital raise, emphasizing liquidity generation from resolving watch list loans. Priyanka Garg, EVP, reiterated that up to $2 billion in gross realization proceeds are underway, which will significantly improve liquidity.

Jade Rahmani sought clarification on the comment that there hasn't been much distress, given high non-performance rates in the market. He also asked about the most attractive risk-adjusted returns across equity, transitional lending, and construction, and inquired about CMTG's capital availability and needs over the next year to fund commitments.

Answer

CEO Richard Mack clarified that not much distress has actually traded, with banks in particular holding onto office assets. He identified construction lending as offering the best current risk-adjusted return. President and CFO John McGillis addressed capital needs, stating the $584 million unfunded commitment ($185 million net equity) is manageable and expected to be funded over two years, supported by ongoing loan repayments. He also stated that the company does not expect to enter the term loan market.

Jade Rahmani from Keefe, Bruyette & Woods (KBW) asked about expectations for fund outflows in 2026, the feasibility of mid-to-high single-digit fee growth that year, and the drivers behind the GAAP carried interest reversal this quarter.

Answer

CFO Thomas Mayrhofer and CEO Marc Ganzi responded. Mayrhofer addressed the carried interest reversal, explaining that private asset valuations can be lumpy and that quarter-to-quarter movements shouldn't be over-analyzed. Ganzi added that the company prioritizes marking its portfolio to reality. Regarding 2026, Ganzi noted that official guidance is not yet set but highlighted the massive $43 billion CapEx pipeline and new growth strategies in digital power and private wealth. Mayrhofer affirmed that over the long term, they expect to raise more capital than they liquidate.

Jade Rahmani inquired about the timeline for monetizations from the 2018 and 2020 vintage funds, the company's capital allocation strategy regarding preferred stock buybacks, and whether current fund performance is in line with targets.

Answer

CEO Marc Ganzi explained that the 2018 vintage fund (Fund I) is entering a logical period for exits to deliver DPI, noting the average hold is 5-9 years. Regarding capital allocation, he stated no preferreds were repurchased as investing in their own funds offers higher returns, but they may reconsider if they can raise cheaper debt. Ganzi also confirmed that while IRR was impacted by a new valuation framework, the MOIC multiple, which drives carry, has increased, and he expects performance to improve as assets are typically sold at a premium to NAV.

Jade Rahmani asked about the disconnect between the positive digital infrastructure backdrop and DigitalBridge's disappointing results, questioning the fundraising mix shift toward co-investments and whether the firm is better suited as a merchant bank. He also inquired about the drivers of the carried interest reversal.

Answer

CEO Marc Ganzi defended the co-investment strategy as a vital "force multiplier" for flagship funds that enables scale and growth, rejecting the merchant bank label and emphasizing the firm's successful multi-strategy approach. He attributed the FRE shortfall to fundraising timing. CFO Thomas Mayrhofer explained the carried interest reversal was not due to any single meaningful event but rather portfolio-wide valuations appreciating in line with preferred returns.

Jade Rahmani of Keefe, Bruyette & Woods (KBW) asked if increased capital markets activity was driving more interest in Arbor's REO and sub-performing loans, about the potential for Arbor to own key assets long-term, and about credit trends in the GSE portfolio. He later followed up on the idea of launching an REO fund and the company's agency business strategy.

Answer

CEO Ivan Kaufman confirmed that falling rates boost repayment activity and attract capital to distressed assets. He affirmed Arbor's capability to hold and improve REO assets, particularly in workforce housing. Regarding GSE credit, Kaufman noted a cyclical peak in delinquencies but expressed confidence in the asset class. He added that an REO fund is under consideration but premature, and that Arbor is always open to partnerships to grow its unique and hard-to-replicate agency business.

Jade Rahmani asked for an update on Arbor's liquidity outlook, expectations for Non-Performing Loans (NPLs) and Real Estate Owned (REO) assets, and the portfolio's sensitivity to a potential economic downturn.

Answer

Executive Paul Elenio detailed the liquidity strategy, highlighting the company's deleveraged position (2.8:1) and plans to use the securitization and banking markets to increase leverage and liquidity. President and CEO Ivan Kaufman added that REO is expected to rise to the $400M-$500M range. Regarding economic sensitivity, Kaufman stated that they believe they've hit the bottom in many markets, with occupancies firming up in their workforce housing assets.

Jade Rahmani asked about the drivers for the quarter-on-quarter decline in the cash balance, whether the company experienced any margin calls, and if there have been any loan putbacks from the GSEs.

Answer

Executive Paul Elenio stated there were no margin calls and that cash was used to fund growth in the bridge and SFR platforms. President and CEO Ivan Kaufman added that the lending environment has improved, with better terms in the CLO market and from commercial banks. Regarding putbacks, Kaufman confirmed that Arbor has not had to buy back any loans from the GSEs.

Jade Rahmani of Keefe, Bruyette & Woods asked about the Q3 dip in operating cash flow and its sustainability relative to the dividend. He also inquired about the expected liquidity usage for future REO take-backs, any loan putbacks from GSEs, and sought an update on the previously reported DOJ inquiry.

Answer

Executive Paul Elenio stated that on a nine-month basis, operating cash flow of $328 million sufficiently covers the $265 million dividend, and quarterly fluctuations are normal. President and CEO Ivan Kaufman noted that resolving lowly-levered NPLs will generate cash and confirmed the company has not experienced any GSE loan putbacks. He declined to comment on the DOJ inquiry, referencing previous statements.

Jade Rahmani of Keefe, Bruyette & Woods asked if the recent strong rent growth in the Midwest is sustainable and whether INVH has considered diversifying its portfolio with acquisitions there.

Answer

CEO Dallas Tanner stated that while the company enjoys its Midwest footprint (Chicago, Minneapolis), it does not see the recent strength as a reason to strategically pivot. He attributed the growth to a decade of under-building in the region. The long-term strategy remains focused on high-growth, net-migration markets in the South, Southeast, and Southwest for their superior risk-adjusted returns.

Jade Rahmani from KBW inquired whether the recent strong rent growth in the Midwest is sustainable and if the company has considered diversifying its portfolio with acquisitions in that region.

Answer

CEO Dallas Tanner acknowledged the strong recent performance of their Midwest markets (Chicago and Minneapolis) but stated it does not change their long-term strategy. He attributed the strength to a decade of under-building in the region. He reaffirmed that the company's long-term focus remains on high-growth, high-migration markets in the South, Southeast, and Southwest, where they see better risk-adjusted returns from both revenue growth and home price appreciation.

Jade Rahmani asked about the percentage of the balance sheet considered a core long-term hold, requested color on the experience of the commercial real estate team, and inquired about current lending activity observed from banks.

Answer

Michael Nierenberg, Chairman, CEO, and President, explained that the core long-term hold will consist of commercial real estate assets as the company deploys its available capital. He highlighted the deep experience of the internal team, including his long-time partner Charles Sorrentino, and noted that affiliates like Sculptor and GreenBarn provide additional expertise and sourcing. He also observed that large money center banks are still actively lending and seeking partners like Rithm for deals.

Jade Rahmani of KBW, on behalf of Tom McJoynt, questioned the trends in the cost to acquire traffic and the resulting impact on the company's margins.

Answer

Executive Steven Yi clarified that their marketplace model, particularly in P&C, does not involve significant direct customer acquisition costs like some peers. He noted that while upstream channels like Google are seeing rising costs, which affects their publisher and carrier partners, it does not have a direct material impact on their own margin structure due to their business model.

Jade Rahmani, on for Tom McJoynt, asked about the current trends in the cost to acquire traffic and how those trends impact the company's margins.

Answer

Executive Steven Yi clarified that unlike competitors with a strong owned-and-operated presence, their marketplace model does not involve significant direct customer acquisition costs, particularly in P&C. He acknowledged that rising traffic costs in channels like Google affect their publisher and carrier partners but stated it does not have a direct material impact on their own business model or margins.

Jade Rahmani asked for commentary on reports of rising new listings in Phoenix and whether it was affecting Meritage's business. He also sought clarification on whether mortgage buydown incentives are fully reflected in the net realized sales price.

Answer

CEO Phillippe Lord acknowledged rising resale inventory in Phoenix but stated it is not directly competitive due to different price points and Meritage's ability to offer rate buydowns. CFO Hilla Sferruzza confirmed that all financing incentives directly reduce the average sales price, but noted the recent 4% ASP decline was also caused by geographic and product mix shifts.