Good morning, and welcome to the Franklin BSP Realty Trust first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Director of Investor Relations. Please go ahead.
Good morning. Thank you, Gary, for hosting our call today. Welcome to the FBRT first quarter earnings conference call. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Richard Byrne, Chairman and CEO of FBRT, Jerry Baglien, CFO and Chief Operating Officer of FBRT, and Mike Comparato, President of FBRT. Before we start today's conversation, I want to mention that some of today's comments from the team are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports, and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, May 4th 2023.
The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Richard Byrne.
Thanks, Lindsey. Good morning, everyone, and thank you for joining us today. I'm Rich Byrne, as you heard. I'm Chairman and CEO of FBRT. As Lindsey mentioned, our earnings release and supplemental deck were published to our website yesterday. This morning, I guess we will cover our financial results for the first quarter of 2023. I'm going to start on slide number four and maybe just kick off with the initial comments that we were very pleased with our performance in the first quarter. The two biggest highlights for us were our earnings increase and improvements in our portfolio. First, our GAAP net income per share increased by 76% this quarter to $0.44 per diluted share compared to $0.25 in the prior quarter.
Our Distributable Earnings per share increased by 19% this quarter, with FBRT generating $0.44 per fully converted share compared to $0.37 in the prior quarter. Once again, our Distributable Earnings comfortably covered our common stock dividend, which remained unchanged at thirty-five and a half cents and represents a yield of approximately 9% on our March 31st book value of $15.78. The sharp earnings increase reflected the benefit of higher base rates, of course, on our floating rate portfolio, as well as several other positive portfolio developments in the quarter. Jerry will provide more detail on this in his financial overview. The second biggest highlight in the quarter for us was the improvement in our portfolio. Despite a market that has been unpredictable, we ended the quarter with three loans on watch list down from five assets at the end of the prior quarter.
After the end of the first quarter, two additional loans were removed from our watch list. Our watch list now consists of only one asset, a relatively small CBD office loan in Portland, Oregon. One of the assets that came off our watch list after the quarter end was our Brooklyn Hotel loan. In mid-April, we announced the successful completion of the sale process of the asset for $96 million. We recovered 100% of the principal on the loan and approximately $20 million in additional proceeds. We were very happy to have reached a positive resolution on this protracted process, which will now free up considerable capital for us to redeploy. There were several additional developments to note in the quarter. First, our balance sheet. We closed $200 million of new loans in the quarter, maintaining our patience in finding the right opportunities.
Our portfolio size decreased slightly from the prior quarter to $5.1 billion, spread over 157 loans with a heavy focus in multifamily, and our book value was flat versus last quarter. While origination volume was lighter, we found attractive investment opportunities. For example, one of the largest loans we originated was a limited service hotel portfolio. Our weighted average spread on new loans in the quarter was 580 basis points. Mike will go into more detail on all this, and on our recent investments and of course our pipeline in his commentary. We ended the quarter with cash and total liquidity of $230 million and $1 billion, respectively.
We believe having a robust liquidity position is quite prudent in order to protect our portfolio against any unforeseen credit events, as well as to take advantage of the attractive deal flow we are now seeing in the market. We were also able to deploy capital to buy back our debt and our common stock at meaningful discounts this quarter, which were both accretive to book value. As for the debt, we repurchased and retired $17.5 million of our unsecured debt at 75% of its face value. Jerry will provide details on this in his commentary in a moment. As for the stock, we also repurchased $3.7 million of our common shares in the first quarter. Subsequent to quarter end, we repurchased an additional $4.5 million of common stock.
In total, in 2022 and 2023, once we, you know, started our buyback programs, the company and its advisor has purchased just under $60 million, $59.7 million to be exact, of FBRT stock. That leaves approximately $40 million, which still remains as our authorized amount for additional repurchases. Lastly, a few concluding comments and thoughts before I turn it over to Jerry. We are confident in the quality of our portfolio, given its multifamily focus and our limited exposure to the office sector. Office loans represent only 6% of our assets. Our floating rate loans are at the top of the capital stack. We employ relatively light external leverage. Our liquidity levels are robust. While we are defensively positioned, we will continue to take advantage of origination opportunities that will enhance our stockholder returns.
Now I'll let Jerry walk you through our performance for the quarter.
Thanks, Rich. Hello, everyone. This is Jerry Baglien, the Chief Financial Officer and Chief Operating Officer of FBRT. I appreciate everyone being on the call today. Moving on to results, let's start on slide five. In Q1, FBRT generated GAAP earnings of $43.8 million, which is $0.44 per diluted common share, and that's an 11% ROE. Our GAAP earnings this quarter included two one-time events. One was related to the sale of securities, including ARMs and CRE CLOs, and the second was a partial extinguishment of unsecured floating rate debt. Regarding the debt, we were able to acquire and simultaneously extinguish $17.5 million of the unsecured at a price of $0.75 on the dollar, like Rich mentioned.
That resulted in an immediate book value gain for shareholders. It reduced our ongoing annual debt service on that unsecured by about $1.5 million based on the current cost of the debt. Our Distributable Earnings in the first quarter were $44.8 million or $0.44 per fully converted share. That represents an 11.1% ROE. A walkthrough of the Distributable Earnings to GAAP net income can be found in the earnings release. Our commercial real estate portfolio ended the quarter at $5.1 billion in principal balance. Transaction volume remained subdued in the first quarter. Given the earnings capability of our portfolio, we can be very deliberate in our originations, growing the portfolio when it makes the most sense.
Spreads on the loans traded modestly higher in the quarter. We are seeing the benefits of that in our earnings. That said, we have witnessed a spread tightening in the market since quarter end. Mike will go into that in greater detail. We maintained a real estate securities position of $246 million in CRE CLO bonds and ARM securities combined. Our leverage position trended lower this quarter, with net leverage ending the period at 2.3 times and our recourse leverage ending the quarter at 0.46 times. We feel this is within the appropriate range for our portfolio. Book value ended the quarter flat at $15.78. Moving on to slide six, you can see that we had our fourth consecutive quarter of Distributable Earnings growth.
This growth was largely attributable to increases in SOFR, that's the base rate underlying most of our assets, as well as fees from certain asset payoffs. Turning to slide seven, we'll walk you through the activity in our portfolio for the quarter. We received $380 million in loan repayments. 58% of our repayments were from multifamily loans, and 25% were from office loans during the quarter. While no new assets were added to REO in the quarter, we took title to five Walgreens properties, which resulted in $25 million in foreclosures or deeds in lieu of foreclosures. After the quarter, we took deeds to all the remaining Walgreens properties and now hold the retail portfolio entirely as REO. Inclusive of the 24 Walgreens properties, our foreclosure REO represents approximately 2.5% of our total portfolio.
Our remaining two REO properties are a Class A multifamily property and an office tower. We marked the multifamily property down by $1.3 million in the first quarter based on an updated market value or market information. We continue to market both assets for sale. Depending on pricing levels, we are comfortable owning and operating these assets. Moving to slide eight, we have an overview of our capitalization. Our average cost of debt during the quarter was 6.7%. While short-term rates continue to drive up our borrowing cost, we actively manage our CLO book, taking advantage of reinvest. We have reinvest available through July of 2024. 79% of our financing on our core book is in non-recourse and non-mark-to-market facilities. We have not gone to market with a CLO in 2023 but continue to monitor that space.
We have historically been a leading issuer of CLOs, and we will look for opportunities to issue when doing so is accretive both quantitatively and qualitatively to our business. Finally, slide 10 showcases our liquidity position. As Rich mentioned, we ended the quarter with $1 billion in total available liquidity. This is through a combination of cash on hand, available CLO reinvest, and capacity on our warehouse lines. We have diversified funding sources with six separate counterparties on our warehouse lines. Our liquidity stabilizes our balance sheet and will enable us to take advantage of future origination opportunities. With that, I'll turn it over to Mike to give you an update on our portfolio.
Thanks, Jerry. Good morning, everyone, and thank you for joining us. I am Mike Comparato, President of FBRT. I'm going to start on slide 12. Our commercial loan portfolio is over 99% senior mortgages and 98% floating rate. It continues to be predominantly multifamily with 76% of our exposure in this sector. We've discussed our office exposure in great detail on the last year earnings calls. That exposure continues to decrease and represents only 6% of our total portfolio at quarter end. We continue to view multifamily as having the best credit quality and risk-adjusted returns within the CRE credit space. Our multifamily focus has made our portfolio very liquid. Geographically, we continue to be heavily invested across the Southeast and Southwest and favor assets in areas with positive population trends.
As I mentioned last quarter, we have no international exposure and no intention to add international exposure in the near future. Slide 13 shows our activities specific to the first quarter. We originated four loans in the quarter for a total commitment of $200 million at a weighted average spread of 580 basis points. Deal flow is meaningfully better today than in the prior two to three quarters. We are seeing strong deal flow with attractive credit metrics and terms. Interestingly, we have seen a meaningful tightening in credit spreads in the whole loan market in the past four to six weeks. I believe a portion of that is credit quality improvements on new origination, I believe there is also a tightening due to scarcity of product, specifically within multifamily credits.
A good credit is getting a lot of attention in the market and is being bid tighter. I also believe several lenders are looking at whole loan coupons versus the components of the coupon. If you can write a good credit loan with an 8-handle coupon, that is very compelling given where coupons have been for the prior 20 years. Hospitality was our largest add in the quarter, driven by one large loan. We wrote a $120 million loan on a cross portfolio of 12 limited service hotels. The loan has strong in-place cash flow, included significant equity investment from the borrower at closing, and also has a meaningful mezzanine lender in the capital stack. This loan size is greater than our typical loan size, which averages $32 million. Current market conditions are creating opportunities where historically we have not been an active participant.
We've discussed how we are waiting for the right opportunities and are able to fill voids in the lending market as we see fit. This is most obvious in both the large loan market as well as the construction loan market. As we've discussed for several quarters, negative leverage continues to be a market issue and one that has not resolved itself. We have seen cap rate widening as well as debt coupon tightening and believe within the multifamily sector, we are making positive progress on the severity of negative leverage currently in the floating rate market. Finally, on slide 14, we have three loans on watch list as of March 31st.
Two loans were removed from our watch list in the first quarter, one by way of loan payoff at par together with additional penalties, and the other by loan modification, which included a meaningful investment of equity by the borrower. We ended the quarter with three loans on our watch list: the Brooklyn Hotel, the Walgreens portfolio, and a CBD office complex. As of today, the only loan still on watch list is a CBD office complex. As Rich said, the Williamsburg Hotel sale was completed in April. On top of a complete recovery of our carrying value, we received an additional $20 million in proceeds at closing. A meaningful amount of capital was freed up with this loan payoff that can be put back to work in our portfolio.
We're extremely proud of our team, who worked diligently throughout the bankruptcy process to bring this loan to a positive resolution. The Walgreens portfolio continues to be in litigation and as Jerry mentioned, as of today, it is now entirely held in REO. With that, I would like to turn the call back over to the operator and begin the Q&A session.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Matthew Erdner with JonesTrading. Please go ahead.
Hey, guys. Thanks for taking the question, on for Jason right now, and congrats on the great quarter. You mentioned that you're seeing opportunities in large loans and construction. Are the large loans similar to the one that got off this quarter and the one in Florida?
Hey, Matt. Good morning. It's Mike Comparato. Yes, they are very similar. You know, I can't quite put my finger on why the deal flow has increased right now, but it is a tremendous increase for us. I would say I'm going from looking at, you know, two, three, four loans a day for the prior few quarters to now, you know, well over 10 to 15 a day. So the deal flow has been really tremendous. And noticeably, you know, we're getting some larger loan requests that historically, you know, we just haven't been a competitive bid for.
Yeah. Do you think something or do you think that has to do with what the banks have been going through?
I think it's a combination of, you know, what's going on in the banking sector, you know, as well as what's going on within the mortgage REIT and debt fund sector. I think we're, you know, privileged to have, you know, about 5% of our book exposed to office, whereas some others have, you know, 25%-50% office, and it's probably harder to play offense, given that profile. I think We're just seeing lenders that historically played in that space not playing today.
Right. Then given those opportunities, when would you expect to capitalize on them? Would it be later half of this year or early half of 2024? What's the expectation there on your end?
Well, I'm hoping we capitalize on them right now.
Right.
We've already closed, you know, quarter end to date just under $200 million in new originations. Again, the pipeline is the strongest that it's been. I'm hoping that we really see an uptick in closed credits here in the coming weeks and months.
That's great. Thank you.
Thanks, Matt.
The next question is from Sarah Barcomb with BTIG. Please go ahead.
Hey, everyone. I echo the congrats on the great quarter. Just kind of going off that previous question, should we expect to see some non-multifamily diversification from here in terms of your new originations? How are you thinking about, you know, new investments and sector exposure going forward, given that that Q1 deal is now a top three credit, and is in the hospitality sector?
Hey, Sarah. Good morning. It's Mike again. Thanks for the question. You know, I think multifamily is really, you know, embedded in our DNA. I would expect us to always be running an allocation, you know, fairly close to where we are today. You know, we're 76% today. Could that ebb and flow in the next few quarters, you know, down to 70 or up to 80? It could go either way. I'll continue to say what I've been saying for the last several quarters. You know, we wanna focus on multifamily, and we wanna focus on hospitality, and specifically probably more leisure-oriented, less business-oriented travel hospitality. I think if you look at the book today, and certainly as you look at our forward pipeline, it is entirely multifamily and hospitality.
We are not bidding office except for wildly unique situations. We have a bid for other asset classes. We actually have a few interesting industrial deals that we're quoting right now. Predominantly, I would expect us to be, you know, multifamily and hospitality-focused, keeping our exposure to multi, again, right where we've been for the past several quarters.
Okay. Thank you. You know, just given most of your portfolio, of course, is Sunbelt multifamily, just thinking about those originations that were done in 2021 and 2022, when we saw rapid rent growth, higher LTV lending, at low interest rates. You know, you mentioned the negative leverage in your prepared remarks, and I was curious if you're starting to see any signs of NOI at the property level, perhaps coming in below previous expectations, you know, on deals that were maybe penciled with negative leverage back when rates were near zero. Are you seeing any risk in your sponsors' ability to service their debt as a result of that?
Great question. Obviously the, you know, the canary in the coal mine for what I think the CRE industry is gonna be dealing with for the next two years. Specifically, you know, what we originated in 2021 and 2022, you know, borrowers are just kinda getting through or maybe near the tail end of those business plans. I would say generally speaking, we're seeing rents at or even above what our projected underwriting was at the completion of the business plan. We're really happy with that. Then as it pertains to, you know, debt service payments, you know, these borrowers have effectively been dealing with fixed rate loans from their perspective for the past 18-24 months.
You know, if not every loan, 99 out of 100 loans that we wrote, had pretty low SOFR caps, that SOFR blew through those levels, you know, well over a year ago. The, the increase in SOFR has been really borne by the cap provider and not by the borrower. That's why the, you know, the kinda come to moment for everyone is gonna be at maturity when these caps run out. You know, the borrowers are gonna have, you know, a pretty meaningful expense to buy, you know, a deep in the money cap again or deal with, you know, a different cap, at which point, you know, then they would be, you know, subject to that higher expense.
There hasn't really been any issues in terms of servicing debt today, again, because it's been borne mostly by that cap provider. You know, as loans mature, that's when, you know, the tougher conversations start to happen.
Okay. Thank you.
The next question is from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning. I wanted to touch base on the reallocation of the capital that's freed up from Williamsburg. You know, can you talk about kind of how you think about allocating that between new investments and, you know, you've been a very active of repurchase, but, you know, that varies in attractiveness versus what you see in your investment pipeline. When we think about earnings accretion as that capital gets redeployed into, you know, performing loans, how should we think about the impact? Is that more of a, you know, 3Q event or, you know, how quickly you expect to recycle that capital?
Hey, Stephen, it's Rich. Let me, let me start with that, and maybe if Mike wants to speak to the origination piece, you can add on. Well, first of all, it's not just the Brooklyn Hotel proceeds. You know, we carried a pretty large cash position and overall liquidity. We have a lot of capital to deploy. As you've seen, we've been pretty circumspect about it, and kinda wanna have our cake and eat it too. I mean, I think the items on the menu are the, you know, just making loans regular way. You heard our comments, Mike's comments about the pipeline, as well as buying back our stock. We even had an opportunity to buy back our bonds at a pretty steep discount.
I think all are on the table. Of course, you know, I think a lot of our peers have been focused on liquidity for obvious reasons. You know, one of those reasons might even be to just have a healthy amount of cash around to deal with any future potential portfolio problems. I think that, I think that's all on the table. You know, as we think about the world, when our stock's at a discount, we're gonna buy it. If we can have an opportunity to buy our debt at a discount, we're gonna buy it, and we're gonna make loans, and we're just gonna evaluate each based on, you know, what's the best return for shareholders. Did that answer the question?
It does, Rich. Thank you. You know, I've got a follow-up, you know, I guess for all of you, but maybe for Jerry. I mean, as you think about the financials, you know, I guess first off, Mike, you know, where are we seeing LIBOR floors in new loans? As we think about, you know, the forward curve and how it may be a quick trip for short-term rates at these levels, you know, not a lot of capital is gonna recycle in this environment to get a, you know, 4- handle, hopefully, you know, LIBOR floor. You know, have you thought about looking at buying your own floors to protect some of this, you know, portfolio earnings power as you look at, you know, where the forward curve has rates going next year?
Very timely question, Steve. Jerry and I and, our Head of Capital Markets, David Henschke, and our Chief Credit Officer, Matthew Jacobs, are sitting down to talk about that this afternoon. We are, actively looking on, you know, a way to protect, well, not protect, but, you know, take advantage of, SOFR moving down. obviously, you know, we had looked at, and I think we had identified as early as, you know, Q4 2021, you know, our concern about rates rising. Looked at putting on some hedges, at that point. Because the rise in, you know, SOFR was such a benefit to the overall, you know, performance of the vehicle and the company, just felt that doing nothing was probably appropriate. you know, that obviously is different on the way back down.
We are actively looking at it. Obviously, no decisions have been made. With respect to the first part of the question, you know, it's a market, right? We're trying to get the highest floors we possibly can. Borrowers are trying to get the lowest floors that they possibly can. We usually find some place in the middle to transact. We have been giving borrowers a little bit of a menu in terms of, you know, tighter overall spread for wider overall floor, just kind of business decisions as we originate. It's an active dialogue and an active negotiation. I don't think we're kind of draw the line in the sand anywhere. We're really just looking for good credits, that are overall, you know, accretive to ROE.
Appreciate the color, I guess if you buy your own floors, you can ask for those wider spreads, right? Yeah, lastly, Mike, just larger picture. You've been remarkably accurate in some publications I've seen on CLO markets and volumes. Can you talk bigger picture what you're seeing there, what you think we need to see, you know, I guess they're not closed, but for pricing to get more attractive and to view that, especially given the high mix of CLO financing that the mortgage REIT uses. Thank you.
Yeah. Thanks, Steve. Again, you know, CLO is the alternative financing vehicle for this space. You know, I'm not gonna say by any means that it's a new concept, but, you know, for decades, you know, mortgage REITs, debt funds, et cetera, you know, operated on warehouse facilities. I think just the fundamental question, you know, not rocket science, is until spreads and leverage in the CLO market are, you know, better than what we can experience financing our loans on the warehouse facility, the market's just not there. As to the, you know, void of buyers or seeming void to buyers in the CRE CLO space, I can't quite put my finger on it. I think it's a, I think it's a size issue more than it is a credit issue.
We're seeing, you know, a decent amount of action on the secondary market. There seems to be bids up and down the capital stack at, you know, fairly compelling levels, but you're talking sizes that are, you know, $2 million here, $6 million there, you know, the occasional $10 million or $20 million. I think the issue really is, you know, if you come out with an $800 million new issue CLO, you know, is there enough demand out there to soak up that kind of volume? I think that's what the issue is today. I can't tell you when that's going to change. I don't think it's gonna change, you know, immediately.
Appreciate those comments, and appreciate you taking my questions this morning. Thank you.
The next question is from Steve DeLaney with JMP Securities. Please go ahead.
Good morning, everyone, and congratulations on a really strong quarter. It is, it's nice to see a commercial mortgage REIT lending again these days. We don't hear much of that. Just a couple of accounting thing really to start. Obviously, when you run your buyback, the benefit there just will go straight and show up in your book value. On these debt buybacks, and at 25% discount, it looks like to me it worked out to $0.05 per share. Jerry, is that is accounted for within both GAAP and Distributable EPS? Is that, is that the case?
Half of that's right. It's definitely in the book value per share.
Uh-huh.
We didn't include that gain in our distributable. We left that out.
Okay. It's in GAAP, so therefore it's in book value.
Yeah.
Not in distributable.
Correct. Yeah.
Okay, great. No, I think that's great. I would consider, you know, conservative because like you say, it's not a recurring item for sure, right?
Yeah, that's kinda how we viewed it. It's sort of on the margins in terms of how you could view it. you know, we took-
Yes.
the conservative approach and just said it's in GAAP, it's in your book value. Distributable is a little more up in the air. We'll just leave it out.
Is all the $81 million remaining of debt on your balance sheet, is that all subject to to buyback redemption? Or is there any like restriction?
It's open. We could.
Open?
No, we could buy back if we wanted to or pay it down. You know, this wasn't a pay down per se, obviously, it was, you know, a secondary transaction.
Sure.
Where we were able to find a nice price. Yeah, we could address the rest of it.
Got it. Okay, thanks. One thing I wasn't clear on the Brooklyn Hotel, you received all of your principal on the original loan. You got your money back. The $20 million of additional proceeds, can you talk about how that was accounted for and whether that $20 million, you know, did that have a revenue impact for you in the first when that property was paid off? Thanks.
Yeah. I'll take this one. We've carried the loan, you know, at $57 million through the, you know, the balance of this workout. Any proceeds above that are effectively recognized as income at the resolution. Yeah, the short answer is yes, that'll show up as positive income for us in the second quarter because we accrued nothing along the way until we had certainty on resolution. That'll be a, you know, a second quarter item for us.
Nice. Okay. Is it premature to ask you whether that will be. Obviously, it'll be in GAAP. When you think of the nature of that recovery or however you wanna describe it, do you think that would impact your distributable EPS?
It will because that's effectively interest income, or at least the lion's share of that should be interest income when, you know, we've kind of finished the full accounting on it. You know, when you think about what it really represents, it's kind of the catch up on all the accrual that never happened for us, or that we never recorded, rather.
Fantastic.
Yeah. It's the return we generated.
Yeah. Yeah. I mean, you're getting your money back on a delayed, it was fully earned at.
Right.
-at one point in time, for sure. Understood.
That's correct. Yeah.
Well, congratulations on the quarter, and looks like second quarter will be strong as well. Thank you.
Thanks, Steve.
Thanks.
The next question is from Matthew Howlett with B. Riley. Please go ahead.
Oh, thanks. Good morning. Thanks for taking my question. Most of my questions have been answered, but, you know, one recurring theme we keep hearing from, you know, participants in the CRE market is sort of get to know your lender with the sort of belief that there'll be a lot of extensions for, you know, for years out. When I look at your portfolio, I mean, you're getting repayments, you have the multifamily with the GSE exit. I mean, what are your conversations like with the sponsors? I know the maturity dates are, you know, a couple years out here, but are leasing rates to the point where you feel that the GSEs will be there?
Do you feel that, you know, the sponsors are, you know, will need longer, you know, to see this cycle out? Just want to hear sort of what we've been hearing throughout the earnings season.
Yeah. Thanks, Matt. This is Mike again. We're in active dialogue with all of our sponsors. You know, where coupons are is not a surprise to anybody. You know, I think in our prepared comments, you heard me specifically reference, you know, the negative leverage within the floating rate market. You know, we're not experiencing that in, you know, the fixed rate GSE market. I would say that leverage is probably flat today. You can get a, you know, a 5% flat, you know, give or take 10 or 20 basis points in either direction this morning, coupon out of Fannie Freddie for a five-year or 10-year fixed rate deal. It's not necessarily positive leverage, given where we're kind of hearing and seeing cap rates today, but it's neutral leverage.
I think as with everything, you know, these loans and credits and assets are gonna be dealt with on a case-by-case basis. I would say specific to our book, a lot of our borrowers are merchant value add, you know, developers or value add players. They did not go into these assets, looking to, you know, hold them for five years or 10 years. That might just be a de facto outcome of the situation, is they don't really have a choice, you know. They always have a choice, you know. It's take a loss, you know, write a big check, most likely to rightsize your capital stack, or go to the agencies and get some, you know, cheaper financing and hold the asset longer term.
That's just a question that they're gonna have to, you know, answer for themselves. In terms of our dealing with it, you know, again, I think it's gonna be very similar to COVID. We have a, you know, a duty to do what's best for our shareholders. We will do that. These borrowers are also, you know, good clients that we've had for, you know, a decade at BSP, and individually from our origination staff, some borrowers we've worked with for, you know, 20 years. We have to walk a line of, you know, being a good lender, listening, being thoughtful, also reminding them that we are their lender, not their partner. We're, we're looking to get to positive resolution on everything. We're not looking to be difficult.
We're in no way, you know, a predatory lender or a lender who's, you know, loan to foreclose or loan to own. We would like to just work through these problems, but, you know, have to remind people that we are the lender, loan documents exist for a reason, and, you know, hopefully we'll get to a positive resolution in an amicable way.
That's right. I mean, that's very helpful, and it's nice to have that GSE exit amount, and GSEs will always be there in the market. When you look at, you know, lending going further, you know, when you look at the banks, the larger impact of the banks, what do you feel, do you feel you have to think about your model differently now? Do you think there's an opportunity? Will CMBS some point come in and take over the banks? How do you look at, you know, what's happening with the bank and the larger impact to your model?
Yeah. I mean, it definitely has an impact on our model. I think the banks probably played the biggest role, or at least the void that we can fill the most is in the construction lending space. You know, I mentioned it in the prepared remarks, but, you know, we're seeing some large multifamily construction opportunities that, you know, we just weren't in the room for previously because they were gobbled up by the big money center banks. We're also seeing now a lot of industrial construction requests, and if you think about, you know, just the context of what an industrial building is, you know, 200,000, maybe up to 1 million sq ft, it's more of a middle market banking land.
You know, call it a $25 million-$75 million construction loan versus the, you know, you can get CBD multi-hundreds of millions of dollars for something like that. The industrial space is much more middle market. I would say for the first time, we're seeing industrial construction opportunities because that regional bank is very much trying to figure out, you know, what they're doing and what they can and can't do. We've been seeing more of that. Yeah, it's playing a big role and, you know, we're seeing a lot of banks with loans that are maturing that are just telling the borrowers, you know, "Pay us off." You know, getting a paydown. They don't want a paydown. They don't want a modification. They just want out.
I think we're gonna see a tremendous opportunity. I mean, you know, all of the headlines are saying, you know, $1.5 trillion of loans maturing in the next three years. You know, we're ready, willing, and able to fill that void where we can.
Hey, Matt, it's Rich. Just to maybe add on a couple of additional thoughts. I think there's a long-term trend and a short-term trend. Mike talked about, you know, sort of the gap between buyers and sellers. You know, there's maybe not as many transactions. You would naturally think, you know, fewer transactions, more money that, you know, has a tightening effect on the market. Money being put out is much lower. The banks is one obvious example of regional, small... You know, banks are a source of lending. You know, there's either a flight of quality away as those banks shrink or, you know, regulatory increases.
I mean, I think that's a secular, you know, just change in who's putting out money to, you know, some of the things that we do. The near-term change, Mike also talked about, though, is what our peers are doing. You know, whether they're funds or some of the public REITs, you know, either because they have office exposure or just wanna, you know, build liquidity for a rainy day, you know, they've just been loath to put out capital. Again, this is near term, you know. Who knows how long that'll last? The other issue is that, you know, a permanent capital vehicle like a mortgage REIT can only invest the capital you have, and most of the time, you know, we're getting prepayments which have slowed down quite considerably for obvious reasons.
People just don't have as much money to invest. I think for all those reasons, like, you're kinda getting the pick of the litter if you have a lot of liquidity that you're willing to put to work right now in what deal flow there is in all these different categories. You know, like I said, some of that'll last for a while because as you sort of shift and replace where the banks were and some of it's, you know, maybe in next quarter or two or three, but, you know, we're enjoying the opportunity right now.
Really helpful. I really appreciate it. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.
Thank you for joining us this morning. Please reach out with any questions.
Thanks, everyone.
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