Please note this event is being recorded. I would now like to turn the conference over to Jack Switala.
Please go ahead.
Thank you, operator. Welcome to the KKR Real Estate Finance Trust earnings call for the second quarter of twenty twenty one. We hope that all of you and your families are safe and healthy. As the operator mentioned, this is Jack Switala. Today, I'm joined on the call by our CEO, Matt Salem our President and COO, Patrick Matson and our CFO, Mustafa Nagate.
I would like to remind everyone that we will refer to certain non GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor Relations portion of our website. This call will also contain certain forward looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10 Q for cautionary factors related to these statements. Before I turn the call over to Matt, I will provide a brief recap of our results. For the second quarter twenty twenty one, we had GAAP net income of $29,300,000 or $0.52 per share, which included a $600,000 or $01 per share benefit from a lower CECL provision.
Distributable earnings this quarter were $30,400,000 or $0.54 per share, driven by the growth of our portfolio, benefits from in place rate floors and continued strong asset performance. Book value per share as of 06/30/2021 increased to $18.91 which includes the cumulative CECL impact of $1.05 per share and $0.11 per share of offering costs incurred during the quarter in connection with our preferred stock offering as compared to eighteen point eight nine dollars as of March 31. Finally, in mid July, we paid a cash dividend of $0.43 per share with respect to the second quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 8%. With that, I would now like to turn the call over to Matt.
Thank you, Jack. Good morning, everyone, and thank you for joining the call today. In the second quarter, we harnessed the power of the KKR origination franchise to originate eight loans for $967,000,000 We have an additional pipeline of approximately $850,000,000 in loans, which have either closed or under exclusivity subsequent to quarter end. We also delivered another outstanding quarter of financial results with distributable earnings of $0.54 a share covering the $0.43 dividend by 1.3 times. Our earnings continue to benefit from strong credit performance, existing LIBOR floors and net portfolio growth.
In today's active origination environment, KREP is benefiting from its position as the flagship transitional senior commercial real estate loan strategy inside of a global asset manager with an established real estate platform. We have unique access to economic views from our global macro team and real time market and property level information from our partners in the real estate equity team. This market connectivity is supporting a real estate credit franchise that has grown meaningfully. For perspective, at the end of twenty nineteen, our real estate credit franchise was comprised of 24 investment professionals compared to 46 today. This origination engine will be critical as we continue to see good progress on our sponsors' business plans, which we expect to lead to elevated repayments in the third and fourth quarters.
Our investment focus remains the same, senior loans on high quality real estate owned by institutional sponsors. Our second quarter originations of eight loans totaling $967,000,000 included three industrial loans, two multifamily loans and one loan in each of the office, student housing and single family rental sectors. These eight loans were underwritten at attractive low double digit weighted average IRR in line with returns pre COVID. Net loan fundings this quarter was €288,000,000 and our portfolio grew to record size, totaling over €5,600,000,000 as of June 30. Our pipeline remains robust with approximately $850,000,000 of loans either closed or under exclusivity subsequent to quarter end.
We continue to be active in our historical segment of multifamily and select office. At the same time, our pipeline reflects our desire to capitalize on attractive opportunities in today's market environment. And we are constructive on certain newer segments such as life science, which has benefited from an increase in tenant demand driving a need for new lab space. In the industrial sector, we closed three loans this quarter for a committed loan amount of $410,000,000 secured by Class A properties. Our largest industrial loan this quarter was to a sponsor who has completed over three fifty developments.
As always, we will target the highest quality owners and operators. Our industrial focus aligns with our activity in real estate equity, where we own 65,000,000 square feet across the industrial sector. Access to their expertise, market knowledge and relationships creates differentiated outcomes for KREF. With our focus on industrial development, there's more future funding than we have had in the past. Given the simplicity of construction in the industrial sector, we expect those unfunded commitments to contribute to origination volumes over the next few quarters.
Our portfolio composition remains consistent with previous quarters and is comprised predominantly of lighter transitional floating rate senior loans. 83% of the portfolio is comprised of loans secured by multifamily or office properties. Retail loans continue to be underweight and represent just 2% of the portfolio. Industrial now comprises 3% of the portfolio on a funded basis. Overall performance remained strong with interest collected on over 97% of the portfolio in the second quarter.
To support our growing opportunity set, we raised net proceeds of €167,100,000 of perpetual preferred stock at a fixed for life cost of 6.5% in April. This permanent capital allows us to take advantage of current market opportunities, service our institutional clients and grow the portfolio, which should lead to improved operating leverage over time. Additionally, in early May, we completed an approximately $115,000,000 secondary offering on behalf of our manager KKR. One of our goals has been to increase the trading volume in our stock, and this sale added to the available float. KKR continues to be our largest shareholder with meaningful skin in the game at 26% ownership.
This level of commitment is multiple times that of our peers, and we expect KKR to remain the largest shareholder in KREF over the long term. In summary, we achieved another strong quarter across originations, portfolio performance and earnings. Our broader relationship with KKR and our scaled origination and asset management franchise should benefit us in this active origination and repayment environment as we head into the second half of twenty twenty one. With that, I'll turn the call over to Patrick.
Thank you, Matt. Good morning, everyone. As of quarter end, a market leading 76% of our asset financing remains fully non mark to market and the 24% remaining balance is only subject to credit marks. This is similar to the financing mix we had at the onset of the pandemic, which has served us well over the last eighteen months. At the quarter end, our debt to equity ratio and total leverage ratio dropped slightly to 1.9 times and 3.3x respectively, following the success we had in the April raise of 167,000,000 in net proceeds of perpetual preferred stock at a fixed for life cost of 6.5%.
We continue to focus on optimizing our financing. Just last week, we announced a new $1,000,000,000 CRE CLO. The offering was well received, allowing us to upsize by 30% and price the $1,300,000,000 transaction on Friday. The CLO features a two year reinvestment period with an 84.25% investment grade advance rate at a weighted average running cost of capital of LIBOR plus 1.3% before amortized expenses. In conjunction with this transaction, we'll call our first CLO, but the larger size of the new deal will increase the aggregate amount of match term financing on a non mark to market and nonrecourse basis.
The combination of our brand, high quality loan portfolio and track record as a manager positioned us to achieve this attractive financing with a market leading cost of capital. As we have discussed in the past, we have a robust quarterly asset review process and we evaluate every loan in the portfolio to assign a current risk rating. The current portfolio risk rating of 3.1 on a five point scale is consistent with the weighted average risk rating last quarter. Notably, 90% of our loans are now risk rated three or better, up slightly from last quarter. There were no changes to the composition of the watch list in the second quarter.
However, we are seeing improving trends in properties which may lead to positive credit momentum in other assets. In the second quarter, we saw $27,600,000 in pay downs on our New York condo loan. On our Brooklyn hospitality loan, occupancy rates ticked up nicely in the second quarter to 77% relative to occupancy rates of 53% in the first quarter. Our Queens industrial loan is approaching its next maturity and will most likely provide a short term extension to allow the sponsor to finalize their sale process. As a reminder, we believe we have adequate CECL reserves with respect to our watch list loans and the broader portfolio.
If a credit event does occur and a loss is crystallized, it will flow through our distributable earnings, but we would not anticipate a meaningful impact to GAAP net income or book value. We received approximately $271,000,000 of repayments in the second quarter. And while it's always difficult to predict repayments with certainty, our expectation remains for elevated repayment activity in the second half of the year. And our current projections are around $1,000,000,000 in each quarter. In the near term, KREP should continue to benefit from the in place LIBOR floors and elevated effective net interest margins.
This will decrease as the portfolio transitions to new loans at spot LIBOR. Finally, KREF finished the quarter with a strong liquidity position of over $630,000,000 This total included $119,000,000 of cash and $335,000,000 in undrawn corporate revolver capacity available to us. In light of our liquidity position and the potential for elevated repayments in the second half of the year, we feel well positioned to capitalize on the growing pipeline of investment opportunities. In summary, another strong quarter with elevated distributable earnings of $0.54 per share covering our $0.43 dividend by 1.3 times. Robust originations across eight loans totaling $967,000,000 and an additional pipeline of approximately $850,000,000 under exclusivity were closed subsequent to quarter end.
We grew the portfolio to a record $5,600,000,000 which compares to $5,000,000,000 at the start of 2021. Lastly, we completed an inaugural perpetual preferred stock issuance, adding permanent capital that positions KREF for portfolio growth and improved operating leverage. Thank you for joining us today. Now we are happy to take your questions.
We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. And our first question will come from Jade Rahmani of KBW. Please go ahead.
Thank you very much, and appreciate the detailed commentary. Starting with the dividend, know, you mentioned distributable EPS running 30% ahead of the current dividend. Then you mentioned your expectations regarding repayments, which would be elevated as well as a normalization over time in the net interest income margin. So I was wondering if you think once things normalize, there could be room for an increase in the dividend. And if there were excess distributable earnings, is it your expectation that for this year, 2021, there would be there could be a special dividend?
Hey, Jade. It's Matt. I appreciate you joining the call, and thank you for the for the question. You know, I'd say right now, we're on, you know, just the current dividend. Obviously, we'll readjust that after we future quarters meeting with the board.
But from everything we see now, especially given the low interest rate environment, you know, I think our target, is still trying to meet the, the current dividend.
And based on where distributable EPS has been running, do you think there's excess re taxable earnings that might require a special dividend?
Not at this point. Know, we're not really focused on a special dividend. I think there's a number of number of factors that we'll we'll take into consideration towards the end of the year as we meet, you know, we meet with the board, but, certainly haven't, you know, focused on that yet.
The billion of repayments you expect in each quarter for the third quarter and the fourth quarter, would that produce early prepayment income?
We'll have, yeah, I mean,
we'll have some pull forward on the OID to the extent, you know, they're prepaying before their initial maturity, which which we expect. So that that will generate a little bit more income. Most of them have run through their, you know, prepayment penalties or, you know, other call protection we may have in place, but you can get a little bit about OID. So, yeah, that can drive earnings. Obviously, we don't originate a loan.
The exact day alone pays off, so there'll be some cash drag associated, in the interim with a heavy repayment schedule as we ramp up, and meet that with our with our new originations.
Thank you. Lastly, just on credit, could you give an update on the Portland retail loan? What's your expectation, for that loan over the next, few months?
Yeah. Happy to. I think we're making, you know, making good progress there as it relates to, you know, working with the next sponsor and the next phase of that investment. And, you know, our goal, we hope to come back to you next quarter, you know, with a broader kinda update on where we stand. So, you know, stay tuned on that one.
So you say next sponsor, has the property gone through foreclosure, or what is the current status? I know it's it's on nonaccrual.
No. It's same status. It has not been foreclosed on and taken to REO. That we're in the middle of all those discussions here right now.
Okay. Thanks for taking the questions.
Mhmm. Thank you, Jade.
The next question comes from Steve Delaney of JMP Securities. Please go ahead.
Thanks. Good morning, everyone, and congratulations on another strong quarter. Matt and Patrick, I was wondering, we've been through so much with COVID and the demographic shifts that, that and some economic things have highlighted. As your equity group, number one, and then your sponsors that you're lending to, are you seeing any type of definitive shifts into what geographic markets capital is flowing from the real estate equity side? Specifically, are there any markets that how dramatic is that?
It's kind of what we hear about license plates in Texas and things like this. Maybe just give us a sense for where is the money going from the real estate equity? On the other side, where is it not going? Thank you.
Sure, Steve. It's Matt. I can take that and thank you for the question joining us. I think that if you think about what COVID did, it accelerated some things and it dislocated some of the market. And certainly, in the geographic question that you're asking, I think there's been some pretty big acceleration in the growth in the growth markets, in the in the Southeast and certainly some of the tech some of the tech cities.
And I think the capital going into that is pretty pronounced. I mean, it's very tangible. And we've seen good what what you know, whether it's multifamily or office. I mean, see very good leasing velocity in those markets Mhmm. Still.
And and, again, it was a theme before COVID. It's I I just think it's been accelerated, and we will continue to focus on those markets from a lending perspective. And we're very active on on the real estate equity side as you as you would suggest. And I think we put it in our commentary every every quarter, but the power of being able to sit alongside that, underwrite deals together and get that market information real time is very powerful.
There any markets that we all hear about Austin, right, and Phoenix, Denver and those places. Are there any sleeper markets coming down maybe second tier cities that you see emerging that maybe aren't on the tip of everybody's tongue?
I mean, nothing that's not obvious. I mean, Charlotte
Okay.
I mean, I I wouldn't call that a second tier city, but, you know, Charlotte is obviously another growth area. The Florida markets, again, similar theme pre COVID, but I would say those are particularly strong as well, the Southern Florida markets.
Yeah. Should probably use the term non gateway rather than describe them a little better. Okay. And then just to close the comments about the portfolio. We're at $6,500,000,000 at June.
Based on the commentary about pipeline and closings, I mean, it seems to me that we should just model essentially a flat portfolio over the second half of the year. Does that sound reasonable to you guys?
Steve, good morning. It's Patrick. That's right.
I
think that as we think about the course of the repayments here and our origination capacity and our ability to match that, we're assuming that we're going to be in that $6,000,000,000 area for the portfolio size.
Yes, got it. Understand it can be lumpy month to month as we go through that in the next six months. Thank you both for your comments.
Thank you, Steve. Thank you.
The next question comes from Stephen Laws of Raymond James. Please go ahead.
Hi, good morning. To follow-up on Steve's question, a good spot for me actually. As we think about redeploying that capital, Patrick, can you touch on anticipated cash drag? I I want to make sure I don't overestimate my interest income just using spot quarter end leverage. Does it take two weeks to turn over the capital with roughly a third of the portfolio, I guess, turning over in the next six months.
I'm curious how we should think about cash drag or average leverage through the quarter or what how you would term that?
Steve, good morning. Thanks for the question. Yes, I think that's right. I think what we're trying to highlight is, if you looked at the past couple of quarters, we haven't had a lot of turnover. So we've gotten the benefit of collecting a full quarter's interest on a pretty robust portfolio size here.
As we think about the latter half, there is going to be some amount of drag. It wouldn't be unreasonable to have a month or so gap, right, between some of those repayments and when sort of new closings come. And so it's difficult to quantify it because it really depends on the time lag between it, but we would certainly expect there to be something. So when you're thinking about it from a modeling standpoint, I would certainly factor in some amount of drag.
Great. That's helpful. On your comments in prepared remarks, Patrick, on the CLO, I think, what was it, 2018 FL-one being called? Can you give us a number on the any transaction expenses that are going hit in Q3 '1 time, I assume that it will go into the quarter. And then I would think we would add that number back for distributable earnings, but can you talk about the one time expenses around the CLO call?
Sure. Steve, as it relates to the FL1 transaction, all of those deferred financing costs have been amortized through. So we actually didn't incur, any in this quarter and when we close or the second quarter. And when we close the transaction in the third quarter, likewise, there'll be nothing that has to get accelerated. The only thing that will happen is upon closing, we'll have a set of costs that will need to be amortized for the new transaction that will need to be factored in.
But there's no drag from calling the first deal.
Great. Thanks for that color. And Matt, one for you. Just did the preferred equity raise, Kind of you've got some converts outstanding. You've got an ATM available that you haven't used.
And certainly, with the stock above equity, you could raise capital to be accretive to book. I know there's a lot of turnover coming in the next six months, so probably less relevant. But how do you think about your capital stack, what the right mix is, and and how you look at the the market for for, you know, cost of capital for those various options?
Yeah. Thanks, Steven. Happy to happy to take that one. Well, listen. Just having the diversified options, especially as it relates to the equity, I think has been quite powerful.
And we were able to access the preferred equity market at a moment in time where it wasn't really accretive from a common equity perspective and we had a big pipeline and obviously a client base that we wanted to serve. So we thought that was particularly attractive. As we grow from here, I think we're looking at both, the common and the preferred as as good options. And obviously, need to we need to keep the sizing appropriate for those. And so that's that's really kind of the mix of those is is something we are focused on.
But I'd say they're both viable at this at this point in time. That being said, to highlight, your comment, with the repayment pipeline that we have, we're we're probably a little bit more focused on using our origination pipeline to fund those repayments. And so the need for equity currently, is relatively low. Now that can change if our pipeline grows or these repayments start to get pushed out a little bit. We we may need it.
The pipeline side of of the equation is very, very high right now. But, again, so is the repayment. So just trying to match those up and, predicting the future is difficult, but we're we're kind of ramped up expecting, you know, what we talked about.
Great. Appreciate the comments this morning. Take care. Thank you, Stephen.
The next question comes from Don Fandetti of Wells Fargo. Please go ahead.
Hey, Matt. So pretty striking increase in occupancy at your Brooklyn hotel, you know, which obviously reflects New York coming back. I was just curious what your current thoughts are, you know, just given the delta variance in terms of interest in putting capital to work in New York? And are there a lot of opportunities that you're seeing in the area? Obviously, your watch list has several New York properties, so maybe you're talking to some of that as well.
Well, Don, thanks for the question. You know, as it relates to the Delta variant, you know, we're monitoring it very closely. I mean, clearly, our first thought is always to our employees' health and and safety. So we're watching it from from that perspective. We're in the office, you know, working together and and and so we wanna make sure we're on top of it.
As it relates to the portfolio and investment risk, clearly, it could have an impact on the cyclical, you know, nature of the hotels. But I think we've seen our portfolio through the depths of the initial kind of COVID volatility be pretty resilient. So I think that we'll watch it, but it's not something that's giving us over making us overly concerned for our existing portfolio. I would say on the New York City comment, we've seen a very big increase in activity and leasing, not only at the hotel in Brooklyn, but through the multifamily properties that we've had over the course of the last year. We've had some pretty sizable repayments in in our multifamily portfolio in in, you know, the Tri State region.
So I don't think we're any more hesitant to lend on on the multifamily sector in in New York outside of the outside of the fact that you just have to be more conservative on your, you know, lease up assumptions and and your concession assumptions. But we'll still focus on this market look for good opportunities.
And I saw that you did a single family housing loan in the quarter. I was curious your thoughts on that market. Do you think you'll be more active there or if that was a one off?
Yeah. No. It's a good point, to bring up. You know, on the on the real estate private equity side of our of the KKR, you know, business, we're very active in all things housing. And we have a single family rental equity platform there, so we're very familiar with the sector.
Obviously, the need for housing is quite dramatic and you've seen that sector really become an institutional ownership. In this particular case, we were kinda service one of our existing institutional clients that is in that particular business and we did it out in Phoenix, which is clearly a growing market. It it I wouldn't call it a one off. We like the sector. We'd like to do more.
We're seeing a number of opportunities that are attractive. I'm not sure how big it will be as a part of the portfolio because the commercial banks are very active in that sector. So, you know, I think that it's unclear how much of the opportunities that they will take versus, you know, lenders like ourselves. So it's something we're following and and hope to do more of, but unclear how big we can grow it.
Thank you.
Thanks.
The next question comes from Rick Shane of JPMorgan. Please go ahead.
Hey, guys. Thanks for taking my questions this morning. I'm curious when you think about the dividend policy and we look at the impact of floor income. Obviously, there is a potential headwind as rates rise, but you guys are also talking about $2,000,000,000 of repayments in the second half of the year. I'm assuming that that brings us effectively moves us along that floor income scale as you lose a lot of floor income.
How much is that impacting the dividend policy?
Rick, good morning. It's Patrick. I'll take that one. So as we think about what's likely to transpire right over this next couple of quarters, we think that repayments will be elevated. As Matt indicated, we'll get some pull through on OID acceleration for those quarters.
We'll start to lose some of that excess NIM that we've been able to capture through the LIBOR floors. The flip side of that is we're setting new loans at coupons that are almost entirely spread because spot LIBOR at less than 10 basis points, you know, means that we're earning all of that income through spread. And so we're setting ourselves up well for the coming years. If you anticipate that there could be some rise in rates over time, we'll be much more positively correlated to that than we are today because of the benefit that we're getting. It's difficult to sort of quantify exactly the change or quantum.
A lot of that will depend on the timing over the next sort of quarter or two and sort of which loans actually repay.
Got it. Okay. And one of the things that's interesting is and again, this is very back of the envelope math, but if we compare the percentage of loans in the first quarter, which was 69% with floors above one percent, and the percentage this quarter, which I believe is 57%, it looks like there was about a $465,000,000 decline in loans with 1% LIBOR floors, but that's substantially above the repayments that you guys experienced during the quarter. So I'm wondering, are there loans that are or terms that are being renegotiated to reduce floors? Is that something we need to consider as well?
Yes. Rick, you highlight a good point, and that's a very detailed point that you're sort of pulling out. There have been some instances where as loans have come up to initial maturities or as we've provided any form of accommodation to the sponsors, we've recast the coupon. In a lot of cases, the coupon has stayed the same, but the mix of LIBOR and spread has changed. And so where we had perhaps burying the money floor, we reset closer to a spot LIBOR and took again a lot of that income, the remaining income in spread just to again, if the loan is extended longer, make sure that we're going to benefit from an increasing LIBOR rate.
So yes, that's a good find and certainly something that we have been focused on.
Got it. And so that is actually long term, and I apologize for the third for the second follow-up question, but that ultimately should turn into slightly wider spreads. That's the trade off you're getting by giving up some of that floor.
That's right. That's right. It's wider spreads, see that in the loans that we're making relative to some of the loans that are paying off. I think importantly, the last thing I just would highlight here is if you look quarter over quarter over the last several quarters, we started the year, our weighted average coupon was about 4.8. It's gone down about 10 basis points in the last two sort of quarters, but still at 4.6 is a pretty strong number relative to our cost of liabilities.
Got it. Okay. Thank you guys very much. I appreciate all the questions or all the answers to all my questions.
Thank you, Rick.
The next question comes from Tim Hayes of BTIG. Please go ahead.
Hey, good morning, guys. Congrats on a nice quarter here. Lot of my questions have been asked and answered, but just maybe a couple more on the pipeline. I think you mentioned about $850,000,000 of loans closed or under exclusivity since quarter end. Can you maybe just provide a little bit of color there on on LTVs and spreads, how that compares to maybe, you know, what you closed in the in the previous quarter?
And then I think you talked a little bit about seeing more construction loans in your pipeline as well. So just wondering if all $8.50 were to close this quarter, the expectations for fundings of at an at at a closing for those loans.
Hey, Jim. It's Matt. I can give a little bit of color around that.
I mean, the pipeline's consistent,
you what we've been doing in the past. There is some construction in our current pipeline. There's life science, so some of the newer sectors that we're looking at and then again some of the traditional multifamily as well. You know, I don't have the exact breakout of committed versus expectations around, you know, initial funding in front of me right right now, but, I would expect something in line with the current quarter, just because we do have some construction component, in that, origination pipeline. And I don't think the mark just a market commentary to to to cover your questions around spread.
The market's been pretty consistent the last few quarters or last couple of quarters, I should say, in terms of spread and and competitive dynamic. So, you know, depending on the property type and whether it's construction or not, I would say our coupons are largely in line with what, what we did this past quarter. Got
it. That's helpful. Thanks, Matt. But I guess just from a high level, know, keeping on the same theme of construction lending, what percentage of the portfolio consists of construction loans today? And then where do you see that going?
I know that your level of unfunded commitments jumped up a bit this quarter. I think it's at about 13% of the total portfolio. Where do you feel comfortable with that number going to? Your liquidity position seems pretty solid today, especially considering the repayments expected repayments over the next couple of quarters. But the pipeline is pretty solid too.
So just wondering if you feel pretty good about where your liquidity is today relative to, your pipeline and and unfunded commitments.
Yeah. I'd say a couple of things. A lot of the construction that we've done today, is in the industrial sector. That will go into the ground pretty quickly. And so you don't you know, it's not gonna be out there for that long.
It's almost just like forward originations for the next couple of quarters or few quarters. So it's it's a little bit easier to predict, but that would be one. Given our expectation around the repayments, building some future funding over the next couple quarters is is is gonna be helpful to us. And then, you know, in terms of the size, today of our, you know, of our construction budget, it's it's pretty small, and it's less than 5%. And so we have a certainly a ways to go before we would ever, you know, hit anything from a risk management perspective, portfolio perspective, portfolio management perspective that would give us, you know, any any cause for concern.
And and there's just a lot of activity in that particular part of the market today, especially as it relates to, you know, demand from, you know, ecommerce on an on the industrial sector. So Mhmm. I think we'll continue to focus on it over the next couple quarters if the returns to are are are in line with where we see them today. But understand your point around, you know, managing that future funding, you know, vis a vis the liquidity of the overall company.
Okay. And then just on the, industrial sector, you know, you you highlighted how active KKR is there and the resources that brings, to you guys. And, you know, I think we've we've heard, and I think you guys have talked about in the past, it's not always easier for you to find, industrial loans given the size of the loans you're focusing on versus where, you know, that market generally tends to be. So and and, obviously, it's a very competitive asset class. So I guess my questions here are just around, you know, how how big you see that segment becoming as a percentage of your portfolio over time if if the if it's easy, I guess, quote, unquote, to to find those loans given the the broader KKR footprint?
And then what impact that should have on ROE given it's a competitive asset class?
Right.
It's a it's a good point you bring up. It's historically been, you know, difficult to drive overall, volumes and,
your
portfolio allocation to industrial just given the the granular size of them. A couple of points to make would be one, we are starting seeing some larger opportunities, You know, Amazon and and some of the other big ecommerce players in the market do have bigger footprints. And so that's that's creating some need for larger loan sizes. One of the deals we did this quarter, was, on more granular boxes. However, we did it on a portfolio wide basis, and we'll be, effectively financing an entire year's worth of of of a pipeline for national developer.
So that's another way we can, you know, we can come at it. You know, to think that if you think about our portfolio round numbers today of 5 and a half billion dollars, you know, could we get it up into the low double digits in terms of portfolio size? I I think it's possible, but it it obviously won't be won't be our largest exposure by by any stretch. But, you could see it growing to that much. You know, from an ROE perspective, we're doing these slightly they're slightly more accretive than, obviously, what we're doing on, like, a multifamily loan.
But I I at a portfolio level, you know, maybe it's a it's a slight slightly additive, but I wouldn't think about this as, like, you know, really driving the overall ROE of the business. Just think about it as, like, as it it's a if it becomes a 10% part of the portfolio, it's earning slightly more than, you know, maybe the other the other sectors that we're lending in.
Got it. Got it. Okay. Great. Well, thanks for taking my questions.
Thank you, Tim.
This concludes our question and answer session. I would like to turn the conference back over to Jack Sotala for any closing remarks.
Great. Thanks for joining everyone. Please reach out to me or the team if you have any questions. Have a great day.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.