Hello. Hi, this is Arren Cyganovich. I'm a Citi research analyst covering commercial mortgage REITs. Thank you for coming to this conference and this session. We're pleased to have here with us, Matthew Salem from KKR Real Estate Finance Trust, and Katie Keenan from Blackstone Mortgage Trust, to discuss all of the fun issues that are happening at this conference. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now.
Disclosures are available on the webcast and at the AV desk. For those in the room or on the webcast, you can sign into liveqa.com and enter code GPC23 to submit any questions you want, or you can just raise your hand.
We'll start off, maybe with each of you could just introduce yourselves and your company, then we'll get into the Q&A.
Thanks, Matt. Good morning, everyone. Thanks for coming early this morning. I'm Katie Keenan, the CEO of Blackstone Mortgage Trust. BXMT is the commercial mortgage REIT sort of floating rate first mortgage product that we run within Blackstone's real estate platform. We are a $25 billion portfolio, roughly, very focused on institutional quality real estate, institutional quality borrowers, and we benefit from, you know, all of the information and insights that we have across the Blackstone platform.
Great. Thanks, Katie. Thank you all for coming this morning. Arren, thanks for having us. Matthew Salem. I'm the CEO of KKR Real Estate Finance Trust, similar to Katie, we are a senior lender on transitional assets, really focused on the institutional segment of the market, whether that's institutional sponsorship, or institutional quality real estate, a senior loan portfolio, predominantly floating rate.
Thanks. We'll just start off with the same question we ask, all the managements, to start off. What are the top three reasons an investor should buy your stock today? We'll start with Katie.
Sure. I think it's current income, discounted valuation generated from a defensive asset class. This is a really rare moment in time for our companies, which traditionally have traded at or, you know, in many cases above book value, to enter the stock at a significant discount to book value, not something that we love as a management team, but from an investor perspective, I think a really compelling opportunity.
The book values reflect significant reserves, you know, reflective of the credit environment, and yet still, you know, significant discount built in. We're generating in, you know, in our case, and I'm sure similar for Matt, a 12% dividend yield, which for us was covered 140% last quarter.
Incredibly compelling earnings picture, very strong current income paid every quarter, well covered by earnings and the opportunity to come in at a discounted value from a portfolio of mortgage loans.
Yeah. I think from our standpoint, obviously some of the same characteristics. Number one, you think about the portfolio that we have on the asset side, they're first mortgage loans, senior, they're floating rates. You're benefiting from the rising interest rate environment, which is driving earnings. You know, for our portfolio, it's 60% is focused on some of the growth areas like multifamily and industrial. The portfolio is strong senior first mortgage loans.
Secondly, just from a balance sheet perspective, we're running near record levels of liquidity. We have almost $1 billion of liquidity in the company right now, and we finance our first mortgage portfolio with really safe liabilities. About, 77% are fully non-mark-to-market liabilities. We've got a safe liability structure in place.
Lastly, just, you know, just value. I mean, I'm as conservative or cautious in the macro environment, I think, as most investors are. You have to ask yourself the question, kind of like what's priced into these stocks? Right now, we traded a pretty big discount to book value. We have a 12% dividend yield. The market, you know, feels, you know, pretty attractive from an entry point.
Thanks. The next question is, what's your number one ESG priority for 2023? Let's start with Matt there.
Yeah. First of all, it's really an evolution, I think for all of us, as we try to understand what our role will be, especially as it relates to environmental. Keep in mind that, you know, we're a debt business, so for us, it's a little bit different angle than if you own a property and can actually implement, you know, some of these strategies. This is gonna be a big push for us this year, I'd say really in two areas. One, just enhanced due diligence. A lot of that comes down to, like, the closing process, and doing, you know, physical climate assessment and basically having our borrowers report and collecting all that information up front.
We're gonna transition over the course of the year to more of a monitoring and ongoing surveillance, where we will effectively build out our technology tools, and then implement reporting with our borrowers so that we can capture all that information on an ongoing basis, then report on it. It'll be a big, I think a big step forward for us. We really think about this as it's really, for us, it's just credit, right. It's just a business. It's a business issue. You know, these implementation of efficiencies, you know, we think will create a better real estate, create better real estate value and more liquidity in the underlying real estate.
For us, it's really a part of the IC process and how do we evaluate whether to make the loan or not.
Yeah. I mean, I would agree with that last point. I think that, you know, when we think about the overall thesis of the business, flight to quality, institutional quality real estate, real estate that appeals to users and to capital markets participants. Clearly being modern, having the right sustainability factors, you know, the right ESG criteria is a critical part of that from a risk perspective. I think for us, at Blackstone, we've been very focused on this.
I would be remiss if I didn't acknowledge, I think we've made a lot of progress this year. We have implemented full training around ESG issues for our team, for our board. We've collected a lot of the ESG best practices that we use on the equity side and shared that with our borrowers to try and sort of seed improvement in their business plans.
We've really operationalized our due diligence, screening, underwriting, and asset management process to monitor these areas, and we've used that to, you know, really look at areas of risk and how we can change our diligence factors going forward. We've made a lot of progress on the diversity of both our management team and our board. Our board today is about 45% diverse representation, which we're really proud of.
I think that going forward, you know, very similar, really focusing on taking all of the progress we've made and systematizing it in a way to make sure that we're passing all of that disclosure very clearly on to our investors. You know, the SEC reporting paradigms that are gonna come through at some point, and, you know, pulling it through our portfolio and pushing it out.
Thanks. You know, how would you describe the CRE lending environment today and, how has it evolved from kind of pre- and post-COVID levels? I'll start with Katie.
Sure. You know, I think it's really a lender's market today. You know, there is clearly a dearth of debt capital out there, whether it's because of dislocation in the securitization market, which has eased a little bit but still remains fairly dislocated. You know, a lot of disparate behavior from the banks. Again, I think post the year, turn of the year, we're seeing a little bit of easing from the banks, but still pulled way back from historical levels.
Some of the smaller sort of debt funds in the space, you know, having some challenges and not as able to be out there. You know, less kind of supply. I would say also less demand. I mean, transaction activity is down anywhere from 30%-50% or more, depending on the asset class.
The addressable market is smaller, but the lenders that have capital or are interested in lending is, you know, still smaller than that. Therefore, the competitive dynamic, the ability for lenders to really name sort of what assets they're interested in, what leverage they're interested in, what pricing they're interested in, I think is pretty unusual.
I would say, you know, quite unusual over the course of the last 10 years, you know, when we've been in this business with the BXMT. It's a great time. You know, it allows us to be really selective. Our second-half originations were like, I forget, 60% or 80%, whatever, you know, very significantly industrial, and the rest of it was multifamily.
Our yields were 100 basis points or more wider, and I think that's just a reflection of what we can see in the market and, you know, develop in terms of getting into the portfolio.
Yeah. I would totally agree in the fact that it's certainly a lender's market today and probably one of the best investing environments, you know, I've seen during, you know, my career. You know, we're lending at probably 20% less proceeds than we would've, you know, at the peak. Just a lot of that is just value decline, but the loans are more considerably underwritten from a LTV perspective as well.
You're getting more call protection, and you're getting more of the whistles and bells in terms of debt yield tests and extension tests and cash flow sweeps that you would expect to get in a more lender-friendly environment. It is really, I think, in my mind, there's really two main factors driving it. One is just conservatism and caution around the macro environment.
Two, just the banks are a very small fraction of what they were historically, especially the largest banks in the United States. That void that's created allows us all to kind of step in and creates opportunity for us despite the fact that, you know, transaction volumes are down.
You may have answered that in your responses here, you know, being more of a lenders market, are you seeing fairly rational behavior from a competitive standpoint from your peers?
I mean, on the, on the credit side, for sure. You know, I think it's a, it's a, like I said, a very attractive market right now. There is liquidity in the market, though. I don't wanna make it sound like there's not competition. There is competition. You know, I'd say one of the challenges is that you've got a lot of focus on what we all know is the favorite asset classes, right? When you have a stabilized multifamily deal, for instance, we have a broader business at KKR. We invest on behalf of banks. We invest on behalf of insurance companies as well as we manage our, obviously our mortgage REIT.
You see a lot of, obviously a lot of competition, especially on the stabilized part of the market, from insurance company capital. It's not, I would say from the credit perspective, everyone is very, very cautious. There's liquidity out there and, for any, you know, one opportunity you can see, I think, pretty good spreads, as a borrower. Obviously all-in yields have changed quite substantially.
I would say, I mean, it's interesting. I think everyone's acting rationally. The question is just what are their considerations? If you look at the banks, you know, they're all just acting based on their stress tests and their pressure from the OCC and really sort of responding to that more so than responding to whether there's a rational lending opportunity to make. You know, it makes sense.
You know, I think when you think about it just from the window of our world, would you have expected Wells Fargo to completely pull out of the real estate lending market? Probably not. It's an indication of what's going on, you know, in their stress test.
As I said earlier, sort of, you know, also related, you know, they all got through the year-end tests, and now they're acting rationally again, which is opening up their balance sheets a bit.
You touched on this a little bit, before, but what property types are you favoring to lend under today and which ones are you avoiding?
I think we'll probably have similar answers on this one, but in my mind it just comes down to growth, right? You've got an increased cost of capital, and we're really trying to lend on either assets or in areas where, you know, we see fundamental growth that can help us have that higher cost of capital and have some of those supply-demand imbalances. We're really focused. 70% of our originations last year was in multifamily or industrial.
The rest was predominantly in life science, which were, I think, for us, like the three dominant growth sectors in the market. We continue to be very big believers that there's a real tailwind structurally in all of those asset classes.
Of course, just, from a location perspective, you know, we tend to be oriented towards the growth sectors of the market and the in-migration and the Sun Belt. You know, as lenders, we're not really paid to take contrarian risk that much, I don't think. Really we're just trying to stick to, what is the easiest part of the market to lend on.
Yeah, I would agree. I mean, I think that industrial, I think, has definitely risen to the top of the list for us. We see, you know, continued very strong, even accelerating rent growth in a lot of industrial markets. I think it's a factor of, you know, affordability and the fact that industrial rents continue to be a very small part of the cost structure for users, as well as real growing demand from, you know, nearshoring increased inventory, the way some of these retailers' business models have changed. I think industrial, definitely the top of the list.
Then, you know, we agree, multifamily, very attractive. I think there's parts of the hotel market actually that are quite attractive. I agree, as a lender, you know, we have to be really careful on hotels 'cause they're, you know, more operationally intensive, more volatile.
I think there's 50% loan-to-cost hotel loans out there to make right now when you're seeing the recovery of travel, that are pretty interesting. It's gonna be, you know. I think that especially right now when there's a wide range of outcomes and uncertainty, you know, sticking to where we see the continued growth is critical. Multifamily, obviously.
Katie, this one's for you. You have, I think, around 29% of your portfolio outside the US. How do you know, view that opportunity relative to US investing today?
Yeah, absolutely. I think that, you know, over time, our global footprint and our ability to look at sort of where risk and return as a package is most attractive around the world is sort of a huge benefit in terms of looking at our pipeline and our platform. We have a lot of UK and Western Europe. We also have a large portfolio in Australia. I think it's really interesting to see right now, although all of these markets are facing similar pressures from inflation, higher base rates, it really is not the same across markets.
I mean, the Australian inflation readings came in, you know, pretty low yesterday. There's gonna be a different base rate environment there. You have China reopening. All of that is driving very strong demand in Australia.
I think it's actually quite a compelling time to lend there. In Europe and the UK, interestingly, although they have obviously macro pressures that, you know, we're really mindful of between the war and, you know, energy prices, which turned out to be not quite as much of a pressure over the, over the winter as we might have expected, higher base rates, but the capital markets there are much more functional. It's not as much of a securitization-oriented market, and so it's just not as volatile as the US. You know, there's more transaction activity there.
There's more availability of capital across the spectrum, debt or equity. You know, we see that as just a more interesting liquid market right now, and it's historically been a much lower leverage market to begin with.
You know, I think the opportunity there is pretty interesting as well. We'll continue to source from all, you know, all of the markets in the world that we see, and where we have teams on the ground. I do think that especially in moments like now where things are changing rapidly, just having the broadest sort of sourcing pipeline available from which to harvest opportunities is something that we really like to have.
Matt, you don't really have much of an international piece in your portfolio. Do you have any intention to expand outside of the US?
Yes, we do have intentions to expand. We've built a team out in London that will cover Western Europe. You know, for us it's really less, it wasn't about, it's not really a relative value, you know, decision historically. It's more about how do you go about building a business and building a team and, you know, what's the right timeline to do that. We've had a team in place there for about a year now, and we're actively lending in that market.
Similar to the US, it's fully integrated with our kind of real estate equity team. We've got a global real estate equity business, so we're trying to obviously use the same type of relationships and information to make investment decisions there.
I think that, to Katie's point, kind of having a broader lens in relative value, these markets change at different times. They offer different opportunities. We're very much looking forward to kind of expanding KREF portfolio, you know, into Europe, when the time is right.
I'd also say, piggybacking on that a little bit, one of the things we really like about the global presence is not only are the origination opportunities different across markets, but the opportunity to source debt capital across markets is really different. You know, we've closed a handful of facilities this year with European banks really on terms very consistent with where we were closing with US banks in 2021, and that is different than what we would be able to source in the US today.
Similarly, you know, having a footprint on the ground in Australia to access the Asian banks, it really does create the ability to kind of pick and choose where you see the best available sort of debt capital as well as opportunities.
I think that'll continue to be a very important part of these businesses because, you know, looking across the world to find the most attractive, you know, areas of debt capital for us is a key part of making sure that our balance sheet remains diversified, well-structured. You know, sourcing that competitive dynamic and trying to find, you know, the cheapest, best structured capital is really key for our business.
This is an interesting time where you have rising base rates and spreads have also widened out. Maybe you could talk a little bit about the how much spreads are generally wider for you versus pre-pandemic, and how much wider are they relative to where your portfolio sits today as well on new loan investments.
I mean, obviously, there's a range on the spread side. Generally speaking, we're transitional lenders, which means we're investing in a sector that's obviously wide, like the core market or the bank market. However, within the transitional segment of the market, we're really focused on the institutional quality real estate and institutional quality sponsors, and we're generally lending at pretty reasonable LTVs called in the 65% area.
All that means is that we're effectively investing at the tightest end of the spread spectrum for a transitional lender. One of the predominant themes that we've lent on historically is construction takeout lending on multifamily properties.
There's a newly built, delivered multifamily property in its initial lease-up, we will come in and finance that property now that it's been built and delivered, and take out the construction loan. Allow borrowers can pay off that, which typically would have a higher cost of capital and some recourse associated with it. We're bridging that multifamily property to stabilization. That's called a 24-month business plan to lease it up and burn off some concessions, then they can sell it or refinance it with a stabilized lender.
We've done a lot of that. The reason I mention this example is 'cause where I've got the most data points in terms of where the market has gone. At the types that loan was priced at probably wide at the time, let's just use SOFR.
SOFR plus call it 265-275 area. These are all floating rate loans, five-year terms. There's typically a three-year base term with two one-year extension options. That loan today is probably SOFR plus, you know, 325-350 area. Call it somewhere in the magnitude of, like, a 50-ish basis point widening in spreads. As I mentioned, obviously your leverage has come down as well.
You're probably lending that 5% less, you know, on an LTV perspective. That's generally like. There's a wide range, obviously, of what you're doing. If you're doing ground up construction, you're gonna get a little bit more spread. You're lending on built multi, it's gonna be at the tighter end.
I think that's the most data point to data point most information we have.
Yeah, I completely agree. I think that, you know, one of the reasons why we see leverage coming down, in addition to the fact that we're just sort of picking and choosing what we like, is if you think about that spread widening, you know, call it 75, 100 basis points in spread. Base rates obviously are up 450 basis points. The borrowing cost to our borrowers, you know, up significantly. We need to lend less to make sure coverage makes sense.
When you think about it from a return perspective, for us as a lender, you know, we're seeing wider spreads, but obviously huge benefit from wider base rates. It is, you know, getting that all to work together where we're thinking that we're in a conservative position from a credit perspective, which is always gonna be paramount.
Also looking at the ability to make a 7% unlevered coupon from our loans when historically we're making three and a half. I mean, that's sort of the heart of the compelling value proposition right now as a lender.
Got it. I think we have a question in the room.
Katie, you mentioned that the ESG practices you're pushing down to some of your lenders. Can you give some details on some of the things you've pushed down and some ideas?
To our lenders or our borrowers?
Your borrowers.
Borrowers. Yeah. You know, we at Blackstone, we have an eight or nine person full-time team focused on ESG just within our real estate business. They're constantly combing through, you know, around the world, what can we do? Everything from, you know, LED lights, EV charging stations, you know, solar panels, ways that we can better monitor the efficiency of the HVAC systems within our buildings. We just put together, you know, a collection of all of those things that we think are most ROI accretive for our borrowers and therefore most beneficial from our collateral.
Also, just contacts. You know, we've used these businesses. We think they're effective in these markets to help you with, you know, installing EV charging stations. You know, we just look at it.
One of the things we think about with our business, we have such a broad reach across both BXMT, obviously the broader real estate platform, that in areas like this is not about competition. This is about how can we all have the best, sort of best practices to bring our industry forward. Also, you know, from a lending perspective, make sure that our collateral is best positioned to compete.
If we can share that information and help our borrowers just ease the path to know, "Okay, I'd really like to do this, but who do I call? How do I do it?" You know, we see that as just a way that we can help and try and enhance the value of the collateral that we're lending on.
We have another question in the room.
Yeah. Just what should investors expect for delinquency and NPL trends for 2023?
Sorry, could you repeat the question?
23. Just delinquency and NPL, like Non-Performing Loan trends. What do you expect?
You know, I think that, it's certainly a different time in the market today than it was in 2021. I think you can see that in the reserve profiles of what we've all done. I think we've been fairly proactive in terms of identifying, you know, where we're seeing the most distinct credit challenges where we have specific reserves, but also sort of our watch list areas.
I think interestingly, our four and five rated loans, which is sort of what I would put in that category, that as a percentage of our portfolio is actually down from COVID levels. You know, clearly we're seeing a little bit more pressure. You know, I think that it really comes down to rates, obviously.
I think that our expectation in-house is that rates are likely to stay, you know, high for longer than, you know, I think the market's sort of gotten there now, but when we were sitting here in January, I think the market was overaggressive about how quickly rates were gonna come down. I think you're gonna see continued pressure on the market. I don't think it's gonna be step function. You know, I think that we'll see some things, you know, sort of come out of watch list area.
I think we'll probably see some things, you know, slip a little bit under. I think as we look at sort of the scope of the portfolio, you know, the challenges are pretty concentrated. They're concentrated in office that is more commodity in nature, where capital structures need to be right-sized.
For us, it's not a big part of our portfolio, and I know it's the same for Matt. You know, you think about where you might see the pressures, it's sort of a known universe, and you're gonna see it in some of those assets, not all of them. You know, I think that's really what we're tracking. I think, you know, when we step back, there is, our biggest focus is maximizing the value of the collateral that we've lent on for our investors.
That may result, you know, we've seen very little REO in our portfolio and elsewhere in the space. I think it's important to know that, you know, we're all big real estate platforms that have, you know, very significant understanding of how to own and manage properties.
If we think that's the best outcome for our shareholders, you know, that's something that we're gonna look at. I think that, you know, there may be areas where you see more of that, in contrast to historical levels. I think big picture, when we look at our business, you're coming into this credit situation with such significant current income.
As an investor, I think what you have to think about is how much are these, you know, the magnitude of these sort of idiosyncratic issues relative to the really outsized current income that's being produced by the 97% of our portfolio that's performing. Those two things together are unusual in a credit cycle and really provides a significant amount of cushion for some of these issues that, you know, we're gonna have to deal with.
Matt, did you have a comment on that question?
No. I would just further emphasize, like, the bifurcation in the market. For, for the vast majority of our portfolio, whether that's in multifamily or industrial or self-storage, we have student, we have life science, like, those sectors are all doing extremely well. They have growth. They're able to offset this increased cost of capital. They have, I think, really fundamental strength going forward, in terms of just supply demand tailwinds.
So you really have isolated a lot of the issues in the office sector of the market, right? Everyone's gonna deal with this, and the value declines have been, you know, have been stark. So that's really where it's focused on and where we'll continue to spend most of our asset management time.
The vast majority of the overall portfolio is pretty healthy right now. I don't think we're, like, late innings of the office change either. I think we're middle innings and, you know, we've got to figure out where this goes.
I guess from August, go ahead.
Yeah. I'm just curious what you're thinking. You know, obviously, the cycle's just getting started, in my view, on the downside. Are you more likely to be restructuring loans, extending loans, or actually working them out? Do you have the time and the expertise? You kind of hinted that you do, but I'm curious how you're thinking about that.
Yeah. You know, I think it's really gonna come down to where we see the most value. You know, an important part of that is opportunity cost, right? We're not gonna spend three years working out a loan just to get back the same, you know, 2% higher than we would get today. We're gonna think about if we can invest our capital today at a 10%, 12% ROE and make sure that it makes sense to, you know, work through something. In some cases, it will. You know, I think it's hard to answer the question directly because it's different for each asset class.
You know, you have some situations or each asset where, you know, it may be fundamentally a decent asset that's getting leasing, but the capital structure is just wrong way or, you know, in some cases, the borrower or the sponsor is no longer focused. Maybe they're in an old fund. They don't have capital anymore. Situations where we can bring, you know, our capital and frankly, you know, a very strong amount of expertise to bear and really, get the most value out of an asset.
There may also be situations where, you know, selling the loan or selling the asset and just getting out of it is the best outcome. Certainly many situations where we'll work with our borrowers if we think they have capital to bring to the table and expertise to bring to the table.
You know, we're thoughtful, to try and, you know, create the most value for our loans. I think that to, you know, sort of really important point, making sure we have the infrastructure to do that is critical. We have, I think, a 35-person asset management team that sits with us in New York, totally integrated with our business. A lot of them came from our investment team, so they really have an investment mindset. We also pair that with a tremendous amount of expertise from the broader real estate platform. We're in constant dialogue with our equity asset management colleagues, with our portfolio companies.
You know, Blackstone owns EQ, which is a huge owner and operator of office, and we're very, very integrated with them in terms of thinking about the best business plans for these assets and how to implement them. I think we're as well positioned as we possibly could be. We'll just be really tactical and thoughtful about the best situation for each asset.
I mean, I think every option is on the table. We have the expertise to own, we have the expertise to manage, we have the expertise to work out. We've got the liquidity to see through whatever workout strategy we wanna, you know, we wanna implement. In my mind, it really comes down to, like borrower motivation. Do they have capital to put into this asset? We're not giving out free options here. Can they delever us? Can they commit reserves to help for future leasing? Then we have to be at the right basis too, because our billings need to have the right economic basis to be able to lease in a market like this.
Those are the considerations that we're going through as we, you know, as we approach individual negotiations, and each one will be different depending on the facts and circumstances and, you know, what our borrower is trying to accomplish. You know, our first goal is to try to work with our borrower. You know, unfortunately that's not always gonna be the case, and there'll be times where, you know, we're gonna have to own the asset and work through it.
I think, thus far, you know, getting some questions about office online here. You know, can you talk about right now it seems much more about liquidity, and current owners gonna be willing to recognize the fact that their valuation is down quite a bit in the office space, but cash flows have been really still supporting the assets. Would you say that's a fair assessment? What's your view of that, kind of dynamic you're seeing right now?
I think it's really bifurcated. You know, I think that, I mean, I feel like a broken record on this, when you look at what's going on in the office market, there's really a divergence in performance. You know, in New York and LA, for example, less than 10% of the stock is 2015 or later vintage. That universe is seeing positive rent growth, it's seeing positive net absorption, vacancy rates across the market that are 5-10 points lower than the broader market.
Those assets, from a fundamental perspective, are doing fine. That's obviously where we've been focused historically, trying to lean into flight to quality. I think that, you know, you'll see continued, you know, good NOI trends from assets like that.
Other assets, you know, the stuff on the other end of the spectrum, it's a different story, right? There's less tenant demand broadly in the market. That tenant demand is clearly concentrated in the best quality assets, so it's not concentrated in the lesser quality assets. There's also, you know, growing concessions, other sort of CapEx needs. ESG is a big cost for older vintage office buildings.
All of those areas, I think, are going to impact the PNLs, you know, the cash flows of those assets. It takes some time because obviously you have relatively long duration leases, so sometimes it takes, you know, the roll-off of those leases to see it in the NOIs.
I think that if you're an institutional owner, as we all are, you know, we're looking ahead to say, what do we think this is gonna look like two, three, five years from now? Making sure that we're making the right decisions today for that. You know, I think that's. The capital markets have been relatively indiscriminate against both of those areas of the market. You know, I sort of think about it as, you know, the capital markets versus the fundamentals. Those are different.
There's also sort of cyclical versus secular, right? There's cyclical pressures on some of the higher end office from the tech pullbacks, but that's not a forever thing. That's, you know, indicative of what's going on in their businesses right now. That's gonna come back.
The secular element of just demand for these more commodity offices. I think that's, you know, we don't really see sort of that coming back out of the cycle. That's where you've really got to make the hard decisions if, you know, to the extent that's in the portfolio. Luckily, I think it's a very limited amount of what we're dealing with.
This high quality office, you'd be making new loans to those.
You know, I think we certainly look at it. The basis has to be right. I think that, there is still a wide range of views in the market about the right basis for assets. I think as we look at our themes, you know, our first choice themes are going to be the areas that are a little more obvious, you know, industrial, multifamily, et cetera. You know, a new build office building at the right basis, we would look at it. You know, I think it might be in a different fund. I think from a BXMT perspective, you know, we have a fair amount of office. We feel good about it, but I don't know if we're looking to expand that part of the pie right now.
I think from just taking a step back, non-portfolio management perspective as a fundamental investor, there are opportunities in very high quality office.
All right, it looks, sounds like we're out of time. Thank you, Matt and Katie, for joining us today.
Thank you.
Yeah.