FBRT - NYSE

Good morning, and welcome to the Franklin BSP Realty Trust First Quarter 2023 Earnings Conference Call. [Operator Instructions]. 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 4, 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, of 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. So I'm going to start on Slide #4 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. So 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 $0.355 and represents a yield of approximately 9% on our March 31 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. And 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 -- excuse me, spread over 157 loans with a heavy focus on 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 started our buyback programs, the company and its adviser has purchased just under $60 million, $59.7 million to be exact of FBRT stock. So 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 focused 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. And 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. And moving on to results. Let's start on Slide 5. 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 onetime 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, and 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, and that represents an 11.1% ROE. A walk through 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. And 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 trended modestly higher in the quarter, and we are seeing the benefits of that in our earnings. That said, we have witnessed a spread tightening in the market since quarter end, and 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 period at 2.3x, and our recourse leverage ending the quarter at 0.46x, and we feel this is within the appropriate range for our portfolio. And book value ended the quarter flat at $15.78. Moving on to Slide 6. You can see that we had our fourth consecutive quarter of distributable earnings growth. And 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 7. 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 5 Walgreens properties, which resulted in $25 million in foreclosures or deed in lieu of foreclosures. And after the quarter, we took needs 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 -- market information. We continue to market both assets for sale. However, depending on pricing levels, we are comfortable owning and operating these assets. Moving to Slide 8, we have an overview of our capitalization. Our average cost of debt during the quarter was 6.7%. And while short-term rates continue to drive up our borrowing cost, we actively manage our CLO book, taking advantage of reinvest, and we have reinvested available through July of 2024. 79% of our financing on our core book is in nonrecourse and non-mark-to-market facilities -- we have knocked on to market with the 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 few 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 activity specific to the first quarter. We originated 4 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 4 to 6 weeks. While 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. The 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 31. Two loans were removed from our watch list in the first quarter, one by way of loan pay off 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 are 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.

[Operator Instructions]. Our first question is from Matthew Erdner with JonesTrading.

On for Jason right now, congrats on the great quarter. So 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?

It's Mike Comparato, Yes, they are very similar. 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 two, three, four loans a day for the prior few quarters to now well over 10 to 15 a day. So the deal flow has been really tremendous. And noticeably, we're getting some larger loan requests that historically, we just haven't been a competitive bid for.

Yes. Do you think something -- or do you think that has to do with what the banks have been going through?

Yes. I think it's a combination of what's going on in the banking sector as well as what's going on within the mortgage REIT and debt fund sector. I think we're privileged to have about 5% of our book exposed to office, whereas some others have 25% to 50% office, and it's probably harder to play offense given that profile. So I think we're just seeing lenders that historically played in that space, not playing today.

Right. And then given those opportunities, when would you expect to capitalize on them would it be later half of this year, early half of '24. What's the expectation there on your end?

Well, I'm hoping we capitalize on them right now. So we've already closed quarter end to date, just under $200 million in new originations. And again, the pipeline is the strongest that it's been. So I'm hoping that we really see an uptick in closed credits here in the coming weeks and months.

The next question is from Sarah Barcomb with BTIG.

I echo the congrats on the great quarter. So just kind of going off that former -- that previous question, should we expect to see some non-multifamily diversification from here in terms of your new originations? Or how are you thinking about new investments and sector exposure going forward given that, that Q1 deal is now a Top 3 credit and is in the hospitality sector.

It's Mike again. Thanks for the question. I think multifamily is really embedded in our DNA. So I would expect us to always be running an allocation fairly close to where we are today. We're 76% today. could that ebb and flow in the next few quarters 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, we want to focus on multifamily, and we want to focus on hospitality and specifically, probably more leisure-oriented, less business-oriented travel hospitality. So 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. But predominantly, I would expect us to be multifamily and hospitality focused, keeping our exposure to multi, again, right, where we've been for the past several quarters.

Okay. And 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 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 on deals that were maybe penciled with negative leverage back when rates were near 0. And are you seeing any risk in your sponsor's ability to service their debt as a result of that?

Great question. And obviously, the canary in the coal mine for what I think the CRE industry is going to be dealing with for the next 2 years. Specifically, what we originated in '21 and '22, borrowers are just kind of 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. So we're really happy with that. And then as it pertains to debt service payments, these borrowers have effectively been dealing with fixed rate loans from their perspective for the past 18 to 24 months. If not every loan, 99 out of 100 loans that we wrote had pretty low SOFR caps that SOFR blew through those levels well over a year ago. So the increase in SOFR has been really borne by the cap provider and not by the borrower. And that's why the kind of come to moment for everyone is going to be at maturity when these caps run out. And the borrowers are going to have a pretty meaningful expense to buy -- a deepen the money cap again or deal with a different cap, at which point then they would be subject to that higher expense. So there hasn't really been any issues in terms of servicing debt today, again, because it's been born mostly by that cap provider. And then as loans mature, that's when the tougher conversations start to happen.

The next question is from Stephen Laws with Raymond James.

I wanted to touch base on the reallocation of the capital that's freed up from Williamsburg. Can you talk about kind of how you think about allocating that between new investments and you've been very active with repurchase. But that varies on attractiveness versus what you see in your investment pipeline. So when we think about earnings accretion as that capital gets redeployed into performing loans, how should we think about the impact? And is that more of a 3Q event? Or how quickly do you expect to recycle that capital?

Steven, it's Rich. Let me start with that, and maybe if Mike wants to speak to the origination piece, he can add on. Well, first of all, it's not just the Brooklyn Hotel proceeds. We carried a pretty large cash position and overall liquidity. So we have a lot of capital to deploy. And as you've seen, we've been pretty circumspect about it and kind of want to have our cake and eat it, too. I mean, so I think the items on the menu are the -- 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. So I think all are on the table. Of course, I think a lot of our peers have been focused on liquidity for obvious reasons. One of those reasons might even be to just have a healthy amount of cash around to deal with any future potential portfolio problems. So I think that's all on the table. But as we think about the world, when our stock is at a discount, we're going to buy it. If we can have an opportunity to buy our debt at a discount, we're going to buy it, and we're going to make loans, and we're just going to evaluate each based on what's the best return for shareholders. Did that answer the question?

It does, Rich. And I've got a follow-up, I guess, for all of you, but maybe for Jerry, I mean as you think about the financials, I guess, first off, Mike, where are we seeing LIBOR floors in new loans. And then as we think about the forward curve and how it may be a quick trip for short-term rates at these levels, not a lot of capital is going to recycle in this environment to get a 4 handle, hopefully, LIBOR 4. Have you thought about looking at buying your own floors to protect some of this portfolio earnings power as you look at where the forward curve has rates going next year?

Very timely question, Steve. Jerry and I and our Head of Capital Markets, Dave Henschke, and our Chief Credit Officer, Matt Jacobs, are sitting down to talk about that this afternoon. So we are actively looking on a way to protect -- well, not protect but take advantage of SOFR moving down. Obviously, we had looked at, and I think we had identified as early as Q4 '21 are concerned about rates rising, looked at putting on some hedges at that point. But because the rise in SOFR was such a benefit to the overall performance of the vehicle and the company just felt that doing nothing was probably appropriate. That obviously is different on the way back down. So we are actively looking at it. Obviously, no decisions have been made. With respect to the first part of the question, it's a market, right? We're trying to get the highest floor as we possibly can. Borrowers are trying to get the lowest floors that they possibly can. And we usually find some place in the middle to transact. We have been giving borrowers a little bit of a menu in terms of tighter overall spread for wider overall floor, just kind of business decisions as we originate. But it's an active dialogue and an active negotiation. And 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 accretive to ROE.

I appreciate the color. And I guess if you buy your own floors, she can ask for those wider spreads, right? Yes. And then lastly, Mike, just larger picture, you've been remarkably accurate in some publications I've seen on CLO markets and volumes. I mean, can you talk bigger picture, what you're seeing there, what do you think we need to see. 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.

Yes. Thanks, Steve. Again, CLO is the alternative financing vehicle for this space. I'm not going to say by any means that it's a new concept. But for decades, mortgage REITs, debt funds, et cetera, operated on warehouse facilities. And I think just the fundamental question, not rocket science, is until spreads and leverage in the CLO market are better than what we can experience financing our loans on the warehouse facility, the market is just not there. As to the 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 size issue more than it is a credit issue. We're seeing a decent amount of action on the secondary market. There seems to be bids up and down the capital stack at fairly compelling levels, but you're talking sizes that are $2 million here, $6 million there, the occasional $10 million or $20 million. And I think the issue really is, if you come out with an $800 million new issue CLO, is there enough demand out there to soak up that kind of volume. And I think that's what the issue is today. And I can't tell you when that's going to change. But I don't think it's going to change immediately.

Appreciate those comments, and I appreciate you taking my questions this morning.

The next question is from Steve Delaney with JMP Securities.

Congratulations on a really strong quarter. It's nice to see a commercial mortgage reek lending again these days. We don't hear much of that. Just a couple of accounting things 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 a 25% discount, it looks like to me it worked out to $0.05 per share. So Jerry, is that -- that is accounted for within both GAAP and distributable EPS. Is that the case?

Half of that's right. It's definitely in the book value per share, but we didn't include that gain in our distributable...

So it's in GAAP. So therefore, it's implied by you, but not in distributable?

Correct.

Okay. Great. No, I think that's great, and I would consider conservative because like you say, it's not a recurring item for sure, right?

Yes. That's kind of how we viewed it. It's sort of on the margins in terms of how you could view it, but we took a 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.

And is all but $81 million remaining of debt on your balance sheet, is that all subject to buyback redemption? Or is there any...

Like it's open -- so we could open we could buy it back if we wanted to or pay it down. this wasn't a pay down per se, obviously, it was a secondary transaction where we were able to find a nice price. But yes, we could address the rest of it.

Got it. Okay. And then one thing I wasn't clear on the Brooklyn Hotel. You received your -- all of your principal on the original loan. You get your money back. And the $20 million of additional proceeds, can you talk about how that was accounted for and whether that $20 million, did that have a revenue impact for you in the first -- when that property was paid off?

Yes, I'll take this one. So we've carried the loan at $57 million through the balance of this work out. So any proceeds above that are effectively recognized as income at the resolution. So the short answer is yes, that will show up as positive income for us in the second quarter because we accrued nothing along the way until we had certainty on resolution. So that will be a second quarter item for us.

Nice. Okay. And is it premature to ask you whether that will be -- obviously, it will be in GAAP, when you think of the nature of that recovery or however you want to 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 we kind of finish the full accounting on it. But 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.

Yes, the return we generated...

Yes. Yes. I mean, you're getting your money back on the delay, but it was fully earned at one point in time. for sure. Understood. -- congratulations on the quarter and looks like second quarter will be strong as well.

Thanks, Steve.

The next question is from Matthew Howlett with B. Riley.

Most of my questions have been answered. But one recurring theme we keep hearing from participants in the CRE market is sort of get to know your lender with the sort of belief that there will be a lot of extensions for years out. When I look at your portfolio, are you 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 a couple of years out here, but are leasing rates at the point you feel that the GSEs will be there? Or do you feel that the sponsors are -- will need longer to see this cycle out? Just want to hear just sort of what we've been hearing throughout the earnings season.

Yes. Thanks, Matt. This is Mike again. We're in active dialogue with all of our sponsors where coupons are is not a surprise to anybody. I think in our prepared comments, you heard me specifically reference the negative leverage within the floating rate market. We're not experiencing that in the fixed rate GSE market. I would say that, that leverage is probably flat today. So you can get a 5% flat, give or take, 10 or 20 basis points in either direction this morning, a coupon out of Fannie Freddie for a 5-year, 10-year fixed rate deal. So it's not necessarily positive leverage given where we're kind of hearing and seeing cap rates today, but it's neutral leverage. So I think as with everything, these loans and credits and assets are going to 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 developers or value-add players. And they did not go into these assets. looking to hold them for 5 years or 10 years, but that might just be a de facto outcome of the situation is they don't really have a choice -- or they always have a choice. It's take a loss, a write a big check most likely to rightsize your capital stack or go to the agencies and get some cheaper financing and hold the asset longer term. And that's just a question that they're going to have to answer for themselves. In terms of our dealing with it, again, I think it's going to be very similar to COVID. We have a duty to do what's best for our shareholders. We will do that. These borrowers are also good clients that we've had for a decade at BSP and individually from our origination staff, some borrowers we've worked with for 20 years. So we have to walk a line of being a good lender, listening, being thoughtful and then also reminding them that we are their lender, not their partner. But we're looking to get to a positive resolution on everything. We're not looking to be difficult. We are in no way a predatory lender or a lender who's loan to foreclose or loan to own. We would like to just work through these problems, but have to remind people that we are the lender, loan documents exists for a reason and hopefully, we'll get to a positive resolution in an amicable way.

That's right. I mean that's very helpful. And suffice to have that GSEs amount on GSE will always be there in the market. When you look at lending going further, 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 at some point come in and take over the banks? How do you look at what's happening with the bank and the larger impact to your model?

Yes. I mean it definitely has an impact on our model. I think the banks probably played the biggest role or at least a void that we can fill the most is in the construction lending space. I mentioned in the prepared remarks, but we're seeing some large multifamily construction opportunities that 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 just the context of what an industrial building is 200,000, maybe up to 1 million square feet. -- it's more of a middle market banking land, call it, a $25 million to $75 million construction loan versus the -- you can get CBD multi hundreds of millions of dollars or something like that, but the industrial space is much more middle market. So I would say for the first time, we're seeing industrial construction opportunities because that regional bank is very much trying to figure out what they're doing and what they can and can't do. So we've been seeing more of that. So yes, it's playing a big, big role and we're seeing a lot of banks with loans that are maturing that are just telling the borrowers pay us off, getting a pay down -- they don't want to pay down, they don't want a modification. They just want out. And so I think we're going to see a tremendous opportunity. I mean all of the headlines are saying $1.5 trillion of loans maturing in the next 3 years, we're ready, willing and able to fill that void where we can.

Matt, it's Rich. And just to maybe add on just a couple of additional thoughts. I think there's a long-term trend and a short-term trend. Mike talked about sort of the gap between buyers and sellers. So there's maybe not as many transactions. You would naturally think fewer transactions, more money that has a tightening effect on the market, but money being put out is much lower. So the banks is one obvious example of regional small banks are a source of lending. There's either a flight of quality away as those banks shrink or regulatory increases. So I mean I think that's a secular change in who's putting out money to some of the things that we do. The near-term change, Mike also talked about, though, is what our peers are doing, whether they're funds or some of the public REITs either because they have office exposure or just want to build liquidity for a rainy day, they've just been load to put out capital. Again, this is near term, who knows how long that will last. The other issue is that a permanent capital vehicle, like a mortgage REIT can only invest the capital you have. And most of the time, we're getting prepayments, which have slowed down quite considerably for obvious reasons. So people just don't have as much money to invest. So I think for all those reasons, like you're kind of 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. So like I said, some of that will last for a while because as you sort of shift and replace where the banks were and some of it's maybe in the next quarter or two or three, but we're enjoying the opportunity right now.

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.