New Residential Investment Corp

LSE:0K76

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Rithm Capital Fourth Quarter and Full Year 2023 earnings call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Capital's Fourth Quarter and Full Year 2023 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; and Nick Santoro, Chief Financial Officer of Rithm Capital. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website, www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now.

I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

And with that, I will turn the call over to Michael.

[Michael Nierenberg, executive]

Thanks, Emma. Good morning, everyone. Thanks for joining our call today. As we report our fourth quarter and full year earnings, another, what I would say, very solid quarter and a very good year consistent with earnings across all of our business lines.

As we began 2023, we set out on a path to pivot our business to become more of an alternative asset manager while maintaining the very thing discipline that got us here in asset classes and the operating companies that we own. Book value year-over-year is essentially unchanged despite all the volatility we saw in the markets. There was a little bit of warrant dilution from some warrants that we [ showed ] back in 2020, and we distributed a little under $500 million to shareholders. We continue to create solid earnings quarter after quarter, and we did a couple of very strategic transactions, which put us in a position to: one, maintain earnings and two, grow our alternative asset business.

In the fourth quarter, we closed on Sculptor. We also announced the acquisition of a leading third-party servicer in SLS, which was acquired from Computershare. We expect that to close sometime here in the first quarter.

As we look forward, the growth of our asset management business will be critical to the revaluing of our equity in our company and just the overall valuation of what we do here at Rithm.

2024 and beyond should be a very good investing year and the environments -- in the current environment. And as we look forward, we are extremely well positioned to invest in all asset classes, whether that be real estate. I think it's important to note we have no legacy real estate, credit structured products, equities, et cetera. Anything in the financial services sector, we will have a hard look at.

The results at both Rithm and the Sculptor companies in '23 were excellent and the long-term performance in both the REIT and the asset management business put us in a position to be at the top of the pack. This should enable us to grow our credit and real estate businesses while prioritizing results for our LPs and shareholders.

To be clear, results matter. This will always trump any growth aspirations we may have as a company. Our mortgage company continues to be best-in-class. We're a top 3 or 4 non-bank mixed company here in the U.S. between Rithm and Newrez, our mortgage company, we have approximately $850 billion pro forma of mortgage servicing rights, which continue to provide great income and great cash flow for our investors.

As we look at the macro environment. Yes, the Fed has been clear about the [indiscernible] lower rates. However, we don't see that happening until inflation comes down a little bit closer to the Fed target of [indiscernible] and the data softens. [ Friday's ] employment data as well as some of the other recent economic releases that we've seen should keep the Fed on hold for the March meet.

Regarding our positioning, we are close to home -- as we have been in years as we have hedges against all of our servicing assets.

I will now refer to the supplement, which has been posted online, and we're going to start on Page 3. Start of a new chapter. As we think about, again, the repositioning of Rithm as a global alternative asset manager, couple of things to point out on this slide. At the Rithm level, we have a $35 billion balance sheet. There's $7 billion of book equity. We've paid out $5 billion of dividends since the company was started in 2013, and our total shareholder return for 2023 was 43%.

Sculptor world-class asset management business, $33 billion under management in verticals such as real estate, credit, multi-strat funds, and a large CLO business. The combination of the 2 businesses or when you think about the different businesses and the performance on both has been -- puts us in a real position to continue to be a formidable player in the [indiscernible] space.

Page 4, our financial highlights, 2023. Book value at the end of December was $11.90. Our GAAP net income, we had a loss of $88 million. That's attributable to our write-down of some of our MSR assets. Earnings available for distribution, $247 million or $0.51 per diluted share. Common dividend, $0.25. At the end of '23, we had $1.9 billion of cash and liquidity and total equity of $7 billion at the Rithm level.

For the full year, earnings $533 million or $1.10 per diluted share. Earnings available for distribution $997 million or $2.06 per diluted share. Total economic return, 7.2%, return on equity, 9.3% from a GAAP perspective and 17.4% for earnings after distribution. Book value was essentially unchanged. And again, this factors in warrants, dividends at [indiscernible].

As we think about our new chapter, what are the dynamics that we're seeing in the marketplace today? And what are some of the things that we've done at the Rithm level? In July of last year or second quarter, Goldman announced they were pulling back on their Marcus business. So we went out and we acquired $1.4 billion of consumer loans from Goldman Sachs. As we think about the banks continuing to retreat Civic, which was a division of [ Pac West ], we acquired a portfolio of residential transitional loans that were originated by Civic. We expanded our direct lending capabilities through our Genesis Capital business, which makes residential transitional loans to builders and developers throughout the United States.

To grow our alternative asset management business, we acquired Sculptor. When we think about funding gaps, dislocated sectors like commercial real estate have a real need for GAAP capital and equity infusions -- not having legacy commercial real estate exposure puts us in a very, very good place from a strategic standpoint. Underfunded sectors such as construction financing provide great opportunities for our Genesis Capital business.

As we think about capabilities, the acquisition of SLS, which is truly a third-party servicer, helps us grow our fee-based business in the third-party servicing business, and we'll get to those slides in a little bit here.

As we think of our performance, and we'll get into some of the numbers shortly, both the Rithm business and the Sculptor funds had a very, very good 2023.

As we think about partnerships, we want to extend our global reach with partnerships throughout the world to create capital solutions to help us [indiscernible] more capital and then co-invest alongside of our different business lines that we hear here at both the Rithm and the Sculptor levels.

Page 6, Sculptor, $33 billion of AUM under management. If you look across the different verticals, large credit business, large real estate business and a great multi-strat fund. And we'll talk about that shortly. When you look at the clients, 70% of the clients have been partners for over a decade. We've deployed -- at the Sculptor delivered $200 billion of capital and credit investments, 70% of the AUM is longer duration. The investment leaders in this -- over greater than 15 years at Sculptor. And then we have one team, one incentive structure, and we want to operate as a team and be really transparent with our LPs and shareholders.

Page 7, 2023 performance and looking back. The credit funds -- there's 2 credit funds. The Tactical Credit Fund, net 17.9%, the Credit Opportunities Fund, 8.6%, great performance in what I would call a volatile year. The multi-strat fund was up 12.8% net, that is one of the industry leaders in the multi-strat business. On the real estate side, life-to-date performance, Real Estate Fund III, 20% net, Real Estate Fund I, 12.6% net. And then if you look to the right, the performance since inception, Tactical Credit Fund is up 10.9% net. The Credit Opportunities Fund 8.8%, very good returns and then the multi-strat is 10.6%.

So overall, as I pointed out in my opening remarks, we're going to lead with performance and then we're going to build AUM around performance and hopefully grow our business with strategic [indiscernible] importance throughout the world.

As we think about the Rithm Approach on Page 8, Opportunity, Innovation and Partnership. I know these are buzzwords. We expect our private credit -- private capital business to continue to grow as there's a number of sectors that have needs for funding and we see banks pulling back in different areas. Innovation. We've been very much on the forefront of creating innovation. Keep in mind, Rithm, which was formerly known as New Residential was born out of a commercial REIT at fortress back in 2013, started out as an MSR-only REIT, and then we've grown into this full-scale operating business where we have, obviously, an asset manager. We have the large REIT and then we have our operating companies as well. And then Partnership, track records matter. We all know that, and that's something we're focused on.

Baron's here. I'm going to let Baron talk about the mortgage company, and we'll take those slides out on Page 9.

[Baron Silverstein, executive]

All right. Good morning. Just turning to Slide 9. And the focus really is that we had a very good year with industry-leading ROE at 19%. And -- we view our platform as a differentiated platform and really structured to continue to succeed in 2024, right?

Our Q4 results that you see on the chart on the right there, as the servicing segment had $210 million of income in Q4 '23. Obviously, Mike talked a little bit about is GAAP mark-to-market, on the MSRs of $296 million. In originations we have as kind of a baseline and basically running the origination business on a breakeven, which we were able to do for all of 2023. Our strategic advantage really is our servicing platform, and I'll go a little bit more on that on the next slide.

But we also really very much differentiate ourselves with the origination model and being in all 4 of the different channels that you see there, retail, wholesale, correspondent, DTC and our partnership channel, we feel like we're positioned to growth going into '24 and going forward.

Turning to Slide 10, right? When we benchmark our servicing platform, you see on the chart on the bottom left is really how we view our growth right? So we had a 39% CAGR over the last 6 years. And when you include also what we're looking at for the acquisition of the SLS servicing business that Michael talked about are -- we are almost doubling our third-party fee-based income, which is going from $111 billion at the end of the fourth quarter to $196 billion on a pro forma basis and Michael talk that we're anticipating to close the SLS deal in the first quarter of '24. There are a lot of continued opportunities for us on the servicing sector and whether that's to grow MSRs, even to look at third-party servicing market share either on an acquisition basis or on an organic basis as we continue to grow with our existing counterparties.

Turning to Slide 11, which is really just a brief overview of our origination platform. We remain in the retail business. We like the retail business, and we're focused on looking at our retail business as it continues to align to Newrez overall from a strategic perspective and our focus really there is to think about our servicing portfolio. The retail business has been excellent at recapture with their relationships with their customers. And then how do we marry our retail platform and our distributed retail sales leaders to our servicing portfolio [indiscernible]

Our correspondent platform, cost-effective customer and MSR acquisition channel. I would tell you that, we believe that [indiscernible] in class in how we position our business, and we're continuing to expand our business into different asset classes as we go downstream with our customers and our growth into co-issue is going to begin in the first quarter of 2024.

Our wholesale platform is really focused on alternative products and then a partnership with Rithm in our [indiscernible] agency products, including closed [indiscernible] and non-QM.

Consumer Direct, our centralized health force as we continue to basically grow out our platform and utilize that as offensive strategy across the entire business.

And last is really our joint venture platform as we do strategic partnerships with different fintechs, brokerage companies and different builder partnerships as we can continue to drive relationships and [ grow ] our origination business across the entire platform.

Last thing to really just talk about is on AI on Slide 12. Certainly, it's been a focus for the entire business for the mortgage industry and I do agree that it is going to revolutionize the mortgage industry. We made an announcement yesterday as a strategic partnership with Microsoft and really, what it's about is just implementing self-service tools for our employees. And with respect to policies, procedures, guidelines, and data. And then that way, our employees, salespeople or processing and our operations teams can really just focus on -- on their customers and servicing our customers at all times. Our view on AI across the board is going to have significant benefits for our platform as we continue to evaluate different ways to better serve our customers, but also become more efficient across the entire operating business.

So on that, I'll turn it back to Mike.

[Michael Nierenberg, executive]

Thanks, Baron. So just a couple more slides just to get through and then we'll go through Q&A.

I just had a couple of minutes on the Genesis business or a minute on the Genesis business. Genesis Capital is a business we acquired from Goldman back in 2021. They make loans to builders and developers, they're all typically first lien mortgages. Attachment points are anywhere from 65 to 70 LTVs. Coupon rates can range anywhere from SOFR plus kind of [ $400 million to $700 million ]. So when you look at the portfolio on an unlevered basis, the coupons on these underlying loans are anywhere from, call it, 8%, 9%, 10% up all the way up to 12%. There's points going in and points going out. I bring this up because it's a great direct lending business. And when you think about where we're going to go in the [ alt space ] and think about potential to grow in the direct lending space, whether it be in this business or other business lines, I think this is a good example of something that we feel we're a good market leader in.

The business itself will do something close to $2.5 billion, we think, in '24. It's been a very good business for us. Banks continue to retreat in that space. And from an overall income standpoint and ROE, it's been a good business, and we expect to grow that over time.

The last [indiscernible] I talk about it, it's just our single-family rental business. We have about 4,200 homes pretty consistent with where we were at the end of Q3. We have about [indiscernible] homes, $200 million in capital. We are very small in the context of this arena. We intend to grow this through private funds -- that will be like -- if you think of it almost like a public private partnership with Rithm, the public company. The reason we haven't scaled up more so in the past couple of years is because we thought rates were going to go up and they did go up. Cap rates we thought needed to go higher, and they are higher. So when we look at the opportunity today, we think the opportunities are going to be some -- are going to be more likely in the [indiscernible] space as is clearly a shortage of housing here in the U.S. And we expect to hopefully deploy large pools of capital and partner with different builders throughout the U.S. over the course of the next couple of years as we continue to create capital for this business. After that, if you look at the segment performance, you could have a look at separately.

And now we'll turn it back to the operator for Q&A.

[Operator]

[Operator Instructions] The first question comes from Bose George with KBW.

[Bose George, analyst]

Can you talk about your excess capital position, including sort of pro forma for the SLS acquisition?

[Michael Nierenberg, executive]

Current cash on hand, we announced at the end of Q4 were roughly $1.9 billion. Today, I think our cash and liquidity is something about $1.7 billion and so that's kind of where we stand. We expect the SLS acquisition to fund most likely in early March.

[Nicola Santoro, executive]

Yes. And post-SLS acquisition, we expect us to be at around $1.3 billion and $1.4 billion of liquidity, Bose.

[Bose George, analyst]

Okay. I mean is there a good way to think of sort of cash available for deployment versus -- because obviously, you have to keep a certain level of liquidity at all times. So just as things come up, like how much capital you have available for deployment post that acquisition?

[Michael Nierenberg, executive]

Yes, it's probably $400 million, Bose. One of the things that we set out over the quarter of the past couple of years is to carry excess cash and liquidity during our balance sheet. We've done that. We really haven't hit the capital markets since 2020. Clearly, we're monitoring some -- in the mortgage company well for example some of the peers that have been out there raising capital in the high-yield markets. So we'll continue to evaluate all sources of capital.

And then also keep in mind, as we grow our all space, the teams are on the road and having discussions with various LPs and around capital formation. So I think you could expect 2024 to be a year of some capital formation at the Rithm level as well as at some of the -- the other operating companies as well as Sculptor.

[Bose George, analyst]

Okay. Great. Actually, another quick one. Just what is the final goodwill number for Sculptor?

[Nicola Santoro, executive]

Goodwill and intangibles, approximately $325 million.

[Operator]

The next question comes from Eric Hagen with BTIG.

[Eric Hagen, analyst]

A couple of questions around [ recapture ] in the portfolio. Just as a big correspondent letter, I mean, how effective do you expect to be with recapture in that channel? Including the MSRs that you bought from SLS, is there sort of a recapture estimate that you're using as you bring that on board?

[Michael Nierenberg, executive]

I'll let Baron take it in a sec. I think when you look at the recapture business of whether it be us or anybody else in the marketplace, you have to look at apples-to-apples. 99% of our portfolio is added the money including the SLS stuff from a recapture standpoint or added the money from a refinancing standpoint, I should say. When you think historically in the mortgage business, [ recapture ] depending upon the product type, Ginnie Mae or a HUD type loans are typically easier because there's easier to refinance or recapture, and you've seen that with some of our peers in the marketplace over the years. So those numbers are going to be higher. On Fannie Freddie products, typically, those recapture numbers are a little bit lower.

The cohort of recapture today or significantly added the money just based on where rates were and where they are now. So when we think about recapture, I think you could assume that our refi recapture numbers are going to be north of 50% and I think purchase recapture is a much more difficult thing. It's something that we continue to work on. Huge -- we have a huge group of folks in our data business as well as the servicing folks are working with the origination folks. But I think overall, you're going to see refi recapture in a normalized market, probably with a [ 6 ] handle would be my guess. And I think that's consistent with where the industry has been and knowing that because -- we helped form some of these companies in my prior life in our prior life. And I think you'll see on the Ginnie Mae product higher numbers.

Baron, I don't know if there's anything you want to add there?

[Baron Silverstein, executive]

No, that's right.

[Eric Hagen, analyst]

Okay. Great. You mentioned some unsecured debt being raised in the sector and possibly looking into some unsecured yourself. Maybe you can flesh out how you think about your appetite there? And do you feel like the capital that's being raised by some of the other services will drive -- kind of change the competitive dynamic in the market in any way?

[Michael Nierenberg, executive]

Yes. I'm not -- I think we all do what we do. We're all respectful of each other. We've been -- whether it be Cooper, whether it be Penny and some of the other folks who've all been at it a long time. When we look at the high-yield market and we look at where we're financed, SOFR today is [ 5.25% ], [ 5.5% ]. So if you think about your MSR financing, let's assume it's whatever, [ $250 million ] to [ $300 million ] over. So that's give or take, 8%. If we could issue a high-yield unsecured debt in the public markets, we're going to explore that heavily. So the short answer to your question is we're hungry.

[Operator]

The next question comes from [ Doug Harter ] with UBS.

[Unknown Analyst]

Michael, you said that you're kind of closer to home on hedging for MSRs, obviously been -- continued to be volatile in rates. If you could just give us a little update as to kind of when you added those hedges and kind of how they performed in the first quarter?

[Michael Nierenberg, executive]

Sure. So I think if you look at Q4, the 10-year closed, I think, at like [ 388 ] or [ 389 ], something like that. So you had a massive rally between Q3 and Q4. Our GAAP results reflected our write-down of our MSR book which was significantly higher than the $88 million that we reported in kind of the GAAP loss. So it's really an MSR mark.

When I look at -- when you think about that, that $88 million versus I think the total mark we took it down was [ $280 million ] or something like that, which I think is probably a little bit higher than others in the industry, that [ $280 million ] -- the [ $88 million ] shows you that when we look at the broad scale of our business, we have a lot of other assets from a duration perspective that we're longer. When you look at Q1, and Nick, you should just -- if you just us -- what we think the P&L is as of now.

When we look at Q1 from a hedging perspective, have rates, we have mortgages that are hedging out our MSR book. As -- and what I said in my opening remarks, whereas as close to home as we've been in a few years. That is because we have billions and billions of dollars of hedges versus our MSR asset. For the quarter, you could assume and this reflects the hedges. Book value is probably where we are now is north of $12 a share. So that reflects the gains that you're going to see both the MSR book as well as what we're seeing in our hedges.

[Unknown Analyst]

Great. And I guess, would your expectation be to kind of still try to from this point, try to run pretty close to home or given the move in rates, do you adjust that? Kind of how are you thinking about rate risk at this point?

[Michael Nierenberg, executive]

I think what I would say from a market perspective, I thought the past -- or we felt the past couple of years from an overall market standpoint, listening to the Fed, why we were set up to be on the short side. Listening to the Fed now, there's -- obviously, there's a ton of Fed speak about their desire to lower rates, even though when you look at the economy or you go out for dinner here in New York City or anywhere else, things feel pretty good. When you look at the probability rate cuts, we think March is off the table, barring some unforeseen geopolitical event or something else. June right now, when you look at the probability of a [ REIT ] cut is at 90%.

So we're not going to fight the Fed. We will be closer to home, everywhere from a duration standpoint because, again, we won't fight the Fed, and we think from an edge standpoint, you're going to see a lot more volatility in the markets this year than or going into the end of Q4 as well as into this year versus what we've seen in the past couple of years -- past couple of years, it was straight up. Now it's a little bit harder to predict. So we're going to be close to home.

[Operator]

The next question comes from Kevin Barker with Piper Sandler.

[Kevin Barker, analyst]

Just regards to the new segment information. Are you viewing these 4 segments is basically the way you're going to manage the business on a go-forward basis? Or do you see some of the different segments interacting with each other whether it's asset management, handling the investment portfolio or handling the mortgage loans receivable? How should we think about Rithm as a whole, just given these different segments going forward?

[Nicola Santoro, executive]

Kevin. Well, first, thank you for noticing the [indiscernible] and the answer to your question is yes. It's the way we anticipate managing the business on a go-forward basis. As you have noticed, we have it set up, mortgage company, Genesis business, asset management business and the investment portfolio that sits at the REIT.

To answer your second question, we do envision some asset management activity occurring between the segment as we move forward.

[Kevin Barker, analyst]

And so when you -- moving forward, right, there could be different structures, whether it's a REIT, the asset management business or a C corp within this. Do you envision that playing out? Can you give any updates on timing and how you think about structurally Rithm and what it looks like, whether it's 6 or 12 months down the road?

[Michael Nierenberg, executive]

Kevin, it's going to -- I think our -- not that I think, I know. Our business will continue to evolve. We closed Sculptor at the end of -- I think at the end of November, the way we want to simplify our story and our structure, and that's why I think Nick created these different columns or verticals in our financial reporting.

Scope, there's obviously a huge desire. One, to put up great results, number two, to grow AUM. That is going to be our asset management business. A REIT itself currently sits as a REIT. What you could expect from us over time, and I think we've been pretty vocal about that to become, I think, a world-class asset manager, we need to continue to simplify our story. We need to raise funds, the REIT is going to be the REIT, and it's no different than some of the larger players in the marketplace whether it be Blackstone or [ Ares ] or folks like that.

I do think when we look at our pipeline of opportunity in everything that we do, things are going to continue to change for sure. And our -- not our sole goal, but are to grow asset management business and the fees associated with that because that's going to drive a higher terminal value on our underlying business. But again, we need to lead with performance.

And one of the reasons I wanted to highlight in our deck to performance, both at the Sculptor level and the Rithm level because the results are terrific, and we have what I would call really good investment professionals across both platforms. Things could come together over time. But for now, onward and upward. So things will change, but I think you could assume that we'll be something closer to -- we're not going to be Blackstone, obviously, but a Blackstone type structure or an Ares type structure.

[Kevin Barker, analyst]

Okay. And then just to follow up with Baron. There's quite a bit of momentum on growing servicing fee revenue. Obviously, there's a lot of headwinds on the mortgage side. But as you move forward to '24, do you anticipate mortgage origination revenue to have a greater share of the overall revenue mix just given maybe a little bit of pickup in origination volume? Or do you anticipate servicing revenue to continue to be the main driver?

[Baron Silverstein, executive]

I mean going into '24, I think stability in rates benefit, right, across the board. There is the -- I use this term, the lock-in effect for consumers that have those low interest rates, right? So for them to sell a home today is more challenging from an affordability perspective. But we expect more activity in the mortgage sector. I do think it's going to be slower than maybe what certain people hope. But I do believe that '24 is definitely going to be a better year from mortgage production overall.

Our focus is certainly ongoing from expense reduction across the board, certainly on the origination side, but also on the servicing side to make sure that we run as efficient as possible. I talked a little bit about -- about AI as well. But we still look at the business very opportunistically across each one of our different verticals, the different channels from an opportunistic perspective and even from the servicing perspective that Michael talked about. But I do think that you're going to see a better year in originations in '24.

[Michael Nierenberg, executive]

Yes. And we're starting to see that now, right?

[Baron Silverstein, executive]

That's right. A [ quarter ] came in already better than -- certainly better than December. It was not a surprise, but we're certainly seeing momentum coming into the months as we close the spring.

[Michael Nierenberg, executive]

And the other thing, Kevin, is when you look at the platform on all the different origination businesses, for example, we just made some strategic changes in the retail platform, taking expenses out and trying to align that business with the goals of the company, which, quite frankly, is profitability.

The other thing is there's obviously the variability on the way you produce your MSRs and how you think about gain on sale there. So there are levers that you could pull that would obviously drive higher earnings in the origination segment versus low earnings in the Servicing segment.

[Operator]

The next question comes from Stephen Laws with Raymond James.

[Stephen Laws, analyst]

Michael, I wanted to talk about growth, organic versus additional acquisitions, specifically with Sculptor or excuse me, asset management business as well as maybe the retail channel. Do you -- [indiscernible] out [indiscernible] $6 billion fund for CRE. Do you have any targets on AUM growth as far as organically? Would you look at adding maybe smaller asset managers and complementing what you've already got in place? Same with retail, it seems like I believe market share maybe made June [indiscernible], but attractive margins there and some compelling pieces of that business. Is that something you may look to acquire as well?

[Michael Nierenberg, executive]

So first, on the Sculptor side, yes, the -- everybody is out meeting with clients and LPs around the platform, which is wonderful. The real estate guys have a fund their out marketing. It's a -- I believe it's something around a $3 billion fund that could grow over time. The credit businesses continue to look to grow the funds there.

You're not going to grow -- I mean the noise is gone, right? So we're moving forward. Whatever was in the past at the organization is out, gone moving forward. We're highly confident and really excited about the prospects of growing AUM, but more on the FRE side.

But you have to lead with performance. So -- and what I said in the opening remarks in the [indiscernible] any one of the businesses that we have, we are fiduciaries of capital, whether it be LPs or public shareholders. First and foremost, we need to drive good earnings there and good returns. And when you look at '23 and looking prior to both at the Sculptor level as well as at the Rithm level, we've delivered there. So that's going to help us grow AUM. I don't have a specific target. I'd love to tell you it's -- you hear the bigger players talk out how much dry powder and how big their AUM is, we'd like to be there. We're just not right now. But I think over time, we're going to grow those businesses.

We could grow strategically through some acquisitions, which we look at acquisitions, I would say, every single day. So I think you could expect more acquisitions as we go forward in the asset management space. The teams we currently have in place are world class. If you look at the results at the asset management level. Here at the Rithm level, I'd put us up against anybody candidly, and this is not being disparaging against anyone.

When you look at the retail side, retail is a hard business. We've taken some pretty aggressive measures here beginning of the year to align the production side with proper P&L that we expect out of the business. And when you look at the overall business with SLS, the third-party business as well as what we have here between both the Rithm level and the Newrez level, I think, including excess MSRs that we have, I think we have something about $850 billion or some number like that of MSR. So we have a lot of customers we should be able to drive origination volumes through.

If something was a giveaway from -- on the retail side that we felt we could actually make money with, we'd have a hard look at it. But I think now we're pretty happy where we are. We are reactive recruiting salespeople because we do think mortgage origination will pick up over time.

[Stephen Laws, analyst]

Great. And one follow-up. Given the scope or acquisition closed and you've got [ SLS ] closing likely this quarter, and talk about the expense side, any synergies you think can work out as we move through the year? Or do you feel like the operating expenses are pretty accurate? Or sorry, steady state as we forward kind of talk about action potential there to drive some higher ROEs.

[Michael Nierenberg, executive]

On the SLS side, we haven't closed yet. So what I would say is there's going to be significant synergies and saves, I think, around that line of business. We're looking at other platforms that I think are going to be able to add revenue to the business and same those should -- if we're successful, that will add additional synergies and create more expense saves.

At the Sculptor to level, Sculptor is its own thing from an asset management standpoint. It's as we go forward and we could create synergies between, for example, shared services. When I look at the fortress model and that's where we came from, we had a good shared service model, and I think we'll continue to look at things around that. The investment teams, though, are going to be the investment teams.

[Operator]

The next question comes from Jay McCanless with Wedbush.

[James McCanless, analyst]

The first question, Michael, you talked about there being in [ gaps ] and CRE [ GAAP ] funding. I guess, where do you see the opportunities right now for Rithm to be involved? And if rates stay at these levels and don't go down until later in the year, how do those opportunity evolve?

[Michael Nierenberg, executive]

So there's -- I think there's a ton of opportunities. I mean office is obviously for sale, for example. We've looked at a number of different opportunities in office because most folks are shying away from that.

When we look at the real estate market day, what I would say is we equate it to some of the best investing environments we've seen in -- quite frankly, in our careers. And this takes us back to -- I'm not sure everybody on this call is born, but the early '90s, which were the RTC days when the government was liquidating all these thrifts, those were great opportunities to deploy capital. You look at the great financial crisis, you look at the dot-com crisis, you look at where we are today with [ rates ] and as a result of COVID and people not being in the office, there's great, great opportunities.

As the banks write some of their assets down, I think what you're going to find over time is once they write them down, they would look to part with them off their balance sheet as long as they're not strategic. We've done some investing in the office space. Recently around the debt side where we've looked at, for example, a deal that was originated a few years back with a -- I think, a total market cap of about $2.4 billion. We just -- we acquired a pool of debt with the first dollar of loss at roughly $900 million. So if you think about that $2.4 billion to $900 million, stuff down significantly. And as long as you think you have the expertise to underwrite it, we're going to deploy capital there.

The real estate guys on the Sculptor side, they're out, doing their thing around both equity and debt. And again, the story is the same. It's -- we're in one of the better real estate investing environments that we've seen in our careers. There is a need for funding because whether it be some of the traditional real estate players who have a fair amount of legacy commercial real estate are going to be less aggressive in certain areas or when you look at the banks who are going to be less aggressive, I think it puts us in a great place between both Rithm and Sculptor to take advantage of these opportunities.

[James McCanless, analyst]

So if you could take that a step further and when you're thinking about acquisitions and the alternative asset space, what makes sense? What are you guys taking an eye at or taking a look at right now?

[Michael Nierenberg, executive]

Anything that can be synergistic with our existing business that we think. We have the pieces in place to win at both the Sculptor and Rithm level. We don't need anything else. I think part of this is as we think about real earnings for shareholders. When you look at the way we trade, quite frankly, I think that we trade poorly from an equity perspective. if we could change the narrative where we trade more like an alternative asset manager and you pick up several multiples versus EBITDA, I think we're going to be -- I think the -- the opportunity for us and our shareholders and LPs is a great one. So that's how we're thinking about it.

But the scope of the real estate guys are world class, the credit guys are world class, the master fund and -- and [indiscernible] and that team, I mean we have all the pieces in place. At the Rithm level, I'm saying [ Charles ] is here with me. I think we all punch above our weight. We have a world-class team, and we don't really need anything else. It's just more what can be accretive for our equity holders in the business.

[James McCanless, analyst]

Okay. And one more, if I may. If [ rates ] do stay high this year, are there acquisition opportunities you think to build out the Genesis platform? Anything you're seeing that looks interesting there?

[Michael Nierenberg, executive]

Yes. I think scale wins in those business lines. I mentioned earlier, this year should be, give or take, $2.5 billion or so in our origination business. I do think there are -- there will be platforms and/or people, honestly, you don't need a lending platform if you have the platform, if you could acquire a team [indiscernible] which I know we're currently looking at going to do right now.

[Operator]

The next question comes from Giuliano Bologna with Compass Point.

[Giuliano Anderes-Bologna, analyst]

Congrats on the good results this quarter. One thing I'm curious about asking is, this may be hopefully not too [indiscernible] I'm curious if there's been progress on raising MSR funds? And I think we all know that there's a large opportunity for both deals out there. And I'm curious how you think about the growth of the mortgage company and the MSRs? I realize the SLS is still far hopefully closing soon. But I'm curious how you think about allocating those to your balance sheet versus potential fund vehicles at this point?

[Michael Nierenberg, executive]

There's constant dialogue between what I would call the asset management business under Sculptor and at the Rithm level as we think about the balance sheet and balance sheet investing. I brought up the SFR funds for example, that we're likely going to grow that business away from the public company. I think there was an article about a large -- one of the larger asset managers raising money, $1 billion fund around the build-to-rent space. We intend to do something similar there.

On the MSR side, we will -- we continue to evaluate MSR funds candidly. I mean, when you look at where you create these, they're created anywhere from an 8% to 10% unlevered type of yield. So you got to make sure that resonates with folks. There are -- you need to have the operating business and recapture/origination business in our mind to make this work. We've had these discussions with a number of folks. I've been overseas 4 times in the past year. So we've had a ton of these discussions, and we'll continue to do so. But it has to work within our business.

The last thing I'll point out, when you look at the Sculptor business, we have credit funds. The [ clip ] funds have structured products in them. Some of the best results there are when they take advantage of, for example, the March 2020 period during COVID, when assets were essentially a giveaway and the team counts on those and created great results. So we don't necessarily need a dedicated fund per se when we have the credit funds and we have the real estate funds at the Sculptor level or the multi-strat fund.

[Giuliano Anderes-Bologna, analyst]

That's very helpful. And then obviously, it won't be a [indiscernible] process, but coming to more of an alterative asset manager model, it take some time. I'm curious, you've talked about the potential for doing something you talk about confidential [indiscernible] the mortgage company in the past. Obviously, the SLS deal probably pushes that back a little bit in terms of timing to get that done. You've talked about moving the SFR business into one vehicles. I'm curious when you think about the pivot of moving some of the balance sheet assets to kind of third party or asset management and moving some AUM to asset management for the Rithm level? How long do you think that will take or what the milestones could be over the next few years?

[Unknown Executive]

If we could do it in 2 weeks, we would do it in 2 weeks.

[Michael Nierenberg, executive]

It's going to take some time. We can -- listen, do we need the biggest balance sheet? The answer is no. Does the balance sheet help? The answer is yes. We look at strategic things that we could do together. No different than I think the larger players in the old space. When we look at things that we could do together with the Sculptor folks, there are things we will do together at those levels.

It's going to take -- it will take some time. Ideally, you'd want to do more in the so-called the fund business. The other thing I -- just to point out, one of the beautiful things about our business is we do have $7 billion of permitting capital from an equity perspective. And I think that's highly valuable. So as we look going forward, if we could create more vehicles that are going to give us what I would call permanent equity from a permanent capital standpoint, we'll continue to look at that as well. But transferring or not transferring, just creating more assets off balance sheet, I think, is going to help from a valuation standpoint as well.

[Operator]

The next question comes from Jason Stewart with Jones Trading.

[Unknown Analyst]

This is [ Jason Weaver ], by the way. I was wondering, Michael, can you elaborate it on how you see the integration going for SLS within the larger Newrez ecosystem once you close in March? What's the expected duration of that and the time to achieve the synergies you mentioned in an earlier question?

[Michael Nierenberg, executive]

We signed the deal. Things are happening as we speak now. We're going to try to concentrate geography more so than to have geography across every state here in the U.S. but things continue and we expect that integration to be pretty seamless because it's a servicing business for the most part.

When you look at our servicing sites, we have Greenville, South Carolina. We got [indiscernible] Washington in PA, we got Tempe, Arizona and then we have a couple of sites in Texas. Those are our main sites. I think you could assume that it's going to continue that way. But acquiring a servicing asset and putting under servicing platform is a lot different from going out and acquiring full-scale operating businesses.

[Unknown Analyst]

And just as a follow-up on the origination side of things, I was wondering if you have any update on possible new developments for new joint venture partnerships there?

[Baron Silverstein, executive]

We evaluate them just like Michael talked about from different strategic transactions with the origination business, obviously being pretty slow. Most of our partnerships are on the realtor side, which is obviously a pretty slow business as well. I will tell you that we're more focused on, I would say, fintech relationships or other relationships that might be accretive for our entire business overall. So it's something that we constantly look at even on any type of acquisition, say if someone is trying to sell a platform and then we can utilize the joint venture kind of structure as an alternative.

[Operator]

The next question comes from [ Trevor Cranston ] with JMP Securities.

[Unknown Analyst]

Looking at Slide 16, you guys have made quite a bit of progress on the servicing cost per loan. As you look forward post SLS in particular. Can you talk about sort of how you see that evolving? And if you have sort of a target where you think you can get to on the efficiency of the servicing platform?

[Baron Silverstein, executive]

Yes. I mean, look, there's a fair amount of operating leverage that we continue to get from the consolidation that we've done and the consolidation of the different Rithm subservicing that we moved into the Newrez ecosystem. We're going to continue to get that operating leverage with the acquisition of SLS. Michael briefly talked about that the time period of when we can move that in. We think it's going to be very quick. They're going to come on to our proprietary servicing system, utilizing our processes.

And they have third-party business is obviously very strategic for us in bringing those clients on to our platform, some of which we already have relationships with that we're going to continue to grow and others that we're -- are new relationships, but I would say that it's very seamless or from a cost perspective and overall efficiency, I talked about this before. That is one of my top priorities to continue to drive costs down. You see the cost per loan here that continues to go down. Obviously, that's just all about operating leverage in our benchmark. And we think we're the best in the business. We really do.

[Unknown Analyst]

Got it. Okay. That's helpful. And then a follow-up on the question about opportunities on the commercial real estate side. Can you talk about sort of how you think about how much capital you have available to pursue those opportunities on Rithm's balance sheet versus pursuing the opportunities potentially in managed funds?

[Michael Nierenberg, executive]

I think that on the managed funds, that business will continue to run itself. [ Steve Orbuch ], and [ Nick Hecker ] and their team will continue to run their business the way that they do. We look at some one-off stuff here on the Rithm balance sheet. This is not where one division is going to compete with the other. They do very, very different things than I think, for example, I brought up this debt deal that we did they do very different things than I think what you're going to see on the Rithm balance sheet.

If you recall, we -- about at the end of '22, we brought in a world-class group of folks at -- which was -- which is named [ Green Barn ], [ David Welsh ] and [ Dave Schonbraun ] and their team who have been instrumental in some of the stuff that we've looked at here. So I think you're going to see some investment on the Rithm balance sheet. Clearly, we want to grow the funds business, and Steve and Nick will continue to do what they do and results stand for themselves. So -- it will be a different type of investing business. I think what you see there. There could be times when we partner, no different than, I think, what you'd see at -- for example, at Blackstone in some of their private funds and what they do between the private funds and the REIT.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg, CEO, for any closing remarks.

[Michael Nierenberg, executive]

Thanks for joining a lot of good dialogue, some good questions. Any follow-up, you know how to reach us. Appreciate the support, and have a great day. Thanks, everyone.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.