Ladder Capital Corp

NYSE:LADR

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon, and welcome to Ladder Capital Corp.'s Earnings Call for the Fourth Quarter of 2022. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter and year ended December 31, 2022.

Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law.

In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our supplemental presentation, which is available in the Investor Relations section of our website.

We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call.

At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

[Pamela McCormack, Founder & President]

Good evening. We are pleased to report that Ladder generated distributable earnings of $38.9 million or $0.31 per share, reflecting an after-tax return on equity of 10.2% for the fourth quarter of 2022.

Undepreciated book value grew to $13.66 per share and as of December 31, our same-day liquidity from cash, cash equivalents and our undrawn unsecured revolver was over $900 million. As of December 31, our adjusted leverage ratio was 1.9x and 1.1x net of cash and securities.

For the full year 2022, Ladder generated distributable earnings of $148.4 million or $1.16 per share, representing a 9.7% after-tax return on equity. We are further pleased to report that after raising our quarterly dividend by a cumulative 15% over the course of 2022, our dividend remains well covered with carry from net interest margin and net rental income.

In 2022, we originated $1.2 billion of balance sheet loans, 2/3 of which were either multifamily or manufactured housing, with our multifamily originations focused on newly-constructed properties. As of December 31, our total balance sheet loan portfolio had a weighted average spread of 4.25% on floating rate loans and a weighted average coupon of 8.25%.

While loan originations slowed due to a lack of a transaction activity, we have strong liquidity to deploy into this product as activity returns. As of December 31, 40% of our loan portfolio was comprised of loans on multi-family or manufactured housing and 82% of the portfolio was comprised of post-COVID loans that reflect conservatively reset valuations with newly-capitalized business plans and substantial reserves in place.

Only approximately 6% of our loans have a final maturity in 2023 and all of our floating rate loans have interest rate caps in place.

We continue to focus on dollars per foot or basis lending on smaller middle-market loans and we continue to see enhanced liquidity for these loans with payoffs from the various lending options available to refinance loans of this size. 86% of our balance sheet loans are lightly transitional as evidenced by our modest future funding commitments, which are limited to $322 million in total with approximately half of this commitment being contingent upon accretive good news leasing.

A topic on everyone's mind has been office. We've continued to see stable performance in our office loan portfolio, which comprises 25% of our total loan portfolio. If you exclude our two largest office loans, both of which Brian will address when he discusses our office investments in more detail shortly, that percentage drops to just 18% with a $25 million average loan size, consistent with the rest of our portfolio.

Further, our average last dollar loan exposure is $112 per square foot, a testament to our focus on basis. 65% of our office loans are acquisition loans, 69% are on Class A properties, 58% are located in the Sunbelt and 72% of our office loans are post-COVID loans.

We've seen similar liquidity for our office loans with full and partial loan repayments, including over $200 million in 2022 and an additional $28 million thus far in Q1of 2023. We expect our credit discipline and unwavering focus on basis and the middle market to continue to distinguish Ladder with sustained credit performance.

Turning to our other investments. Our real estate portfolio continued to contribute to distributable earnings by generating net rental income of $67.9 million in 2022. In addition, this portfolio has continued to generate attractive gains on sale at premiums to undepreciated book value.

In 2022, we realized $35.8 million of gains in distributable earnings from the sale of real estate. In the fourth quarter, Ladder realized $3.8 million of gains on sale of real estate, including the sale of our largest office asset for gross proceeds of $118 million as securities portfolio ended the year with a balance of $588 million.

Turning to our capital structure. A combination of our internal management, high insider ownership, strong credit performance and differentiated liability structure have earned Ladder the highest credit ratings in the sector.

Of significant note, as of December 31, equity unsecured bonds and non-recourse non mark-to-market debt made up 82% of our capital structure. 50% or $3 billion of our assets were unencumbered, with 76% of those assets comprised of cash and senior secured first mortgage loans.

In addition, and thanks to our large base of fixed rate unsecured debt, we ended the fourth quarter with a competitive total cost of debt capital equal to 5.34%.

In conclusion, 2022 was a good year for Ladder. We delivered a 9.7% return on equity, selectively augmented our balance sheet loan portfolio and grew carry income to comfortably cover our higher quarterly dividend.

Lastly, the deployment of our significant liquidity into this higher rate environment will help Ladder grow earnings in 2023 and beyond.

With that, I'll turn the call over to Paul.

[Paul Miceli, Chief Financial Officer]

Thank you, Pamela. As discussed in the fourth quarter, Ladder generated distributable earnings of $38.9million or $0.31 per share. And for 2022, Ladder generated $148.4 million or $1.16 per share. Our three segments performed well during the fourth quarter and in 2022.

Our net interest margin rose steadily as benchmark interest rates increased and we benefited from our liability structure, of which approximately 50%is fixed rate. The $1.6 billion of unsecured corporate bonds that anchor our capital structure at an overall weighted average maturity of approximately 4.7 years with the nearest maturity in October 2025 and provide an attractive fixed rate cost of capital at a 4.7% average coupon.

Our $3.9 billion balance sheet loan portfolio was primarily floating rate, diverse in terms of collateral and geography with our primary asset class focused on multi-family assets. As Pamela discussed, 82% of the portfolio is made up of 2021 and 2022 vintage loans. During the fourth quarter, balance sheet loan origination was $38 million related to one multifamily loan.

We received loan payoff proceeds of $180 million and acquired one office property in Houston, Texas via foreclosure with a carrying value of $10 million or a basis of approximately $50 per square foot. Additionally, as Pamela mentioned, subsequent to year-end, we received $28 million of proceeds from two office loans that paid off at par.

During the fourth quarter, we increased the general portion of our CECL reserve by $2.4 million or 15% driven by the current market outlook. Overall, we believe that the granularity and the diversity of our positions with limited exposure to any single sponsor, market, or asset serves as a credit enhancement to our portfolio.

Our $900 million real estate segment also continues to perform well and in 2022 market year in which we demonstrated the embedded value of the assets in the portfolio. This portfolio continues to provide stable net operating income and includes 156 net lease properties, representing over 70% of the segment. Our net lease tenants are strong credits, primarily investment-grade rated and committed to long-term leases with an average remaining lease of 10 years.

During the fourth quarter, we sold one office complex, one net lease property and one residential holding, which together generated a $39 million GAAP gain to shareholders and produced $3.8 million of gains for distributable earnings.

In 2022, overall, we sold eight properties generating a GAAP gain of $93.5 million to shareholders and $35.8 million of gains for distributable earnings. Our 2022 real estate sales overall generated IRRs ranging from 14% to 58% during the respective holding period of each asset.

As of December 31, the carrying value of our securities portfolio was $588 million. The portfolio is 86% AAA-rated, 99.5% investment grade-rated and in 2022, we received $185 million of paydowns on these positions. Given the seniority and short-dated maturity of this portfolio, we expect the mark-to-market associated with these positions to reverse as the portfolio continues to pay off at par.

As of December 31, we had over $900 million of same day liquidity, and our adjusted leverage ratio stood at1.9x. This liquidity includes our undrawn corporate revolver capacity, which as previously reported in 2022 it was increased to $324 million and extended to 2027.

Further, as Pamela discussed, as of December 31, our unencumbered asset pool stood at $3 billion and was 76% comprised of cash and cash equivalents and first mortgage loss.

We believe our liquidity position and large pool of high-quality unencumbered assets provide Ladder with strong financial flexibility and substantial dry powder heading into 2023 with a corporate credit rating, one not from investment grade, from two of the three rating agencies.

During the fourth quarter, we repurchased $639,000of our common stock at a weighted average price of $10.27 and overall, in 2022, we repurchased $7.9million of stock at a weighted average price of $10.11. As previously reported, in 2022, our Board of Directors increased the authorization level for our share buyback program to $50 million with $46.7 million of remaining capacity as of December 31, 2022.

Our undepreciated book value per share was $13.66 at quarter end based on 126.5 million shares outstanding as of December 31.

Finally, in the fourth quarter, we declared a $0.23 per share dividend, which was paid on January 17, 2023, capping off a year in which Ladder raised its quarterly dividend by 15%, which remains well covered.

For more details on our fourth quarter and full year 2022 operating results. Please refer to our earnings supplement, which is available on our website as well as our 10-K.

With that, I'll turn the call over to Brian.

[Brian Harris, Founder & Chief Executive Officer]

Thanks, Paul. I'll start with a few highlights from 2022 that show how our preparation for higher short-term rates enabled us to execute our business plan throughout the year. We expected the Fed to aggressively raise short-term rates, and in less than 12 months, they raised the Fed funds rate by 450 basis points. Since we had over $2 billion of fixed rate liabilities, including $1.6 billion of unsecured corporate bonds, the increase in our interest income outpaced increases in our interest expense.

In the fourth quarter of 2022, our net interest income was $37.3 million. That's 3.5x our net interest income in the fourth quarter of 2021. We believe the Fed will continue raising rates in the first half of this year and we will benefit further from those actions. If they then hold peak funds rate where it is, as they say they will, we should benefit from higher net interest income throughout the rest of this year and into 2024.

Because our weighted average maturity on our fixed-rate corporate bonds is about 4.7 years, we should be able to enjoy strong net interest income for several years as long as the Fed doesn't completely reverse their recent rate increases.

Since we ended 2022 with $609 million in cash and undrawn $324 million revolver and an adjusted debt-to-equity ratio below 2x, we have plenty of earnings power as we make new investments in the quarters ahead in market conditions exhibiting the highest mortgage interest rates in many years.

As mentioned earlier, many investors are trying to sort out what is going on in the office sector in the United States today. Clearly, certain cities are having more trouble than others and I'm happy to discuss those macro issues in Q&A, but I'd like to briefly address how Ladder is fairing with our investments in the space.

As we started the fourth quarter, our top five office investments by size across our loan and equity portfolios had a combined carrying value of approximately $640 million. There were two equity investments that combined for a total carrying value of $242 million, both were financed years ago with non-recourse fixed rate CMBS debt that still had time before maturity.

The first of these was a net lease investment with a carrying value of $124 million made in 2017 when we acquired five office buildings along with a newly-constructed parking garage in Jacksonville, Florida. The tenant is Bank of America, and they have about nine years left on their initial lease term with five-year extensions at below-market rents.

Last year, as reported in the press, Bank of America began to upgrade their office space at their own cost estimated to be approximately $150 million. They are also planning to construct an additional garage with 2,300 parking spaces also at their own cost of $20 million. We feel good about this investment, so I'm going to move on.

The next equity investment was comprised of 11 multi-tenanted suburban office buildings in Virginia that we acquired with a JV partner in 2013 with a carrying value of $118 million. In December of 2022, we sold all 11buildings for $118 million. The IRR on this investment was 14.4% over the life of the JV.

The next three investments are all first mortgage bridge loans that we have on our balance sheet. The combined loan amounts for these loans is $397 million. The largest loan is a $220 million loan secured by a downtown Miami office building that was acquired in mid-2021 by our borrower.

Miami is one of the few strong office markets in the country, and this asset is over 65% leased with an average lease term of about six years. Our sponsor invested $98 million of equity when the property was acquired and we feel comfortable here as well.

The next item I'll discuss is also a Florida office loan located in Aventura, Florida, just steps away from the Aventura Mall and several large medical facilities. We made a $111 million first mortgage bridge loan on this property when it was purchased in the summer of 2021 for $140 million. This asset is well-leased and is achieving higher rents than we underwrote for.

It was also recently zoned for additional development with some developers thinking it might have a better use than what it is used for today. After 1.5 years, all seems to be going well here also.

The third office loan and last of our five assets for today is a Class A office building in Birmingham, Alabama. The loan was originated in 2018 and has a current outstanding principal balance of $66 million or $108 per square foot after a series of extensions that included the sponsor contributing over $14 million of additional equity to reload reserves and reduce the outstanding principal balance by over $11 million.

The loan has strong in-place cash flow and recent leasing has picked up again with the sponsor recently signing a 16-yearlease with a leading law firm.

These five assets with a combined maximum exposure of $640 million going into the fourth quarter of 2022 was reduced to approximately $521 million following the $118 million sale in December.

I decided to provide a lot of specific data around the five largest office investments we had going into the fourth quarter because for one, these five line items make up a large part of our exposure to the office sector; and two, investors and analysts have been asking very specifically about this product type in recent calls.

This quick download also demonstrates how we have invested across the various types of investments in the office sector before, during and after the pandemic. In theory, equity investments should contain the most risk to the company, and we navigated this risk for our two largest equity investments by investing in both cases at reasonable dollars per square foot.

We selected the two equity investments specifically outside of major cities and secured 10-year fixed rate non-recourse CMBS financing also in both cases. We further mitigated risk at the property level in one case with a strong tenant paying below-market triple net rent for a long initial lease term and on the other by owning 11 separate assets that could all be sold separately over time, adding diversity and liquidity by allowing sales at smaller dollar amounts if it was necessary.

There is a more nuance point to this discussion though around office and lending at Ladder generally. After the initial shock of the government-mandated shutdown of the U.S. economy when the Fed drove interest rates to near zero and liquidity was seemingly everywhere, we actively encouraged our sponsors to pay off our mortgages that were originated in 2018 and 2019 in a strong economy with low unemployment.

Because our portfolio, a floating rate bridge loans, had an average floor of 6.46% going into the pandemic, our borrowers were very successful in refinancing our loans and we wound up with an awful lot of cash.

As the U.S. money supply dramatically increased from $15.4 trillion in January of 2020 to $20.4 trillion in June of 2021, we felt that inflation would probably start to show up in the U.S. economy and it did.

While we began to invest the cash that we accumulated during the worst part of the pandemic, we avoided fixed rate loans with a preference for floating rate assets, expecting the Fed to lift short rates to quell the onset of inflation. We also issued an additional $650 million of unsecured fixed-rate corporate notes, hoping to create positive earnings correlation as rates rose. This also turned out to be a good strategy.

These precious moves put us into a position today where over 80% of our current loan inventory was originated after March 2021. Because of our macro views of the economy, these loans were underwritten against an economic backdrop of high unemployment rates with inflation building in the good sector and arising cost of labor as the citizenry of the U.S. went back to work.

Throw in rising rates and you've got the formula for a possible economic slowdown that would show up quickly in both residential and commercial real estate.

We did not select these loans to try to prove that we don't see any problems in all kinds of real estate valuations. The Fed infused the economy with liquidity and asset values increased. Of course, when they begin to drain the economy of liquidity, this should have the opposite impact and asset prices should fall.

We show you these loans because it illustrates how we manage risk. Most of our inventory of loans were underwritten under the assumption that a mild recession would soon arise. We tried to stick to acquisition financing and if we did refi loans, we tried to see additional capital contributions from the sponsor to close the loans with us.

For our two post-pandemic loans in the discussion, both were acquisitions, both had substantial equity cushions in front of our mortgages, both were in Florida and both were underwritten well after the pandemic shock to the economy. In our one loan from 2018, of course, the lack of economic activity impacted leasing.

So we were only too happy to work with the sponsors we knew well and who knew that more time would be needed to execute their business plans. If the sponsor would add further capital to carry the asset, we would work with them to extend their loans and give them more time.

The modifications on our largest pre-pandemic office loan saw the principal balance of the loan paid down by $6.3 million in 2021 and another $5.2 million in 2022. Those paydowns demonstrated the long-term commitment to the asset by the sponsor and brought the loan side into the neighborhood of where we were originating loans after March of 2021.

I'll end here hoping to have conveyed a sense of strong risk management. Yes, having a low fixed rate component to our interest cost is quite apparent and we're very happy to have it, but our risk management and its primary goal to preserve capital is a constant effort that we take quite seriously. It's not perfect, but we sure do think it's better than most.

Wrapping up, I'd like to thank our employees for their tireless effort in making Ladder a great place to work with a strong credit culture and for their countless hours researching data to allow us to make better credit decisions even if that meant granting extensions.

I'd also like to thank our investors for trusting us with your investment dollars. We've raised our dividend a few times in 2022 and because of strong loan performance and effective asset liability management, we should continue to easily cover our quarterly cash dividends for the foreseeable future. As we make new investments, it should get even easier.

I'll now turn the call over to Q&A.

[Operator]

[Operator Instructions] Our first question is from Steve Delaney with JMP Securities. Please proceed.

[Steven Delaney]

Thanks. Good evening, everyone and congrats on a great close to 2022. Boy! that was very thorough. I had a few questions jotted down, but I just heard – I already heard the answer. One thing you didn't talk about, Brian, we're seeing some signs and just early green shoots, I guess, of better activity or interest in the CMBS CLO market and I know your investment portfolio is not huge, and it's also short duration. But can you comment on whether you feel your CRE securities portfolio has seen any improvement in value thus far in 2023? Thanks.

[Brian Harris, Founder & Chief Executive Officer]

Sure, Steve, and thank you. Yes, it has. The markets, as I said, at the end of really '21 or through '22, credit spreads blew out really, I think, in the mortgage sector because of the Fed just being a constant seller of mortgage-backed securities and that shocked the market a bit and drove spreads wider. So even the short duration book that we own would have – if we had sold, it would have been down a few points.

So we did have some paper mark-to-market losses there and they have recovered largely and I'll also add, too, while I wouldn't say they're quite at par at this point, but they're probably near 98.5%, 99%. And in addition to that, regardless of what happened with prices, we got $185 million in payoffs, which was about 25% of that book in the year 2022.

So that's one of the reasons too that we're pretty comfortable we're not ever going to take that loss on a mark-to-market basis because those assets are just so well secured.

The biggest problem with them if we wanted to create liquidity today, which we certainly don't need to, is that their spread to LIBOR is not competitive with the spread to LIBOR of new origination loans today. However, most of them have like 80% subordination, which also doesn't – compares very favorably anything today. I don't think you could buy a book of 2018 and 2019 CLO AAAs like we have today.

So we may have to wait a little bit longer but if we ever did need to come up with liquidity, we could. And again, they're only one year loan, so there's a limit to just how bad it can get and even if the Fed continues to sell. But there is – I think that the lack of supply for a very long period of time there. It's really starting to show up, and that's why bids are coming in.

The Fed is still a seller, but at the end of the year, most of the portfolio managers rebalance their portfolio. And I think the fixed income guys got a lot of allocations going into January and January always is a strong month for whatever reason. I think that there's new allocations and things just optically look very cheap. So I think people are jumping on them now.

And you are also seeing that in the government market. The 10-year is a very easy sale. You saw the auction yesterday, it was great. The 30-year auction today was very messy. So it's sort of that duration. It's not too far out on the curve, but it's far enough that people feel like it's going to be an acceptable return. Clearly, the market thinks rates are going to be low over the next 10 years.

[Brian Harris, Founder & Chief Executive Officer]

Yeah, thank you so much for the comments.

[Operator]

Our next question is from Jade Rahmani with KBW. Please proceed.

[Jade Rahmani, KBW]

Thank you very much. What do you make of the current stock valuation for Ladder, in particular, given the lower-than-peer leverage and the strong outlook based on rates? Also, do you think you would consider stepping up your pace of stock buyback and how are you feeling about the dividend relative to the strong level of earnings you posted?

[Brian Harris, Founder & Chief Executive Officer]

Okay. I'll try to keep those in order. And if I don't, please remind me at the end. First of all, the stock price, a little bit discouraging at times because when I sat down and I began to write the year-end review, I basically said, okay what did we do in 2022?

We absolutely nailed the Fed correctly. We have the lowest – we went from the highest cost of funds because of our corporate debt at the lowest cost of funds in the space. We have it for years to come, whereas you're seeing a lot of other ways of raising money taking place in the space. And I think it's a real differentiator for us this year. Our income – our top-line income went through the roof because, again, our interest income was going up, but our interest expense was not really going up very quickly at all.

So the whole plan worked, and our credit acumen did well. We didn't have too much difficulty there. And for all of that, getting it right, the stock dropped from, I think it was, $11.90 something at the end of last year to a high 10 number or $10.99 this year.

So, you really can't fight to tape it is what it is. It was a tough year for all investors last year. And some parts of the stock market, I think the S&P was down 18%. Then of course, it was up 20%. So you try not to look at that too much. But we're doing what we can do and controlling what we can control and sometimes, you get caught up in a little bit of narrative where you just get caught up in the whole market swings.

So we're not put off by it. We wanted to – we pretty much told people we're going to keep raising our dividend, which we did and each time we raise our dividend, the stock fell. So now we're covering it very easily, and there's always some version of the quality of earnings. You've covered your dividend because you sold some retail centers or we sold an office building. And we are now covering out a straight carry and rents. And it looks like, I personally defend, it's going to keep raising rates here. If they do, we make more.

Too much of a good thing obviously can be a problem. But at the end of the day, it's a lot easier as a lender when rates are higher than when rates are lower. So we are very comfortable here. We think our income is with our leverage point below 2.0 we have a full turn we can put on to the company, and that those earnings would just go to the bottom-line if we use no leverage at all.

Even our cash, we've been buying two-week treasuries, which I think today, we were buying at 4.6%. So even cash sitting around is doing better. So earnings look very good. We are a little countercyclical at times.

And so I suspect that we'll have no trouble with our dividend. I imagine we will be in frank discussions with our investors as well as our Board of Directors about what to do with the dividend going forward. And as long as credit is holding up, I don't see really anywhere around not raising it. And I think – what was the last part?

[Jade Rahmani, KBW]

Stock buyback.

[Brian Harris, Founder & Chief Executive Officer]

Oh, stock buybacks. We buy those periodically. Our ROE is very good right now and while we didn't pull off a lot of transactions in the fourth quarter, I think that had more to do with the rate shock that took place in the market and you're seeing it everywhere. It's not just here. There is just not a lot of transactions going on.

We are still seeing people trying to get financing to buy an apartment complex at a two cap, thinking they're going to double the rents. So that story is just not taking hold of us. So we're going to have to wait until the market absorbs the reality that rates are just going to be higher. I am of the opinion that you've seen the lowest rates in your life and I don't think rates are going to go straight up to like Jimmy Carter days, but I also don't think they're going to be returning to 0 either. My opinion is that 10-year is too low at 360, but I don't trade government bonds.

So I would say if the stock takes any kind of a softening, which it does periodically, we're happy to step right in and buy it as long as it looks like a pretty good investment for us and don't overlook the bonds also. Occasionally, if interest rates go up quite a bit or the high-yield market gets wider in spread, those also present unique opportunities, too.

So we keep our eyes open. We watch it every day. We don't check it on Fridays. And if it looks cheap, we step right in as long as the compliance window is open.

[Jade Rahmani, KBW]

Thank you very much. On the originations post-COVID, it seems like the bulk occurred in 2021 through mid-2022, arguably before the valuation correction really ensued. So, some of those deals may have been done at the peak of the market, especially in multifamily, the lowest cap rate sector. How do you feel about the risk there?

It doesn't seem like there will be credit issues in multifamily this year. Certainly, that could unfold in 2024 and there is also huge supply coming in multifamily. So curious for your thoughts on that sector.

[Brian Harris, Founder & Chief Executive Officer]

Well, we – and I am going to get too deep in the weeds. But at the end of 2021, every CLO lender in the space was originating any multifamily they could find at LIBOR plus 300 and we thought that was crazy. There was no differentiation between quality. Were you entering the crime problem out in the garden-style apartment in a rough city or were you making a loan a brand-new property in Jersey City?

And so what we did, and we talked about this, I am not sure you remember it, but we stopped chasing multi-family loans, and we did other types of loans that were less favored but they were much wider in spread. We really got into the multifamily side of things after 2021 when those – at the end of 2021, everybody thought spreads were widening just because it was year-end.

We didn't believe that. We thought it was the Fed starting to sell mortgages and they were going to keep going wider. So at that point, they – most of the lenders had abandoned the multifamily sector because they had done CLOs, where the effective rate of return on their equity piece with 85% leverage was 6% whereas the AAAs, were trading well with yields well north of that.

So, we began – I remember the day it happened. We were funding a transaction, and the borrower was buying an interest rate cap and the cap cost six points. And I said, wow, we're charging one point and they are paying $6 per cap. So we introduced in an attempt -- it's been my experience that when things get a little out of joint, you're always going with higher quality.

So we knew that sponsors were hating the interest rate cap because the cost was so excessive because the Fed was saying they're going to raise rates. So we introduced a two-year fixed rate product that pretty much geared itself towards brand-new properties coming off construction and during the due diligence period after they were under at, we were watching the properties lease-up.

So these were not really the buy two cap and hope you double the rent and rates stay low. These were assets that were brand new. They were clearly in markets that people thought it was attractive to build in. But what's most attractive is that they like that they didn't have to buy the cap. What we like was, you couldn't have a construction overrun because they were finished, and they were all brand new. So we have quite a sleeve of those in the inventory right now.

So – but I am not overly worried because we were always cautious about dollars per unit and when we saw a property in Phoenix, Arizona that had run up in value, I always remember the credit meetings when an originator would say, oh the prior manager doesn't know what he is doing and he's selling it for twice what he paid for it four years ago.

And so he would say, I'd like to back him. So we were always cautious about run-up in price, what was the dollars per unit. Never mind where people thought it was going and if rents look like they had to double, we were not going to get involved in that. But we also understood where there might be some rents going higher, where there were major construction projects going on and assets being added facilities to the city and we focused in growing neighborhoods.

We really did try to avoid the larger cities, and not just because we didn't like them in particular one. It's a very expensive dollars per door. And secondly, they suffer from a lot of government intervention when things get a little bit rough. So, most of our ownership of multi-family loans is outside of the major cities.

[Jade Rahmani, KBW]

Thanks very much for the color. I appreciate it.

[Operator]

[Operator Instructions] Our next question is from Eric Hagen with BTIG. Please proceed.

[Sarah Barcomb, BTIG]

This is Sarah Barcomb on for Eric. Thanks for taking the call. So, in the fourth quarter, you had slightly lower origination volumes with that one multi-family loan. I was hoping you could contextualize that a bit and talk about how you approached underwriting that loan, as well as any other deals that you might have taken a look at that didn't cross the finish line

[Brian Harris, Founder & Chief Executive Officer]

That loan was a multi-family in the Southeast. It was brand new and it had been under app for a while. And I think for whatever reason, documentation-wise, it took a while to get printed and when we closed on that loan, that building was fully leased.

I was a little surprised the sponsor wanted to even take a floating rate loan. So that property is a brand-new property. It's in Georgia, and it is fully leased already. So that was – there was no special approach there. That's kind of where you're hoping to exit when you write a bridge loan.

A lot of other assets we had under application, as rates were rising, we were requiring higher debt yields at exit and it gets tougher. So, where a 6% debt yield used to be the exit cap year and a half years, two years ago, we were moving them up to 7.5% and 8%.

So simply, I think what happened isn't so much that people didn't want to fund new loans. They were just so used to aggressive underwriting, which might have been appropriate at certain times, but it didn't look like it was going to continue. So we actually did see some assets where rents were falling while we were underwriting.

One of the things we do keep an eye on during the underwriting process is we literally watch some leased properties at units one by one and we're very sensitive if all of a sudden, they signed 5 leases at lower rents than they've been in the last 12 months. So we saw some of that also.

[Sarah Barcomb, BTIG]

Okay. Great. And so you talked about in terms of the equity investment sales, I believe there were three during the quarter and you talked about how one of them was one of your largest office assets. Can you talk – I might have missed it, but can you talk about the other two sales during the quarter and maybe give some color around cap rates there or any details you can share there?

[Brian Harris, Founder & Chief Executive Officer]

Well, yes, I am going to talk to the math of my head, but I know them. One that we sold was in Virginia. It was11 office buildings, suburban office buildings for $118 million and that obviously was the price we had paid for them, although there was a large GAAP gain associated with them there. I think we sold that at a 6.8% cap. And so, then, so that's the one you knew about.

The other two, one was we had owned a residential new development on the lower east side of Manhattan and we had one penthouse left to go, and we sold that for $8 million. I don't know what the cap rate is, I apologize. That's just residential condos.

So that was just one, and the only thing we own in that building now is one retail condo at dollars per foot that are far lower than we've been selling out the residential properties at. So we're pretty comfortable there. Although retail in New York City is a little tough right now because for various reasons, but we think that will get straightened out eventually there.

And the other property we sold was a wholesale club, and we sold it to another REIT, who likes that credit. It's a BJ's Wholesale Club. And I think we made about 35% versus our basis on that, which is consistent with where we've been selling BJs. We owned about 11 of them at one point. I think we have five left now. So those were the three asset sales.

[Sarah Barcomb, BTIG]

Great. Thank you. That’s it for me.

[Brian Harris, Founder & Chief Executive Officer]

You are welcome.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

[Brian Harris, Founder & Chief Executive Officer]

I just want to wrap up. This is always an interesting year-end call because we'll be back on the phone in another month, I think, or 1.5 months. But just want to say thanks.

Ladder really came full circle after the pandemic, and we're off to a great start this year. We are in the right position with very low cost of funds, and we are really looking forward to a very differentiated and successful year. So, thank you for those who stayed with us, and thanks for always asking the right questions on these calls. Good night.

[Operator]

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.