Ladder Capital Corp

NYSE:LADR

Earnings Call Analysis

Ladder Capital Showcases Strong 2023 Performance

In 2023, Ladder Capital saw distributable earnings grow 13% year-over-year to $167.7 million, translating to $1.34 per share and a robust 10.9% return on equity. The firm's strategic financial management led to an impressive 58% rise in net interest income amidst increasing rates. Compositionally sound, Ladder boasts an adjusted leverage ratio of just 0.7x and amplified liquidity, surging over $1.3 billion, a 67% hike from the previous year. The active loan portfolio, valued at $3.1 billion with a 9.5% yield, has benefited from $727 million in repayments, reducing total leverage by 11% and future commitments by 36%. Shareholders witnessed enhanced protection with dividend coverage rising to 146%. Observing the choppy market, Ladder positions itself to seize upcoming investment opportunities while maintaining vigilant portfolio oversight.

A Year of Financial Fortification Amid Market Volatility

Ladder has navigated the tides of market disruption, concluding 2023 with distributable earnings of $40 million or $0.32 per share in Q4 and $167.7 million or $1.34 per share for the full year, reflecting ROEs of 10.5% and 10.9% respectively. The firm has embraced a strategic contraction of its asset base, coupled with reduced leverage, resulting in enhanced returns. With its eye on the changing interest rate landscape, Ladder's financial agility has led to a 58% year-over-year increase in net interest income, driven by a judicious unsecured capital structure and a trove of unsecured bonds. The year saw liquidity bolstered by 67%, reaching beyond the $1.3 billion mark.

Prudent Asset Management and Credit Resilience

In the face of uncertainties, asset refinements and a focus on smaller loans have yielded a $3.1 billion loan portfolio with a 9.5% average yield, alongside a vigilant eye on nonaccrual loans and foreclosures. The proactive management of credit risks has ensured that even amidst a challenging rate environment, loss mitigation remains a priority. Meanwhile, Ladder's real estate and securities portfolio registered $50 million in net rental income in Q4 and saw $196 million in paydowns across 2023, further testifying to the company’s commitment to asset performance and quality control.

Strategic Capital Structure and Corporate Governance

Ladder's stronghold lies in a prudently engineered capital structure dominated by unsecured corporate bonds, characterized by a 1.6x leverage ratio and a 4.7% fixed coupon rate. By shunning the more volatile repo line of returns, the company has successfully avoided the pitfalls that befell some banks and maintained a strategic posture against unforeseen market events. En route to an investment-grade rating, Ladder has kept a watchful eye on shareholder value through stock repurchases and sustaining a well-covered dividend, evidenced by the $0.23 per share payment in early 2024. Another hallmark of the firm's governance is the successful extension of its corporate revolver, highlighting both financial prudence and robust banking relationships.

Outlook: Agile Operations and Future Growth Opportunities

Looking ahead, Ladder's executive team outlines a compelling mix of liquidity, low leverage, and seasoned credit oversight setting the stage for future growth. The combination of the company's T-Bill assets yielding 5.4% and a loan portfolio yielding approximately 9.7% creates a robust financial bedrock upon which Ladder can confidently execute its expansion strategies. With the Fed potentially easing its rate hikes and private credit stepping up to fill the void left by regional banks, Ladder plans to capitalize on its strong mortgage lending position and intends to deploy its liquid assets into more dynamic investments, moving beyond the safety of T-bills to chase more lucrative opportunities.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to Ladder Capital Corp.'s earnings call for the fourth quarter of 2023. As a reminder, today's call is being recorded.

This morning, Ladder released its financial results for the quarter and year ended December 31, 2023. 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 earnings supplement 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 the Ladder's President, Pamela McCormack.

[Pamela McCormack, executive]

Good morning. We are pleased to provide an overview of Ladder's financial performance for the fourth quarter and full year 2023.

In the fourth quarter, ladder generated distributable earnings of $40 million or $0.32 per share, resulting in a 10.5% return on equity. For the full year 2023, Ladder reported distributable earnings of $167.7 million or $1.34 per share, generating a 10.9% return on equity. Ladder demonstrated notable financial strengthening across key metrics over the course of the year. With a smaller asset base and lower leverage, we achieved higher returns. Our adjusted leverage ratio stands at 0.7x excluding investment-grade securities and unrestricted cash and cash equivalents.

Distributable earnings increased 13% year-over-year and undepreciated book value increased to $13.79. Our financial performance benefited from a positive correlation to rising interest rates with net interest income growing 58%. Our commitment to an unsecured capital structure contributed to this growth, and we benefited from $1.6 billion of unsecured bonds at a low fixed rate weighted average coupon of 4.7%. We increased our liquidity position to over $1.3 billion by year-end, with cash and cash equivalents up 67% year-over-year.

In 2023, we received approximately $1 billion in cash from pay downs of loans and securities, which was accompanied by a $462 million or 11% reduction in total leverage. Future funding commitments also declined by over $100 million or 36%, and our unencumbered assets increased to 55% of total assets. In addition, dividend coverage also rose to 146% in 2023, reinforcing the safety and durability of our dividend. Furthermore, our credit ratings were reaffirmed by all 3 rating agencies during the year, with 2 agencies continuing to rate just one notch below investment grade.

In the face of significant market disruption, the company's actions have notably strengthened our financial position, as evidenced by these positive trends. As we enter 2024, our efforts have left us well positioned to quickly pivot to offense. Our originators continue to explore the market for new investments in an environment we anticipate will offer compelling opportunities for well-capitalized lenders like Ladder, particularly given the pullback by the middle market banks.

Regarding our loan portfolio, we received $727 million in repayments, reducing the portfolio balance by 19% from the start of the year. This amount includes the full payoff of 35 loans and approximately $100 million in proceeds from the repayment of office loans. Subsequent to year-end, we received an additional $70 million of proceeds from the payoff of 4 unencumbered loans, including 1 office loan. We attribute our robust payoff to our strategy of originating smaller loans in the middle market. This approach our borrowers access to a broader range of capital sources for repayment, whether through refinancing or asset sales.

Our balance sheet loan portfolio stands at $3.1 billion as of December 31 with a weighted average yield of 9.5% and an average loan size of $27 million. We have limited future funding commitments totaling only $204 million, with approximately 2/3 of that amount contingent upon a favorable leasing activity or other positive developments at the underlying properties.

In the fourth quarter, we successfully concluded foreclosure proceedings resolving 2 loans on nonaccrual. This includes a $23 million loan on a retail property on the Upper West side of Manhattan, which had been on nonaccrual since the second quarter of 2018; and a $35 million loan on a newly constructed multifamily in Pittsburgh, Pennsylvania, discussed on our third quarter earnings call. Lastly, in the fourth quarter, we placed one $15 million loan on nonaccrual status. The loan is collateralized by a newly renovated multifamily portfolio in Los Angeles, California, and we anticipate taking title to the assets during the first half of 2024.

As Paul will discuss, we did not identify any specific impairments during the quarter and increased our general CECL reserve to align with our assessment of current market conditions. Heading into 2024, we expect to pivot to offense while continuing to actively monitor our loan portfolio.

Despite the liquidity pullback from regional banks impacting our market, we believe that the long-term advantages for nonbank CRE lenders like Ladder, stemming from reduced competition for lending in our space, outweigh any short-term obstacles. In the meantime, we're continuing to work with our well-capitalized sponsors who, in most cases, we've seen investing new capital into their assets expecting more palatable interest rate environment later this year.

That said, as we have consistently demonstrated even during the challenges posed by COVID, we make a clear distinction between a default and a loss. As a well-capitalized and experienced real estate owner, we possess the capacity to proficiently only manage the underlying real estate. Our ongoing objective will be to maximize our value at a conservative loan basis, particularly as we navigate the upcoming quarters with the current higher for now interest rate environment.

Turning to our securities and real estate portfolio. Over the course of 2023, we received $196 million in paydowns in our securities portfolio and acquired over $88 million of new positions, ending the year with a $486 million portfolio comprised primarily of AAA securities earning an unlevered yield of 6.82%. Our $947 million real estate portfolio, mainly comprised of net lease properties with long-term leases to investment-grade tenants, contributed $50 million in net rental income in the fourth quarter and $59 million in 2023.

In summary, we entered 2024 with a strong balance sheet, substantial dry powder, modest leverage and a well-covered dividend. As the commercial real estate market continues to reset, we remain focused on optimizing the credit of our existing loan book and we are well positioned to deploy our capital for the right opportunities that we believe will present themselves as transaction activity rebounds.

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

[Paul Miceli, executive]

Thank you, Pamela. As discussed, in the fourth quarter of 2023, Ladder generated attributable earnings of $40 million or $0.32 of distributable earnings per share. And for the full year, in 2023, Ladder generated $167.7 million of distributable earnings or $1.34 of distributable earnings per share, a return on equity of 10.9% for 2023.

Our strong earnings in 2023 were driven by a robust net interest income and steady net operating income from our real estate portfolio and benefited from our primarily fixed rate liability structure. Our balance sheet loan book continued to receive a healthy rate of paydowns in the fourth quarter, which totaled $167 million. This was partially offset by $11 million of fundings on existing commitments. The portfolio totaled $3.1 billion as of year-end across 116 loans and represented 56% of our total assets.

As previously mentioned, in the fourth quarter of 2023, we completed the foreclosure proceedings on 2 nonaccrual loans totaling $58 million. Overall, in 2023, we added 3 REO assets and sold one $44 million hotel asset previously foreclosed on, which produced an $800,000 gain for distributable earnings, demonstrating our ability to maximize value on assets where we proceed with foreclosure.

In the fourth quarter, we increased our CECL reserve by $6 million, bringing our general reserve to $43 million or an approximate 137 basis points of our loan portfolio. The increase was driven by the current macro view of the state of the U.S. commercial real estate market and overall global macroeconomic conditions.

We continue to believe the credit quality of our loan portfolio benefits from the diversity and collateral, geography as well as granularity given our small average loan size, which was demonstrated by the $727 million in proceeds received from paydown in 2023, including the full payoff of 35 loans. Our $947 million real estate segment continues to perform well, providing a stable source of net operating income to our earnings. The portfolio includes 156 net lease properties, representing approximately 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 term of 9 years.

As of December 31, the carrying value of our securities portfolio was $486 million. 99% of the portfolio was investment-grade rated, with 86% being AAA rated. Over 71% of the portfolio was unencumbered as of year-end and readily financeable, providing an additional source of potential liquidity, complementing the $1.3 billion of same-day liquidity we had as of year-end. Ladder same-day liquidity simply represents unrestricted cash and cash equivalents of over $1 billion, plus our undrawn unsecured corporate revolver capacity of $324 million.

It's worth noting in January of 2024, we extended our corporate revolver with our 9-bank syndicate to a new 5-year term out to 2029. The facility carries an attractive interest rate of SOFR plus 250 basis points on an unsecured basis with further reductions upon achievement of investment-grade ratings. This enhancement demonstrates the strength of our capital structure as well as Ladder's strong relationships with these financial institutions.

As of December 31, 2023, our adjusted leverage ratio was 1.6x, which was down year-over-year as we delevered our balance sheet while producing steady earnings, strong dividend coverage and an attractive double-digit return on equity. Unsecured corporate bonds remain the foundation to our capital structure with $1.6 billion outstanding or 41% of our debt with a weighted average maturity of nearly 4 years and an attractive fixed rate coupon of 4.7%. We'll also note, in 2023, we repurchased $68 million in principle of our unsecured bonds at 83.5% at par, generating $10.7 million of gains.

As of December 31, our unencumbered asset pool stood at $3 billion or 55% of our balance sheet. 81% of this unencumbered asset pool is comprised of first mortgage loans, securities and unrestricted cash and cash equivalents. We believe our liquidity position and large pool of high-quality unencumbered assets provided Ladder with strong financial flexibility in 2023 and continues to do so as we enter 2024, and as Pamela discussed, is reflected in our corporate credit rating that is one notch from investment grade from 2 or 3 rating agencies, with all 3 rating agencies reaffirming our credit rating in 2023.

In 2023, we also repurchased $2.5 million of our common stock at a weighted average price of $9.22 per share and our current share buyback authorization of $50 million. That's $44 million of remaining capacity as of December 31, 2023. Ladder's undepreciated book value per share was $13.79 as of December 31, 2023 with 126.9 million shares outstanding.

Finally, as Pamela discussed, our dividend is well covered. And in the fourth quarter, Ladder declared a $0.23 per share dividend, which was paid on January 16, 2024. For more details on our fourth quarter and full year 2023 operating results, please refer to our earnings supplement which is available on our website as well as our annual report on Form 10-K which we expect to file in the coming days.

With that, I will turn the call over to Brian.

[Brian Harris, executive]

Thanks, Paul. We were happy when 2023 came to an end and also very pleased with our financial results from start to finish. I credit our success to having gotten our company ready for turbulent markets in the years leading up to 2023. I tend to highlight our differentiated liability structure with a large component of fixed rate debt when explaining why things went well at Ladder during the year. But in truth, it's more complicated than that.

Over 10 years ago, we decided to finance our business with a greater concentration of corporate unsecured fixed rate debt, foregoing the typical mortgage REIT model of using repo line of returns, even though floating rate repo finance was cheaper at the time when we issued the bonds. We realized after what happened to the U.S. banking system in 2007 and 2008 that there would be fewer banks, larger banks and more highly regulated banks. So we felt the usual bank financing models in use might need some shoring up as they were becoming more and more problematic in an increasingly more volatile world with less cushion against market shocks.

While we never saw a pandemic coming or the enormous global central bank intervention that took place in response to it, these items only serve to cement our case to manage our company with safer debt even if it came at a higher cost using less leverage, just as we had indicated we would do when we founded later in the fall of 2008. We stayed true to that model. And while it was helpful that we got the timing and direction of the Fed's hiking cycle correct, our constant vigilance around avoiding credit mistakes has really been the linchpin to our success. While not perfect by any means, we believe we were better than most in our approach towards lending over the last 3 years.

Although we're not without some headaches in these difficult times, our disciplined approach in keeping our exposure in assets at a reasonable basis has served us well once again, as it has for the better part of our lengthy careers. In March of last year, after a few banks failed, largely due to a basic lack of understanding about duration on the part of bank CEOs and regulators, the funding model for regional banks in the U.S. changed. These changes may very well be permanent. If banks don't compensate savers with appropriate interest rates on deposits, we now see how easily savers can and will move their savings to where their capital is treated better.

At Ladder, we own over $1 billion of T-bills that earn approximately 5.4% and mature in less than 90 days. This is not as a result of any plan we have but rather a luxury we enjoy because we issued about $1.3 billion of fixed rate unsecured bonds with an average rate of just 4.5% with a remaining average maturity of about 4 years. We now have a rather [ barbelled ] asset base of T-bills at 5.4% and a loan portfolio that earns an unlevered return of approximately 9.7%.

This combination allows us to cover our quarterly cash dividend using only modest leverage during these precarious times in commercial real estate while the deficit at the U.S. Treasury is spiraling out of control. Our fortress-like balance sheet allows us to turn our attention to getting through the current downturn in commercial real estate values in the aftermath of soaring interest rates and with the banking system with little appetite to finance new commercial real estate loans. We've navigated this environment with considerable success so far.

In 2023, as mentioned earlier, we received $727 million in proceeds from paydowns on balance sheet loans, which did include the full payoff of 35 loans. We also received $196.1 million of principal paydowns and payoffs in our CMBS and CLO securities portfolio, further increasing our liquidity as a result of our low leverage business model. Because of our high level of liquidity, we are able to work with our sponsors on loans that are having difficulty refinancing.

However, if we share this benefit with those borrowers, the borrowers too must pitch in with additional capital to keep the asset in their control. We've been fortunate so far having modified some large loans after substantial new equity was posted to create more time to resolve stress from higher rates. In 2023, we received $119 million in additional equity from our borrowers on 56 loans. We have also received additional credit enhancement in the form of well-heeled sponsors providing full recourse on some of our larger loans outstanding.

In our equity portfolio, our largest office property is triple-net leased for another 8 years with decades worth of extensions available to the tenant, who happens to be one of the largest banks in the United States. In this case, the tenant is currently putting the finishing touches on buildings that we own that they rent at a tenant cost between $250 million and $300 million, including construction of a new 1,400 space parking deck so they can concentrate even more employees into these buildings. We're just not worried about that one.

I'll wrap things up here by thanking our employees who worked so hard last year in a daily environment of falling asset prices. We reported distributable earnings of $168 million in a year where our asset base got smaller every quarter, yet we continue to produce double-digit ROEs while holding substantial levels of cash. We feel the Fed is at least done raising rates for the time being. If they do begin to lower rates, this will come as welcome relief to property owners.

With less competition for lending assignments from regional banks, private credit is indeed moving in to take part in this vast addressable opportunity. And we have every intention of taking advantage of our already strong position in mortgage lending and plan to deploy our large cash holdings into something more interesting than T-Bills.

Thanks for listening. Operator, we can open the line for some questions now.

[Operator]

[Operator Instructions] First question comes from Sarah Barcomb with BTIG.

[Sarah Barcomb, analyst]

So you mentioned in the prepared remarks that you're positioned to quickly pivot to offense and there's a vast opportunity for private credit here. So should we expect Ladder to start originating new loans as soon as this quarter? Or are you waiting for the Fed to start cutting rates? I'm just looking for more detail on what and when would allow you to be more constructive and start putting that large cash balance to work.

[Brian Harris, executive]

Thanks, Sarah. Yes, we -- you should expect us to start originating loans this quarter. And in full transparency, we've actually been quoting loans through the fourth quarter also. Admittedly, though, we have not been overly successful in getting applications signed, interestingly, because oftentimes we are losing the loan opportunity to either an insurance company at lower rates and lower proceeds because the borrower has decided they prefer the lower rate, or else, we've been getting beat by names of companies that we've never heard of. And so that further evidence that the private markets are, in fact, pushing capital into the space. But I would expect that not to last.

We are quoting conduit loans. We're quoting bridge loans. We prefer acquisitions to refinance this for obvious reasons. But -- and that probably limits the amount of opportunities, because most of what's in the market right now is refi. But as acquisitions pick up, I think you could expect us to be more active. And there is no deliberate plan on our part to be hoarding capital at this point. However, sitting with a 540 T-bill rate and able to buy securities in the CLO and CMBS world at attractive levels, we've been adding there mostly on the security side. In fact, while we've been on this, we bought $10 million. But I think we'll probably continue to buy more of those than we will make loans, but we are indeed quoting loans on a daily basis.

[Sarah Barcomb, analyst]

Okay. Great. I appreciate the comments on the competitive set there, too. That's interesting. Maybe just going back to the in-place portfolio for my follow-up, just because the specific CECL remains pretty low relative to peers and we don't have risk rankings on a loan level here.

I was just hoping whether you think there's certain aspects of your portfolio that could maybe start to become a bigger concern if rates remain elevated throughout the course of the year or for longer. So maybe you could comment on the performance of your 2021 and 2022 vintage multifamily assets, those kind of stick out to me. Could we start to see more keys coming back there? Appreciate any comments there.

[Brian Harris, executive]

Sure. We are -- the late '21 is really the -- what I would call the dangerous spot for multi-families because cap rates were quite low, and leverage was quite high available in markets. I think we're going to continue to see some stress in the system through the first half of this year. And when I say in the system, I don't mean Ladder necessarily but generally. I don't believe we're quite through this but we feel like we're getting near the tree line here as we exit the forest.

And so I would anticipate -- if I actually think rates are going to go down a little bit here from what we've been hearing, and cap rates have gone down for sure because of the forward nature of purchasing caps. So what we have right now is a deterioration in the equity ROEs and not necessarily blowing up the debt column yet or taking losses over there. So as long as rates stay here or go lower, I'm pretty optimistic. If for some reason, rates start going higher, and I think the events of the New York Community Bank this week is a reminder to all of us that, that could possibly happen, I do think we've got another 6-month slog.

I don't necessarily get overly concerned about where we stand relative to other people in our CECL reserves because we have focused on small loans, and when I say small, not terribly small, about $20 million, $25 million as opposed to $200 million and $300 million which are extraordinarily difficult to finance today. So while we might have some uncertainties about the outcomes of what's come -- what's on our books right now, I can only reflect back on the last 12 months, which certainly was no picnic in the markets, and we got 35 payoffs. And since January 1, we've got another $70 million in payoffs.

So those are the indisputable parts of the conversation around smaller loans and diversification. And we're pretty optimistic, although we certainly do have some stress points in the system that could go either way, so far they've been going the right way. However, to the extent that costs of these assets continues to stay high, at some point, you do wonder does the sponsor simply run out of money? So far, I think the sponsors who have ability to hang on are hanging on. However, if it got materially worse or if they simply exhausted their equity availability, then yes, we might see some properties come across.

[Operator]

Next question, Stephen Laws with Raymond James.

[Stephen Laws, analyst]

I wanted to follow up on Sarah's question. Can you talk about the relative returns you're seeing in new loan originations versus securities? Did you buy any securities out of the CLO a week or 2 ago? Or kind of what type of securities do you find most attractive? I think, Brian, you mentioned you just bought some this morning.

[Brian Harris, executive]

Right. We have been primarily focused on either transactions that we've owned for a while that we kind of like and we're adding to it. But more importantly, I think we're seeing a lack of discrimination in pricing between static deals, where you know every loan in the pool; and managed deals, where depending on how much time, you might not know any of the loans in the pool. So we have been focusing on the static end of things. And as I said, we bought something this morning. That was a 2021 deal and it is static and we know all the loans are the pooled there performing fine.

So those returns, I can't speak to the new issue market because I think that -- I mean, I could speculate as to what it is, but we didn't buy those bonds, so I don't know. But the assets we are acquiring in the securities business on the static side are yielding high teens, low 20s if we lever them. However, given the cash pile that we've got, we haven't even been levering those. So you'll notice that a good part of our interest expense has disappeared. The secured debt that we carry has gone down because we're just paying off repo, which is quite expensive, and we're paying -- we're not using leverage unless we need to.

[Stephen Laws, analyst]

Yes. And then to touch on whether we talk about the [ 1 3 ] of liquidity or the $1 billion of cash, what is -- when you think of normal operating environment, how much cash or liquidity would you hold? Or asked another way, how much of your liquidity do you expect to deploy? What's the incremental earnings power when you think about all of that -- once that money is deployed?

[Brian Harris, executive]

I think it's powerful. And I think under normal circumstances, which I wonder if we'll ever see them again, but going back, I think, to 2000 -- end of '19 is the last time I can imagine that -- I could say that was when we were in normal times. But in normal times, if we can go that far, I would say we would carry about $50 million to $100 million in cash. And as long as we've got the revolver which, as Paul mentioned, we've extended for another 5 years with all of our lenders, that's plenty of day-to-day liquidity.

So we could, in theory, depart with $1.2 billion in cash. If you run that leverage at even 1:1, that's $2.4 billion in assets. If you run it to 3:1 billion, it's $3.5 billion in assets with all assets unlevered yielding 6%, 7%. So that's powerful earnings power.

[Stephen Laws, analyst]

It seems like a lot of upside there. And then pretty conservative on the dividend from a payout standpoint, thoughts around that. Is that something that will need to move up given retaxable income as this money is deployed? Or how do you look at your dividend level?

[Brian Harris, executive]

We think the next move will be up rather than down. However, I don't want to forecast first, so I wouldn't forecast a dividend policy here on a call. But we're not planning that right now, nor do we feel that we are pressed to do that for any regulatory reasons around REIT accounting. The main reason being, we think capital is important right now and we do think capital availability allows us to do a lot of things that will exceed our dividend. And so as a result of that, we think this is the kind of market where investors would want us to hold on to cash that we can invest at higher yields and drives the dividend later as opposed to now.

I think for the most part, in the space, the discussions around dividends are about who's cutting them, not who's raising them. And yes, but we're pretty comfortable. We like having a lot of cash. We are hopeful that we can even issue another bond deal before the end of the first half. And if we do then we'll have an extraordinary amount of liquidity, in which case, we'll probably be forced to lower our returns a little bit. But right now we're being very, very cautious and very discerning on what investments we will and won't make.

[Operator]

Next question, Steve Delaney with Citizens JMP.

[Steven Delaney, analyst]

Nice to see the market rewarding your strong report this morning and sort of a choppy [ take ]. Just curious, Brian, you've talked about the balance sheet lending capacity kind of opportunistically. Just getting ahead a little bit, but any thoughts about the CMBS conduit lending market? Obviously, weak on a quarterly basis, an average about $750 million in 2023, more importantly, very weak profitability. Kind of there's got to be a lot of good floating rate loans out there where property owners are just maybe waiting for a break in the 10-year and then they'll try to hit a 10-year fixed rate loan. What's your view of conduit lending over the next 1 to 2 years? And should we expect Ladder to be involved?

[Brian Harris, executive]

Sure. Ladder will be involved and we do expect it to pick up. It has been picking up. It's very reminiscent of 2008 when we started. You had a very, very slow securitization business with very low volumes because spreads were quite high. In this situation, it's not that spreads are high, spreads are okay. It's that rates are high when you set the indicator. So at the end of the day, it's just the cost of money, and that's what really drives that formula.

The other thing that's going on right now is there's really little differential between a 5-year and a 10-year on the credit curve. And so the sponsor, the borrower wants to borrow 10 years, whereas the lender wants to lend for 5 years. But that gets very tricky because when you make a 5-year loan in a conduit business, you start running into [ B-piece ] mechanics where yields are in the 20s. So if you're to collect a 20-something percent return over 5 years as opposed to something lower in the 10-year category, I think that's the tension going on right now between 5 and 10-year. the lenders want 5, the borrowers want 10. I do believe the borrowers will win that argument.

And ultimately, you will see a 10-year product coming out. Because there's plenty of investors looking for duration, I think evidenced yesterday by the largest 10-year ever auctioned off. It kind of went out the door pretty comfortably. And that should give a lot of people a lot of comfort in that you can go out 10 years on the curve. The bigger problem I think right now is really the difficulty that the sector is having with work from home, even in multifamily, which is intuitively a stable category but expenses are just going through the roof and insurance as well as taxes.

So it's a difficult market, but it always does come back and it always does defrost. And I would say this is how it looks right before a really good opportunity occurs. Back in, I don't know what year exactly, but around '09 or '10, 2009, 2010, we're making over $100 million a year in the conduit business. I would not rule that out. I think we're going to need a normalization of the yield curve. We almost started getting there until recently, but I think that this is probably going to be a second half of the year conversation more than a first half of the year.

[Steven Delaney, analyst]

Yes. And I just would add in. I think you're using your buyback selectively. Obviously, when you do that, you're retiring permanent capital. But also to Stephen's question, when you pay out a dividend, you're getting rid of permanent capital, too. I mean, anything around 80% of book or lower, you need to buy the stock and not increase the dividend. That's just one person's -- one old man's view.

[Brian Harris, executive]

Yes. I would say, Steve, just also, if you look back at our stock repurchases, they kind of kick in at a certain level. And I think if you actually do a little review of that history, you'll find your comment to be pretty prescient.

[Operator]

Next question, Jade Rahmani with KBW.

[Jade Rahmani, analyst]

Just a follow-up to Sarah's question about multifamily. I was reviewing a report on multifamily and it's called Multifamily Mortgage Credit Risk: Lessons from History. And there's some comments in there that stand out. It's a boom and bust asset class and the ease of build creates excess supply, which results in lower vacancies. So I think in addition to the expense headwinds you noted, there's also pressure on new lease rent, and probably occupancies will dip in the Sunbelt market. So can you comment on multifamily Sunbelt exposure, what you see happening there? And just framing expectations. I mean, I think that with upcoming maturities in some of these low cap rate deals, there inevitably will be a lot of pressure when it comes to qualify for a refinance.

[Brian Harris, executive]

I'm going to actually call on Craig Robertson, to answer part of this. But I would tell you just -- I assume when you say Sunbelt, I don't know if you're talking about Ladder or general. But however, I don't think the Sunbelt is going to have nearly the problems that a lot of people think, and it's mainly because of the demographics of the United States. The Baby Boomers continue to retire. They continue to age. And there is no shortage of people moving to the Sunbelt. And I think as long as the stock market is [ plumbing ] all-time highs and as long as home values are quite high, you'll continue to see that go on as they -- even if they part with their low rate mortgages in Boston, Philadelphia and New York.

But as far as our Sunbelt exposure goes, it appears to be doing, okay. The stress, if there is any, is coming from management that has too many assets at one time and they're struggling with it. You have to keep them focused. And also the operating expenses. The rents are okay. And I do believe there is some overbuilding that has taken place in a few places, principally Austin, Texas has quite a bit. But even we're beginning to see some parts of North Carolina look overbuilt too. But we're not seeing problems with rents. If they're not quite where we want it going to be, they're awfully close. And in many cases, those rents are being achieved without the requisite improvements that were supposed to be made. So a lot of the future advanced money is not going out the door. And so if the rents are being achieved or nearly achieved without actually performing those improvements.

So Craig, I don't know, do you have anything on our particular Sunbelt exposure you want to share?

[Unknown Executive]

No. I mean, hard to add much to that. I think when we look at the Sunbelt exposure, the rents really are holding up. We tended to lend on either newly built product or a product at lower leverage points. So I think when we look at how the assets are performing, we still feel very comfortable at where we own them at our basis and at the yields that the properties are generating. And when we have had short-term blips in sponsorship, it's been possible to write them by examining the business plans, reevaluating and take them through. So occupancy has held up across the portfolio, and I think we have avoided largely a lot of the markets where that focus is right now and they are exhibiting some of the stress. And Austin is a great example of that.

[Jade Rahmani, analyst]

So I assume you're implying that there's little Austin exposure. Can you just comment on the debt yields that these properties are at or soon to be at based on your underwriting?

[Unknown Executive]

Yes. Right now, our multi portfolio shows a debt yield in the high 5s at 85% occupancy with business plans still ongoing. We see those going up as they continue to lease. As I said, we're in mid-80s occupancy with lease-up and turns going. And when we pro forma it forward, even with current expense levels and current rents, we see those normalizing at levels that we're very comfortable with, in the mid-7s and plus depending on the asset.

[Jade Rahmani, analyst]

And that's on a debt yield basis?

[Unknown Executive]

That's on a debt yield basis, yes.

[Jade Rahmani, analyst]

Okay. So I mean, that could present challenges for the equity, wouldn't it? Those lease -- those debt yields don't leave that much room.

[Brian Harris, executive]

Yes, yes. There would be -- the equity calculations on properties that were purchased 2 to 2.5 years ago are less rosy than they were 2.5 years ago, for sure.

[Unknown Executive]

Experience has been -- the pain has been highlighted in the equity, and there still have been positive returns when the business funds are completed. And that's been manifesting in our payoffs.

[Jade Rahmani, analyst]

Okay. So as a base case, let's say, a property gets to a 7% or 6.5% debt yield, just allowing some inflation pressure. What do you think happens in that situation when the loan comes up for maturity?

[Brian Harris, executive]

We expect the sponsor to purchase a cap and reload reserves if required and possibly even pay down the debt to a place where the lender is comfortable. If they don't, then we'll see if they want to try to bring in an additional layer of debt through the mezzanine market, we are seeing that a little bit, but which would pay us down and accomplish everything other than restoring ROEs to the equity. But it is what it is. I mean, it's more expensive to own real estate today than it was 2.5 years ago. That's not our fault, it's not their fault. It just is a fact.

And we're not overly concerned with it. And like, for instance, we foreclosed and took title to a property in Pittsburgh, which is mostly multifamily and brand new. There is nothing wrong with where we own this property. In fact, we're considering if we can take it to Freddie Mac right now. However, the sponsor either did not have the capital or did not feel it was worth his while to continue feeding a core ROE from 2.5 years prior to that. But -- so as I said earlier in my comments, what we're really experiencing and seeing now so far is most of the pain is on the equity side. And the sponsors are deciding, do we put more money into this even though the first ROE calculation didn't pan out the way we wanted it to? Or do we just say, let's not chase this?

And as Pamela mentioned, we do -- we take great pride in not calling default losses. And so we believe we have evidence of loss occurring. But so far, all the pain that is existing -- not all of it, but most of the pain you're seeing is really on the equity side. And as I said, we're almost through it. 2021 was when we started seeing extraordinarily leveraged properties be purchased at 3, 3.5 caps. That was right around the time where Ladder Capital switched to doing fixed-rate 2-year loans with fees in and fees out, and we attracted brand-new properties coming off construction loans.

And so as a result of that, that's the [ seating ] we're dealing with right now. We're dealing with fixed rate loans that are maturing that are doing just fine and they're brand new. And so the borrower has to figure out how to refinance it, pay it down or extend it. But -- and we're happy to work with them on that if they're performing fine. But I think still the ROE calculation is just not what they had hoped it would be.

[Pamela McCormack, executive]

The only thing I want to add...

[Unknown Executive]

Refis are in the mid-5s. There's prep available and the sponsor can also sell the assets at the days we talked about and we're seeing that as well.

[Pamela McCormack, executive]

The only thing I wanted to add is of our payoffs in this year, 40% were in multifamily. So agree with your comment, but caveat that you're seeing sponsors [indiscernible], especially when it's not a widely syndicated asset and they're invested in the asset. We are seeing them pay off and we are seeing them defend. And as Brian said, we're comfortable at our basis in any event. And I think some of this could actually lead to opportunity.

[Operator]

[Operator Instructions] Next question comes from Matthew Howlett with B. Riley Securities.

[Matthew Howlett, analyst]

Just a follow-up on the theme around credit. And I look at the headlines every day on commercial real estate, [indiscernible] they're saying $1 trillion in losses for the office sector and then look at the fear and the stock prices, even the lenders. But your portfolio is holding up well. It's managing higher interest rates. You've taken very few properties back. I mean, what's the disconnect? I mean, Brian, you talked about the sponsors are going to -- still holding on for a while now. Do we really need to see rates just come down, cap rates come down for this to all work out and not see this crisis and defaults that some of the headlines are suggesting?

[Brian Harris, executive]

I actually don't think that's it. I think what you're seeing, the headlines in particular, tend to be focused around large cities and media centers. And there was a lot of lending that took place in Washington, D.C. and some of the larger gateway cities. And those cities are struggling with something other than high interest rates. There is a work-from-home component of that. There's a criminal element taking place. There's people -- a wealth exodus taking place in some of these states. It's a tax situation where people are moving out of certain Northeast cities down to Sunbelts. So those are fixable. It's not like they can't be straightened out. But the market is resetting and that's going to be painful.

So the disconnect, I think, at Ladder is that we have smaller loans. We do have some large loans. We have a couple of loans over $100 million and 2 or 3 of them actually -- 2 of them are in Miami or Aventura. We feel good there. It's probably the best office market in the United States. And just a high degree of caution and a lack of belief that large institutions would not -- a lot of people thought they would never give properties back. But they are economic animals, these are nonrecourse loans and they're handing them back. And ultimately, it will reset, find a new level. And the good part is we are seeing those buildings trade.

I mean -- and if you start seeing banks selling commercial real estate mortgages at very deep discounts, that's going to add a little more pressure, too. But I think you have to really look at where the lending has taken place. And I don't think Ladder will ever be accused of competing in the most competitive markets with other lenders. In fact, we prefer flyover states and smaller populations, which we always felt that the pandemic would actually broaden out the workforce and allow people to stay in St. Louis, stay in Memphis and stay in Houston rather than move to Los Angeles or New York. So I think that is the disconnect if there is one.

And having said that, there's pressure on all of it. But still the work from home items, we're not really talking about a big difference because Friday was already gone. So what a lot of people are at 3 and 4 days a week. We're seeing a lot of companies go to 5 days a week now. But the real problem is places like Washington, D.C. where the federal government is still operating under an emergency code protocol. They are not back at their jobs. They do not go to the office, and Starbucks and McDonald's are closing in certain cities, not because there's anything wrong with the city, it's just that everyone is staying home.

So it's also probably one of the reasons that apartments will hold up more than people think. And we're -- we don't think the apartment situation as nearly as bad as a lot of people think. The problem with the apartment situation was people were financing 3 caps at a time when they probably should not have been. If they start looking at them at 6 caps, that normalizes very quickly.

[Matthew Howlett, analyst]

Absolutely. So Brian, do you feel what's happening with New York Community Bancorp, I mean, is this going to fuel a crisis like '08, '09? And it doesn't sound like -- and do you view it as an opportunity for Ladder? I mean, if more of these banks have to sell assets, retreat from the lending, I mean, how do you -- do you think it's going to [indiscernible] more banks go down?

[Brian Harris, executive]

I offer a layman's opinion on that. I have no inside information nor do I really think I have it figured out. But you have to -- there's something going on there. Because New York Community Bank was part of the solution around Signature Bank. So you have to assume before the FDIC allowed them to participate in taking assets and deposits from Signature Bank, they took a look at them. And so they must have been healthy less than a year ago. So what happened?

Now they do have large loans and there was some discussion about how one of the loans that caused the big headache was a co-op loan in New York. That is nearly inconceivable to me because co-op loans rarely borrow money, and if they do, it's usually 20%, 30% leverage. So and -- but they do have a lot of rent-controlled loans on their balance sheet and they probably have some office loans that are probably a little too big for them. But -- so I struggle with that. There seems to be a disconnect there. Something happened later about when they started looking at their portfolio.

This isn't Signature Bank and Silicon Valley Bank having 10-year assets that if they sell one, they have to mark the whole book and their capital goes up in flames. This is something different. And I do think they have some defaults that I can't imagine I didn't know about them. But I do view this as rather idiosyncratic to them. However, I do think lenders with high concentrations of rent-controlled apartments and rent-stabilized apartments, given the changes that have taken place in some of these cities, those are going to be problematic. I don't think they're going to be problematic to the point of like putting them out of business. I do think there'll be some losses there, though.

And as far as opportunity goes, yes, I don't know. I mean, we've actually bought loans from New York Community Bank in the past, not in this round. They're pretty good lender from what I know of. And so was Signature, a little bit more aggressive but not bad at all. And we wouldn't have any trouble buying loans from them if they wanted to sell them. But my suspicion is they're going to want to sell office loans in New York, which might be a little less comfortable for us.

[Matthew Howlett, analyst]

Yes, I know they're out with packages now at least on the residential side and other stuff. Last question, you run into the bond deal in first half of this year. You've been masterful in how you've structured the balance sheet. Would you be talking about a CLO or an unsecured deal? Just curious, would you want to go tip a little bit towards more floating rate debt? Or do you feel like you've got the way you have a structure now, the fixed rate debt at the end of [ 6 ], you want to keep it exactly the way you've done it?

[Brian Harris, executive]

I think the comment would be is first one, no, I don't see a new CLO deal going out until we start originating more loans. We have 2 out there right now. They're just coming off their managed periods so they'll start paying down soon. But as far as a new issue, that would be a fixed rate unsecured, hopefully longer than 7 years because we do have a 2029 outstanding which will come due, and we'd like to always take out more term rather than inside of the longest maturity we've got.

But given the liquidity situation we've got, we're frankly not going to borrow money unless it's cheap. And much to people who invest in mortgage REITs right now want to lend money because it's expensive, and so there's a little bit of a disconnect there. However, we did see some signs of life there. There was a mortgage REIT that -- it did issue $1 billion unsecured the other day at pretty attractive terms. What's that?

[Matthew Howlett, analyst]

Just over 7%, correct? We're looking at the same one.

[Brian Harris, executive]

Yes. Yes, that's right. I think the name of the company was Mr. Cooper. But -- and that tightened about 50 from where the top was. So there has been a real lack of supply in that market. And I'd like to get involved in that, if we can and issue more unsecured corporate debt. However, this recent pop in spreads, rates and noise around New York Community Bank has probably dashed that for a little while. But I do think as we get out towards -- if the yield curve starts getting a little bit more normalized, where the 2-year falls again, yes, we might very well go then. We have to be able to lend money at rates higher than we're borrowing it at.

[Operator]

I would now like to turn the call over to Brian Harris for closing remarks.

[Brian Harris, executive]

Long year, difficult year, successful year at Ladder. Thank you to our investors, our employees, bondholders, and we appreciate you staying with us. It was a stressful time, but we tend to do well in those periods of time. And we are very optimistic about the future here. We think that most of the difficulties are going to be ending around June or July, and then things will be a lot better from there. And we're hoping to hit a point where all of our products are contributing to our earnings each quarter. So thank you all, and we'll see you at the end of the first quarter.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.