Q1 2024 Ladder Capital Corp Earnings Call

Participants

Pamela Mccormack; President, Director; Ladder Capital Corp

Paul Miceli; Chief Financial Officer; Ladder Capital Corp

Brian Harris; Chief Executive Officer, Founder; Ladder Capital LLC

Adam Siper; Head of Origination; Ladder Capital Corp

Craig Robertson; Head of Underwriting & Loan; Ladder Capital Corp

Saara Baracomb; Analyst; BTIG LLC

Stephen Laws

Jade Rahmani; Analyst; KBW Inc

Steven Delaney; Analyst; JMP Securities LLC

Matthew Howlett; Analyst; B Riley Wealth Management Inc

Presentation

Operator

Good morning, and welcome to Ladder Capital Corp's Earnings Call for the First Quarter of 2024. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended March 31, 2024.
Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release. Regarding forward-looking statement. 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, Flutter will discuss certain non-GAAP financial measures on this call, which management believes are relevant for 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.
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

Good morning. We are pleased to provide an overview of Lattice performance for the first quarter of 2024. Ladder generated distributable earnings of $42.3 million or $0.33 per share, resulting in a 10.8% return on equity. As of March 31, $1.2 billion or 23% of our $5.3 billion balance sheet was comprised of cash and cash equivalents. During the first quarter, we increased liquidity to over $1.5 billion up from $950 million last year.
We reduced adjusted leverage to 1.5 times, down from 1.8 times a year ago. We received approximately $400 million of payoffs in our loan and securities portfolio, including the full payoff of 15 balance sheet loans totaling $320 million. These payoff represents the highest dollar amount of payoffs received since the first quarter of 2022.
Following the end of the quarter, another five loans totaling $111 million paid off bringing our total loan payoffs over the last 12 months to over $1 billion across 48 loans. In February, we celebrated our 10th anniversary as a public company, and we are proud to know that we have not wavered from our commitment to our core objective, driving to the highest possible return on equity while prioritizing principal preservation and employing modest leverage.
This disciplined strategy supported by our diversified capital structure has supported ladder with stability and flexibility across market fluctuations. At the end of the first quarter, our balance sheet loan portfolio totaled $2.8 billion with a weighted average yield of 9.42% and limited future funding commitments totaling $128 million.
Our earnings for the first quarter included a $1.5 million or 3.7% gain from contributing approximately $40 million of fixed rate loans to a recent CMBS securitizations and providing ladder with 10-year non-recourse financing on five triple net lease real estate assets. In addition, we've been pivoting back to offense. Our originators are actively quoting new investments, and we are pleased to be back in the process of closing new loans under application.
Given the historically high returns on equity generated by Ladder's conduit business, we are looking forward to capitalizing on opportunities presented by a steepening or at least on inverted yield curve, which is when this business works best as forecasted.
During our fourth quarter earnings call, we successfully concluded foreclosure proceedings on a newly renovated Class A. multifamily portfolio in Los Angeles, California, we own the asset consisting of 28 units at a basis of $14 million or $500,000 per unit. Since assuming ownership in February, we successfully completed all renovations, obtained a certificate of occupancy for the property and commenced leasing. We expect to lease the property to stabilization by default also in the first quarter, we placed two multi-family loans totaling $72.8 million on nonaccrual.
The first is a $60.8 million loan secured by a portfolio of recently constructed apartment buildings in Manhattan, New York loan defaulted after the mezzanine lender, who made a $13.2 million loan behind our position failed secure. Our current exposure for this loan stands at approximately $385,000 per unit. Second loan is a $12 million loan collateralized by a 56 unit multifamily portfolio in the San Fernando Valley of California.
Our current exposure for this loan stands at approximately $215,000 per unit. Our receiver has been appointed as we pursue foreclosure to take title to the assets and complete the business plan for renovations and lease up at the market rents. As Paul will address in more detail, there were no specific impairments identified during the quarter we modestly increased our General CECL Reserve to align with our assessment of current market conditions. We continue to believe that we are adequately reserved for any potential losses.
We've often stated in the past that we distinguish between a default and a loss, flatter senior management team and Board collectively own over 11% of the Company, effectively making us Ladder's largest shareholder in full alignment with our stakeholders. Our goal is to protect our investments by promptly addressing default and seeking the best long-term value for the company with robust capitalization and extensive real estate experience, we remain well positioned to navigate challenges such as market downtime or asset depreciation while executing the necessary business plans to optimize the property's value.
Regarding our securities and real estate portfolio. We ended the first quarter with a $467 million securities portfolio, primarily consisting of triple-A securities earning an unlevered yield of 6.84%. Our $963 million real estate portfolio is mainly comprised of net lease properties with long-term leases to investment grade credits and contributed $14.1 million in net rental income in the first quarter.
The strength of our balance sheet and stability of our dividend are consistently reflected in our credit ratings from all three rating agencies with two of the agencies rating ladder, just one notch below investment grade. It is worth noting that led us to longer dated unsecured bond issuances, which totaled $1.24 billion and comprise approximately one-third of our total debt outstanding have an average remaining tenor of four years on a weighted average coupon of 4.5%, a rate that is lower than the entire current US Treasury curve.
We remain committed to financing our operations through the corporate unsecured bond market and stand prepared to issue new unsecured bonds when we believe the cost of capital is favorable. In conclusion, ARMs with ample dry powder, conservative leverage and a well-covered dividend. We are primed to go on offense as 2024 unfolds with that, I'll turn the call over to Paul.

Paul Miceli

Thank you, Pamela. In the first quarter of 2024, Ladder generated $42.3 million of distributable earnings or $0.33 of distributable EPS for a return on average equity of 10.8%. Earnings in the first quarter continued to be driven by strong net interest income from our loan and securities portfolios and stable net operating income from our real estate portfolio.
Our balance sheet remains strong as the commercial real estate market continues to reset, as Tom will discuss as of March 31, 2024, but it remains highly liquid with $1.2 billion of cash and cash equivalents were 23% of our balance sheet as our cash position continued its increase since year end. In addition, our $324 million unsecured revolver remains fully undrawn. The increase in cash was primarily driven by a healthy rate of loan payoffs in the first quarter, which totaled $357 million.
Our loan portfolio totaled $2.8 billion as of quarter end across 100 balance sheet loans representing 52% of our total assets. We did not record any specific impairments in the first quarter. However, we did increase our CECL reserve by $5.8 million, bringing our general reserve to $49 million or approximately 175 basis points of our loan portfolio.
The increase was driven by the continued uncertainty in the state of the US commercial real estate market and overall global and global market conditions. Our $963 million real estate segment continues to generate stable net operating income and 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 approximately nine years.
As we have historically demonstrated, we have a long track record at Ladder and maximizing the value of assets we own and operate his skill set as a current owner and operator of real estate, combined with the strength and flexibility of our balance sheet, provide latter a solid foundation from which to successfully manage our owned real estate assets. As of March 31, the carrying value of our securities portfolio was $467 million, 99% of the portfolio was investment grade rated with 84% being triple-A rated and over 76% of the portfolio was unencumbered and readily financeable finding an additional source of potential liquidity, complementing the $1.5 billion same the liquidity we had as of quarter end.
Ladder seeing the liquidity simply represents unrestricted cash and cash equivalents of over $1.2 billion, plus our undrawn unsecured corporate revolver capacity of $324 million. As discussed in our prior call, in the first quarter of 2024 we extended our corporate revolver with our nine bank syndicate through a new five year term out to 2029 facility carries an attractive interest rate of silver plus 250 basis points on an unsecured basis with potential rate reductions upon achievement of investment grade ratings.
We believe this enhancement demonstrates the strength of our capital structure as well as Ladder's long-standing relationship with these financial institutions.
As of March 31, 2024, our adjusted leverage ratio was 1.5 times. It has continued to trend down as we de-levered our balance sheet while producing steady earnings, strong dividend coverage, an attractive double digit return on equity in the first quarter of 2024, unsecured corporate bonds remain the foundation of our capital structure with $1.6 billion outstanding or 43% of our total debt, a weighted average remaining maturity of nearly four years and an attractive fixed rate coupon of 4.7%.
In the first quarter of 2024, we repurchased $2.2 million in principal of our unsecured bonds at 90% of par generating $0.2 million of gains from the retirement of debt. As Tom will discuss, we remain committed to the corporate unsecured bond market as our primary source of financing, we've prepared to issue new unsecured bonds when we believe the cost of capital seems favorable. As of March 31st, our unencumbered asset pool stood at $3.0 billion or 57% of our balance sheet.
81% of this unencumbered asset pool is comprised of first mortgage loans, securities in unrestricted cash and cash equivalents. Our significant liquidity position and large pool of high-quality unencumbered assets continued to provide ladder with strong financial flexibility. We believe this is reflected in our corporate credit ratings, which are one notch below investment grade from two or three rating agencies. Ladder's undepreciated book value per share was $13.68 as of March 31, 2024, with 127.9 million shares outstanding.
In the first quarter of 2024, we repurchased $647,000 of our common stock at a weighted average price of $10.78 per share. Subsequent to quarter end, in April, Ladder's Board of Directors approved an increase the latter share buyback authorization to $75 million. Finally, our dividend remains well covered. And in the first quarter, Ladder declared a $0.23 per share dividend, which was paid on April 15, 2024. For details on our first quarter 2024 operating results, please refer to our earnings supplement, which is available on our website in our quarterly report on Form 10-Q, which we expect to file in the coming days.
With that, I will turn the call over to Brian.

Brian Harris

Thanks, Paul. During the first quarter, Ladder continued to successfully navigate our business through the current credit cycle, accompanied by continuing tension in the Middle East, rising interest rates, persistent inflation and constant revisions predictions of what the Fed will do next with regard to interest rate changes, we have not been significantly impacted due to the nature of our fixed-rate liabilities that are termed out for years and our general low leverage approach to managing our business during the quarter we are pleased to have reentered the loan securitization business, which had we had been absent from for years.
We are hopeful that we will continue to contribute loans to conduit deals in the quarters ahead, as this has historically been a high ROE business for us at Ladder, we also restarted our loan origination business and we expect if market volatility and interest rates improve even marginally. Our pace of loan closings should pick up in the quarters ahead as 2024 began in just the first four months, we've received loan payoffs or paydowns totaling $468 million with another $76 million in securities payoffs.
We've received return of principal of approximately $544 million year to date, that pace of payoffs in a rather low leverage company creates more liquidity at a time where new investments can be made at the highest interest rates in over a decade. Last week, the big banks reported that they were largely easing up on additional loan loss reserves because they believe that potential problems are limited and manageable from Ladder's perspective, we generally feel the same way and believe we are adequately reserved for potential problems.
We foresee while always cautious, we believe the lending market is falling out and borrowers are beginning to accept that rates will simply be higher for a while and they will need to plan accordingly as the year of free money seems to have come to an end armed with strong liquidity and a disciplined credit model, we look forward to the rest of 2024.
We can now take some questions.

Question and Answer Session

Operator

(OPerator Instructions) Sarah Viacom, BTIG.

Saara Baracomb

And good morning, everyone. Thank you for taking the question. I was hoping we could dig into originations a little bit on it sounds like you're out in the market on looking at new deals. I was hoping you could talk about the deals that you're looking at. Any color on the asset class or pricing? And could you maybe give us some of your expectations for volume just given acquisitions might not pick up to the extent that we were expecting maybe six months ago on especially coming off the inflation print today. Just hoping you can give us some color there. Thank you.

Brian Harris

Thanks, Sarah. This is Brian. I will answer the volume question, but I'm probably going to punt it over to Adam Cypher, if that's okay. Regarding originations that we're seeing. So we have seen originations pick up a little bit, but it was a pretty low bar, I'm going from zero. So we do have a couple of loans under application. We've been quoting a lot more on. A lot of deals are falling apart, I think largely as a result of where rates are going and recently spreads began to move a little bit wider also.
So I would say our volume will be fairly muted for the year, although we're hopeful that it's not I think it's a condition of the market, not a condition of latter. And so I would if I had to throw out an estimate now I'd probably throw out $400 million for securitizable instruments in 2024, but that has a wide less than right margin. And I'll just warn you it. So And Adam, if you want to address what you're seeing, he's our Head of Originations and configure.

Adam Siper

Sure. Thanks, Brian.
So we are definitely seeing a little bit of a slowdown based on the recent rate AppTec, but there are still loans that need to be refinanced or some maturing construction loans for new multifamily property. And we also have a handful of industrial acquisitions that we're still pursuing, that tend to be off market and tougher to reproduce those opportunities, but highly attractive from when we do find them. But we're also still seeing a benefit from the bank pullback, which is contributing to both balance sheet loan opportunities and conduit opportunities. And I think that will continue for the next 12 months. So like Brian said, cautiously optimistic.

Saara Baracomb

Okay, thank you. And maybe switching gears to the in-place portfolio, also, just keeping in mind this hot inflation print and the uptick in rates, would it be your expectation to foreclose on more multi-family or maybe office assets later this year, if rates stay where they are on? And could you give us an update on recent sponsor decision making in this environment and maybe some wins and the debt yields on the multi-family assets where you could foreclose? Thank you.

Brian Harris

Sure, Craig. When we get to debt yields on multifamily. I'm going to probably we'll hand it off to you. But the macro side of that is I would expect to have more foreclosures. Um, you know, I've long said that the second half of 2021 and the first half of '22 was really the 12 month period in time where if you bought things, it might have some trouble usually two years later. He's when that trouble arrives because the 1st year is usually already funded in the 2nd year, three thoughts around some success, but done so coming up to I would say the end of the third quarter this year is what I would expect perhaps that that commentary to change mainly as a result, not of what I'm seeing, but of the calendar just a late '21 into early '22.
On multifamily, we switched in late '21 to newer properties and the problem as they got into if it wasn't a newer property was it was a rehab and the end of '21, early '22, you had a lot of construction cost overruns, labor costs went up and then you got hit with insurance and additional operating expenses. So kind of a double whammy hit the sector. And that's why I think that there is quite a bit of giveback.
We believed that we would do better with newer properties that could not have cost overruns and simply has to be leased, evidenced by an $80 million loan that paid off this quarter on a brand new property in Ohio. That's part of the calculations we've reported today. But some real facts are stubborn things. Rates are quite a bit higher on height. I've never understood what the Fed is looking at when they say inflation is falling and then I don't see it now either.
And so I suspect that rents continue to rise and that will be helpful. But the insurance side of it, the multifamily sector is particularly problematic. So I suspect it will. It will continue on. However, if you've got enough cushion built in as and as I read, that is a hybrid read with mortgages and properties. I'm not overly concerned about owning some of these like the one.
Pamela, I think addressed a little bit here out in California where we took title to it very quickly. We finished in life, we have a few units and got a CFO, and now it's on the market. I think we're 50% leased already on. That does not appear to be a problem to us on which we have put into default in the quarter of $60 million in New York City apartment complex, three buildings, ground-up construction branded.
I have never seen a New York City brand new apartment building being handed back to a lender, but we may in this case, it's not there yet. On the two loans that Pamela mentioned. One was that $60 million and the other one was, I think, a $12 million property yes, we do have a mezzanine lender and the big one, again, showing a little bit of restraint on the part of latter because when the loan was made, obviously, we were asked for a bigger loan than we provided a mezzanine lender provided a $13 million -- $12 million or $13 million mezzanine loan, which has been wiped out.
So in the world of thinking about losses, the equity looks like it could be waived and the mezzanine didn't defend. So if we did take title to that property in the near term, they would be at under $400,000 a unit on a brand new apartment building in Manhattan. Those are not bad numbers and the rents in Manhattan have been continuously rising throughout the entire time. So we're not overly concerned about the word foreclosure. And as has often times said on these calls, a default is not a loss. And that's why we've been hiking our CECL reserves.
But we don't have specifics because one, we don't want to indicate to anybody that we've got room in the payback amount when the loan comes due. But second of all, it's more of a macro conversation than an actual situation that we're observing. We are whenever there is a problem in multifamily, every time we issue a foreclosure notice or default notice the phone rings and somebody wants to buy it a lot of times, it's the buyer that sold it to the party that we made below two.
So I think there's going to be a lot of solid mixing going on here at the end of the year. I think there'll be quite a few properties handed back to lenders, but I think the cautious lenders will not really be absorbing a particularly large problems as far as losses go. And in fact, some of them may turn into very nice wins because they may be acquired again, newer property always a good thing in a housing shortage. So that's where we've been comfortable.
Craig, I think you've got some debt yields on assets. We have taken back? Can you flesh those out?

Craig Robertson

Yes, sure, Brian. When we look at the overall portfolio, so on our multi portfolio at about 85% occupancy portfolio-wide, we're in the high fives to low sixes on debt yield. We see that stabilizing in the mid sevens. As Powell mentioned, we've taken a significant amount of payoffs over the past 12 months and over half of that's been in multifamily, and that's been in that same low sixes debt yield in place when those paid off. So we feel very good about the deals we're seeing and the path to getting these assets stabilized into that mid seven's debt yield territory.

Brian Harris

And Sarah, I'll just finish up on total finishing the question you asked about borrower behavior and what our observations are on. It's fairly consistent there. Largely grumbling, not happy with interest rates. And obviously, if you move 500 basis points into the lender column and out of the equity column that will cause grumbling. However, there are standing behind them for the most part, they're what they're buying caps on. We prefer not to have anybody guaranteeing caps we prefer the actual cap because we want to rely on a third party as opposed to the rent roll for those payments getting made.
So on that, but they're standing behind them. And in particular, we've had some positives on activity. I would say on the office portfolio, we have a property on California where, um, was requiring some additional reserves and a very wealthy individuals simply guaranteed below that and the whole thing. So it wasn't a red put up the right reserves that it needs to finish it, but also guarantee the principal and interest really to get out of all the discussions around how to continue.
And we have another property on in West Chester, where the sponsor sold a different property and paid us down partially as we had requested and posted a reserve of $17 million. And so again, showing commitment to the assets and I wouldn't say in the best mood, but I'm still protecting the assets. So we feel pretty good about their. So overall, they have the ability they will a lot of the assets that are defaulting. The sponsor simply does not have any more capital.

Saara Baracomb

Thanks for all the detail there. Really appreciate it.

Operator

Stephen Laws, Raymond James.

Stephen Laws

Good morning. I guess first off, congrats on your 10th anniversary that you mentioned, Pamela, it seems like yesterday we were all at dinner just ahead of your IPO, but a nice milestone for you guys. You touched a lot on originations and I appreciate the color there. I think back to kind of, you know, almost 10 years ago, you guys did some other things that we don't really see in the portfolio.
You bought some some attractive assets from distressed lenders. Seems like you may be getting some of those back from stress lenders. But as you think about the amount of capital deployed you have to deploy, have you thought about looking at buying existing loan pools that at some discount are looking to buy hard real estate assets. Can you talk about any investment opportunities you're seeing outside of newly originated loans and securities investments?

Brian Harris

Sure. I think in our last call, somebody said to me what's your favorite investment today? And I probably said CLO triple-A, um, because one, they're liquid to their safe and three, you can sell them whenever you can finance them pretty comfortably as a company that's not terribly leveraged less. One doesn't matter that much, but I would tell you this time around we're really beginning to see attractive equity opportunities where a property is being sold on to somebody and the it might have seller financing or it might not. And it's being sold at a fraction of what it was purchased for just two or three years ago.
And the harder part isn't really the purchase. The hard part is the financing side of it. And then I think there's a further bifurcation and that is, does the asset have cash flow or does it does it not? And if it doesn't have cash flow, that doesn't fit comfortably into a dividend paying rate, but if it does have cash flow with some even longer term leases, sometimes that's really what we're focusing on. So if I would predict further, I suspect you'll probably see us buy a couple of might even see us buy a couple of office buildings and get some of them are pretty attractive.
And we're not really an operator of office building. So we'll probably do that in conjunction with someone else, but we are starting to see opportunities there that we're drawn to and we think is beginning to look more attractive than CLO triple A's and treasuries at [5.5].

Stephen Laws

That's a '24 event? Or you think those opportunities really are more early next year?

Brian Harris

I think it will be a '24 that for I mean, that's not going to be a deluge of them, but you might see one or two before year end. We've got a couple in front of us right now, we are not under contract with anything, but we are staying up late and walking around buildings at midnight to see who's walking around them with us. So yes, I suspect we'll do something before year end, but I will point out don't misunderstand me. We do not have anything under contract right now.

Stephen Laws

Sure, one other question, if I may. When you think about obviously a lot of liquidity, a lot of excess liquidity. Where do you want to operate a hard to say, normal in this world, but you know, in normal times what is the right amount of liquidity? And when you think about returns available today, as you deploy what you consider excess liquidity, how much earnings accretion Can you or incremental earnings power can be generated once this money goes to work?

Brian Harris

Maybe just do the quick math calculation, if we're at 1.5 times adjusted leverage, could we go to 2.5 times?
Sure. Easily. We've always said we like running our leverage between two and three times. We rarely said we'd like 1.5 times, but to go to the question of how much liquidity is enough, the answer is more. So we're very comfortable with our liquidity picture right now as interest rates rise and markets deteriorate and others get under stress. I mean, we do have a couple of levers we can pull to create earnings.
One is buying the stock back. Another is some is the bond side of the world where on both of our bond issuances that mature in '27 and '29, we actually deliberately borrowed more than we thought we were going to need so on because we certainly didn't plan on having $750 million coming due on one day. So yes, there's a lot of opportunities there, and we kind of look at that versus the rate of payoffs.
So and what the actual price is, and I think I've said a few times on these calls that if the dividend and the yield on bonds is the same, you should probably buy the bond because you're going to have to buy that one day anyway. Currently our bonds are yielding between 7% and 7.5% and our dividend is in the high eights. So we'd probably lean more towards stock at this point. If we if we were to transact on latter instruments.
I think we have enough capital. It's a little you could eat that those words on a formulate our own if you're not careful. So I hesitate to say how much excess liquidity we've got. But we could easily turn this inventory and add another $1.5 and you can pick the return levered or unlevered you want on that. And obviously we can we can ramp up these earnings relatively quickly on I thought we would do it a little more quickly with securities, but there really just hasn't been a lot of new originations creating new securities. We have been buying them, but they're not coming at a pace that we were hoping for.

Stephen Laws

Okay, great. Appreciate all the comments this morning, Brian.

Operator

Jade Rahmani, KBW.

Jade Rahmani

Thank you very much. In terms of the current originations environment, could you give any color on your attitude today versus one quarter ago?
I mean, clearly, the company is sitting on a very strong liquidity position now early in the year at Kraft, everyone was super bullish about volumes picking, would you say there was not an opportunity to ramp originations in the quarter? You passed on a lot of deals you didn't like or the market was too competitive? And how does that compare with where things are today?

Brian Harris

Sure. Yes. If you remember, Jade, back in January at RSC, this is a world where people had decided that the Fed was going to cut rates six or seven times that was just four months ago. And all of that has been changed at this point or we never thought that. I wouldn't say that our attitude has changed at all. I think we'd like to originate more loans than we have originated, but that desire will not overwhelm our credit discipline and we have seen several quotes accepted transactions about what happened that fell apart.
And I think one of the things that has happened, especially in the near term here, interest rates have moved very quickly higher in the in the part of the curve where most of those securitized assets take place. So some of it is just market conditions on. It's very attractive right now. And you know, if you can if you've got a 5.3% sulfur and you've got a 4.75 % year, yes, that you can put on a lot of interest carry there.
I hesitate to buy longer duration fixed rate instruments because you have to hedge them and with a fleet with a flat interest rate curve, it's kind of difficult to do that and make money. So our attitude is a little bit. What I would say is what we thought was going to happen. We I think we said we thought rates would go up and we don't think they're going much higher from here, but they could go a little higher and volatility will continue throughout the year.
And before talking about China or the US economy will probably be talking about a rally in rates because of their slowing down in the economies. If we talk about the lack of discipline in the fiscal side of the United States and their treasuries and the way they borrow money on, we'll probably be talking about higher rates. So I don't think it's going to just flatline in between those two. I think it will be down on one day and up the next. So I think when I got on the call here, I was looking at about a [473] tenure, that's probably the top of that for a little while and it will probably head back down.
But I think we'll see it again before year end. So the desire is here. We think it's very hard to make a bad loan right now, but there is just a real problem with demand here and some and it's because the commercial real estate sector seems to be getting worse. And we concur with that thinking, although we do think it is near the exit, I think the worst has passed. Does that answer your nine back?

Jade Rahmani

Well, clears not overly clear, but I understand it's a mixed market, but it does sound like you're recognizing there's a borrower demand challenge it's hard to get deals done. It's not that there's an appetite from lenders wanted to ask well, okay.

Brian Harris

I'll give you a further evidence of that. I mean, if you take a look at conduit deals now. I mean, in the last cycle, there were a couple of labels out there would have two or three names contributing into a deal we now see conduit transactions with 10, 11, 12 originators, some of them with one loan in the pool.
So that that tells you all you really need to know about how you aggregate, it's just not easy. And that has nothing to do with lab that has to do with conditions in the market. But when you see 12 originators get together and they allow three or four of them to contribute one loan that is indicative of a lack of supply.

Jade Rahmani

And putting on your Fortune Teller hat, do you think that latter will do more balance sheet originations than conduit? Is conduit going to be a small part of the business or do you see a big opportunity there?

Brian Harris

I think the balance sheet side of the business will be bigger than conduit, but not because we want it to be. I just think as long as the yield curve is inverted and I think it stays that way for a bit longer on the conduit business will have its own set of challenges. However, the yield curve gets steeper and the two year drops can the 10-year rises That's when that business will take off.

Jade Rahmani

And then lastly, if I could squeeze another one in on the net lease portfolio, just to give you a high-level thoughts on the portfolio how are you feeling about that space and the outlook there has been a little bit of pressure in the Dollar Tree retail retailers in particular. I know you all have Dollar Generals, but just tenant demand. And what you see about the overall portfolios are lease durations.

Brian Harris

We have relatively long term leases still on, Paul, you can start looking that up. I don't remember it right now. But Tom, I know we've got quite a bit of time on. We are we have always been cautious around dollar stores in certain places where we felt like the dollar store model originally, I think coming out of Family Dollar is like a single employee in sometimes a tough part of town and there was a certain amount of slippage fast, if you will. That was accepted, however, in our Dollar General portfolio that has a curated portfolio, largely in rural areas around lakes and fishing areas where there is wide geography and not tons of supermarkets around us.
So we see a lot of sales of tobacco products and beer and very little SaaS based on I just looked at three of our Dollar Generals in Florida, all three of them recently extended their leases for five years. Are there. I wouldn't call them in totally rural areas, but I certainly wouldn't call them inner city there. But so we've been very cautious around that. And when we bought our Dollar General's, we tended to buy about two out of every 10. We looked at and so we think that that selection criteria and will protect us through this.
Yes, we do worry about some inner-city retail. There's clearly a few problems in the drug store chain area, but they're big companies that can probably make adjustments and figure out a way to get through it. But I think become Amazon, for instance, just figured out how much the top 20 items are that CVS sells. So they just went at it that way.
But I suspect CVS will now open up a warehouse with those 20 items in it and deliver it to your home just as fast. So I'm going to let them fight and not get overly concerned about it, but I don't really feel like we've got too much trouble.
As far as the obsolescence part of this goes, we stuck to drug stores, supermarkets and a couple of dollar stores. But by and large are they're doing very well.

Jade Rahmani

Thank you.

Operator

Steve Delaney, JMP Securities.

Steven Delaney

Yes, good morning, everyone, and congrats on a strong start to 2024.
I'm great to hear about the conduit business. I just wanted to circle that up a little bit. Pamela, did you mention that the gain on sale on $1.5 billion loan was up about 370 basis four, I'll argue it.

Brian Harris

She's on mute and yes, it is 3.6% and it was and it was on 40 -- I think $41 million I'm showing you there.

Steven Delaney

I guess I had a I apologize, $41 million of loan, $1.5 million gain Got it. Got it. And help for $400 million, obviously a big number. I know historically that this has been your highest ROV business segment. And can you give us some sense of how that might ramp between first half of this year and back half on just in terms of very rough numbers. I'm just trying to get a sense how that might step up over the next three quarters?

Brian Harris

It's pretty slow right now, Steve, I mean, I will tell you I'm not. So given the fact that we're almost in May. I'm going to have to tilt everything to the back half of the year, but that has a lot to do with things that don't impact us that are not impacted by us.
So on if you had asked me that question a month-and-a-half ago, I would have told you the next quarter is going to be pretty aggressive, but the rate at which the 10-year has moved higher has more or less. It always has that impacted at sort of a slowdown of the new origination pipeline and people sit on the fence thinking rates are going to go back where they were two months ago and maybe they will maybe they won't.
But there's always this little pause that takes place when there's been a move, and that's we're in that pause right now. However, the demand side of the conduit business, if you can produce the collateral and the bonds, there's plenty of demand so rates are high. Spreads are not terribly wide, but the rates are high. And so there's a good bit out there. So it's a good time to be in the business like we just can't meet the raw materials side of the business.

Steven Delaney

Got it. Okay. Well, that's helpful. To the fact, just understanding that you're your goal for the year is very much back-end weighted. So we'll be careful on that. Lots of stuff has been covered. So I won't well labor things, but just stepping back big picture for a minute, I definitely obviously applaud the buyback and the reset there.
And with respect to the dividend, I realize we're coming out of a period of stress and it's premature to start thinking about know And then turning to offense from the from defense or reducing your cash holdings, but what would it take for management and the Board? Your last increase was late 2022, what would you want to see is this year moves on or into next year to get to make you comfortable.
You got good dividend coverage based on this quarter's earnings what's specific one or two things would you like to see to or to be confident too, to increase the dividend?

Brian Harris

So when we discuss this all the time and there's plenty of discussion about should we raise our dividend and the hell with what's going on in everywhere else. But then yes, I think the reality is to be more comfortable. We'd have to be have a little bit broader situation going on in the stock market, most of the stock market gains that have taken place. And I don't mean on the rate side I'm talking about just in general, it's multiple expansion through falling earnings.
And as you know, there are a few stops are driving that train a little bit. So that doesn't feel like a healthy setup there on interest rates continue to rise and with as high a dividend, which was very safe because we just have a lot of cash and very low leverage on and the amount of insider ownership that we have. We have every incentive to raise the dividend. If if if we think it's helpful right now, we believe and we have demonstrated that we can drive earnings at levels well in excess of our dividend. And that should be a formula first rising stock price so on.
But because of the volatility in the marketplace that exists. There's always opportunities that pop up suddenly and you don't really get a warning, they just sort of get there. So there's lots of ways for us to drive earnings. But I think the overriding issue that probably would make us all feel better.
If I could turn on the TV one morning and not hear about real estate on the amount of time and dedicated by the media to commercial real estate, saying the same thing over and over and over. And it's a we're at a point where it almost feels like the bottom because I was taught a long time ago when you can't hear another thing about something that makes you feel worse, you're probably at the bottom I kind of feel like where they're at this point.
So I'm I mean, I'm not uncomfortable to raise our dividend now. I wouldn't be afraid of cover, and it's pretty easy to do, especially with all the other cash. But what I'd like to do that, we're not holding on to our cash so that we can cover our dividend. We're holding on to our cash so that we can buy investments that last for an extended period of time and are sustainable. And we do think that option is there. And we think it's coming. We've seen it here and there, but it's not widespread. And that won't happen until the last of the sellers have thrown in the towel on their real estate holdings.

Steven Delaney

Yes, hard to push a rope. And if you do raise that, you'd like if you do raise the dividend, you'd like to think the market the stock market would reward you for that and this sentiment in this market towards real estate, it probably would or might certainly might not.

Brian Harris

Well, yes, I don't think it would. I mean, we tend to trying to reward our shareholders for taking the chance of holding this real estate company to. But I think we're doing a good enough job there right now. And I think we're demonstrating discipline in our returns, but just because a quarter or two went by where volumes were low. And that doesn't mean we start putting capital out the door Huff. And we've always had a pretty respectful relationship with our bondholders also. So we usually when we buy our stock back, raise our dividend, we also buy our bonds back to at the same time to keep everybody aware of the fact that we're watching all of it renews there.

Steven Delaney

Well, thank you, Brian, for the comments.

Operator

Matt Howlett with B. Riley Securities.

Matthew Howlett

So thanks for taking my question. Just a quick one, Brian. I mean, I think it's a pretty a pretty bold statement just to go and say, we think the commercial real estate cycles at the bottom or the worst is over. I think some of the banks have said that but that's true, my question to how should we model this General CECL Reserve?
I know it's not part of the distributable, but people do look at it. We look at it every quarter and if there is onerous assumptions in it today moving forward, if the worst is over, is that going to come down to look at basically what you have in place as being maybe relief to some point?

Brian Harris

I think as I said, is the state of commercial real estate when I say the worst is over, but I hope it doesn't sound contradictory, but we still believe it's getting worse, but we just think it's getting worse at a slower pace. So a lot of the you're not going to be surprised by anything commercial real estate. Now if you own a loan and it's on your books, you know if it's going to be a problem or not.
So it's we feel like we've got a very good handle on what can and can't go around here. Having said that, depending on what the government does wired world events and also technology, these things can and do change pretty quickly and that long maintained that would be effectively the absence of the regional banks in the refi market. The opportunity set is huge for when you get comfortable that real estate value is no longer falling.
But when we go to our CECL reserve, I had to guess and again, this is just a party of one here, but we add a little more to it next quarter, but I don't think we'll add another $7 million to it depends what happens, but it gets easier when you take $500 million in principal payments. And because we can debate all you want about what the office sector is doing or what our loan inventory looks like.
But we can't really debate too much about what $500 million in payoffs means. So and with a 1.5 times levered company, this drives liquidity to. So it's a little and I don't want to be glib about it, but it's kind of a good spot to be sitting in because we used to sit in the bank at zero with hundreds of millions of dollars. Every time we got payoffs now it's almost 5.5%. You get if you buy a triple-A CLO, you get 7%.
So these are reasonably comfortable times for highly liquid from investors. And I think you're going to see that bear out. And but I don't one I think I mean, commercial real estate as long as you've still got people selling things for 25% of what they were sold that were purchased at three years ago. You haven't really hit the sentimental bottom yet, but but on the other hand for when you read all the stories about this stuff happening there. When you look at the amount of real estate in the country, it's very little of it is doing that. It just catches a lot of headlines.
A lot of famous people are involved in them. So you have to let the flip that blow through and not get overly concerned about it. We this does look like have a fairly normal real estate cycle to me somewhat amplified in its impact by the fact that we had 10 years of zero interest rates. So we had plenty of time to join up the leverage, although nothing compares to what we saw in late '21 and early '22 once we get through '24. There's just not a lot of new production after 2022. So naturally, things will be slowing at that point and people that are going to hang onto their assets are going to hang onto them and those that are going to lose and we're going to lose them and on.
Yes, I think you're seeing some pretty widespread damage in the mezzanine sector and in the multifamily sector where people bought very tight cap rates and now they have high expenses, even though rents have doubled. So on hire, we're not calling the bottom, we just don't. It's just not I don't hear anything that shocks me anymore. And yes, when somebody puts up a big reserve or when somebody sells a building at a very low price.
Are you that you're going to see that and with sulfur at 5.3 something percent and you have to buy a cap that that gets a little expensive and I understand why some people are just reevaluating the investment decision there. So I think in the past, though, I don't think it's a it's a giant corner here that is going to default. I think there's you've all heard the numbers. You don't need them for me as to what's coming due in the next few years, but pools that were purchased five and six years ago if they're not office buildings? Yes, they're probably fine.

Matthew Howlett

Well, we'll certainly use letter shortly in an envious position and all the excess capital I appreciate all the color and congrats on a really good quarter.

Brian Harris

Thank you.
Thank again, ladies and gentlemen. That concludes our question and answer session and I'll turn the floor back to Mr. Harris for any final comments.
It just thank you for paying attention to us today. I know it's a difficult day in the market and getting a lot of mixed signals but the we feel pretty comfortable and we appreciate you taking the time to understand this.

Operator

Thank you. And this concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.