Franklin BSP Realty Trust, Inc. (NYSE:FBRT) Q2 2025 Earnings Call Transcript

Franklin BSP Realty Trust, Inc. (NYSE:FBRT) Q2 2025 Earnings Call Transcript July 31, 2025

Operator: Good day, and welcome to the Franklin BSP Realty Trust Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Director, Investor Relations. Please go ahead.

Lindsey Crabbe: Good morning. Thank you for hosting our call today, and welcome to the Franklin BSP Realty Trust Second Quarter Earnings Conference Call. As the operator mentioned, I’m Lindsey Crabbe. With me on the call today are Richard Byrne, Chairman and CEO of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Mike Comparato, President of FBRT. Before we begin, I want to mention that some of today’s comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, July 31, 2025.

We assume no obligation to update any statements made during this call, including any forward- looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website at www.fbrtreit.com. We will refer to this slide deck on today’s call. With that, I’ll turn the call over to Rich Byrne.

Richard Jan Byrne: Great. Thanks, Lindsey, and good morning, everyone, and thank you for joining us today. But before we begin, I just want to take a moment on behalf of our entire team to express our deepest sympathy for those affected this week by the tragic events at 345 Park Avenue. This hit very close to home. Our thoughts are with the victims, their families and all those affected. Now we’ll begin today’s call on Slide 4 by reviewing our second quarter results, and then we’ll open the call up to your questions, as always. I’ll begin with key developments from the second quarter. Jerry will walk through our financial results, and he’ll provide details on our successful closing of the NewPoint acquisition. Then Mike will update you on market conditions, our watch list and REO activity.

We selectively originated $61 million in new loan commitments this quarter, primarily in multifamily assets. Our originations were deliberately lower this quarter as we maintained a higher cash balance ahead of our July 1 NewPoint closing. We received $317 million in loan repayments in the second quarter across 4 different property types. This continues to be an encouraging trend and one that we are well positioned to capitalize on moving into the back half of 2025. As we redeploy these funds into new loans and more attractive credit metrics, it will clearly benefit us. Our portfolio of post-interest rate hike loan originations was 56% of our portfolio at quarter end and meaningfully ahead of our peers. This reflects how active we have been in the market over the past 2.5 years.

Distributable earnings were $0.27 per fully converted share. We believe there is a clear path to growing this to a level that supports our dividend. Jerry will lay this out in detail momentarily. Our average risk rating at quarter end was 2.3 with 137 of 145 positions risk rated 2 or 3, and our watch list loans represent only 5% of our total portfolio. We also made significant progress on our REO portfolio this quarter. Our acknowledge and address mindset has not changed. We sold 3 multifamily assets totaling $56 million, which in aggregate was above our principal basis at the time of foreclosure. These results reinforce our strategy of being selective and patient in managing REO to maximize our recoveries. Since the NewPoint acquisition closed on July 1, I’ll speak to our liquidity position, excluding the cash that was paid at closing.

Liquidity then was — or now is $501 million, including $77 million in unrestricted cash, with significant capacity remaining on our warehouse lines and through CLO reinvestment. Acquiring NewPoint is a significant milestone for us. It expands our platform within our core competency, multifamily lending. The transaction brings significant synergies to FBRT, including scaled origination and servicing capabilities, which will significantly increase our addressable market. It also adds a fully integrated mortgage servicing platform, which enhances income stability and provides an immediate avenue for recurring book value per share growth. We are confident NewPoint will be a long-term driver of both earnings power and book value creation. Looking at long-term performance, FBRT has delivered economic returns, defined as change in book value plus dividends paid of 6.6% and 11.9% over the past 12 months and 24 months, respectively.

This places us at the very top of our peer group. We believe these results reflect our disciplined credit decisions and very thoughtful capital management. Before handing it over to Jerry and Mike, I want to briefly address our stock valuation. Our stock continues to trade at a steep discount to book value. We suspect the market is focused on 3 key concerns: our current dividend coverage, the quality of the assets in our legacy portfolio and our recent acquisition of NewPoint. We have provided additional details in our earnings supplement deck to address each of these areas with greater transparency. In addition, Mike and Jerry will also cover these topics in their remarks, which you’ll hear right now. With that, Jerry, I’ll pass things over to you.

Jerome S. Baglien: Great. Thanks, Rich. I appreciate everyone being on the call today. I’m going to walk through our second quarter financial results, and that’s going to begin on Slide 7. FBRT reported GAAP earnings of $24.4 million or $0.21 per fully converted common share. Distributable earnings for the quarter was $29 million or $0.27 per fully converted share. Our Board determined it was appropriate to maintain the second quarter dividend at the current level of $0.355. We believe there are 3 key drivers to get us to dividend coverage. First, we plan to call several CLOs that are now past their reinvestment periods and are no longer providing optimal leverage. We believe this will generate approximately $0.04 to $0.06 per share quarterly by creating liquidity and freeing up equity in those CLOs for us to reinvest.

Second, we expect to reinvest the equity currently allocated to our REO portfolio and REO financings. As we continue to sell assets and recycle that capital into new originations, we estimate this could contribute approximately $0.08 to $0.12 per share per quarter to distributable earnings. Third and lastly, we expect the contribution from NewPoint to grow meaningfully over time. Once it begins to reach scale on origination volume, BSP loan servicing is integrated, and we realize the cost savings from the platform synergies, we believe NewPoint can deliver an 8% ROE or better, and that would generate approximately $0.08 per share in quarterly earnings contribution. Over a longer period of time, we estimate NewPoint can generate low teens ROE.

That is just the direct impact from NewPoint. There are many other intangible benefits, including increased deal flow for balance sheet loans and enhanced customer relationships, potential deal flow in our CMBS business and a much larger real estate team that we can leverage both operationally and strategically to manage our business. Now while the exact timing of these contributions is a little difficult to pinpoint, through these 3 paths, there are collective incremental distributable earnings of $0.16 to $0.26 per share per quarter. Our book value ended the quarter at $14.82 per fully converted share. I’m going to move on now to Slide 11. You can see our average cost of debt on our core portfolio is SOFR plus 2.3%. 77% of our financing continues to come from CLOs with reinvestment capacity available in one of those transactions.

As I mentioned before, several of our CLOs are now past their reinvestment periods and advance rates are no longer optimized because of loan repayments. Assuming market conditions remain favorable, we plan to call these CLOs and relever these assets to unlock that liquidity, likely through a combination of bank debt and new CLO issuance. This will allow us to ramp up originations and grow our loan book. Our net leverage position was lower this quarter at 2.2x with recourse leverage standing at 0.3x. Finally, I want to reiterate our excitement around the closing of the NewPoint acquisition. We’ve already begun integration work, and we filed historical financials yesterday evening. Pro forma financials will be filed shortly. A few things I’d like to highlight about NewPoint are: in 2025, we expect $4 billion to $5 billion in agency FHA volume.

Year-to-date, NewPoint has already closed $1.9 billion in agency and FHA volume, and we are expecting solid volume in Q3. We expect GAAP net income to be between $23 million and $27 million and distributable earnings to be between $13 million and $17 million for all of 2025. We included estimates for 2026 in our supplemental deck. NewPoint’s earnings contribution to FBRT should grow meaningfully over time as their income is directly correlated to the cumulative agency and FHA origination volume and the servicing portfolio. As of June 30, NewPoint’s MSR portfolio was valued at approximately $217 million with an implied life of 6.8 years. Migration of the servicing of BSP loans started in the third quarter. We expect it to be fully migrated by the first quarter of 2026.

The full migration of FBRT’s loan servicing book represents several million dollars of savings, coupled with several million in additional and incremental float on the balances that we will hold. We expect NewPoint to be accretive from a GAAP earnings and book value per share standpoint in the first half of 2026 and accretive to distributable earnings in the second half of 2026. With that, I’ll turn it over to Mike to give you an update on our portfolio.

Michael Comparato: Thanks, Jerry, and good morning, everyone. I’m going to start on Slide 16. Our core portfolio ended the quarter at $4.5 billion across 145 loans with multifamily making up 74%. In today’s market, generating strong credit returns takes more than capital to take the broad product offering. While spreads have compressed, we still see attractive opportunities. BSP continues to stand out as a flexible and consistent lender in the market with the ability to structure loans that meet our risk return profile while staying primarily in the senior portion of the capital stack. Before turning to our asset performance, I wanted to spend a little time on the broader CRE market. For the last few years, borrowers and lenders have tried to wait out market dislocation, hoping rate cuts and better days would arise.

To date, they haven’t. What’s next is likely a period of acceptance. debt funds, mortgage REITs, banks and life companies will need to mark loans appropriately and move capital. That reset is what brings healthy market functionality back, and we welcome it. We’re also watching long-term rates settle into a higher range. Treasury issuance isn’t slowing, and we still expect Fed cuts later this year. If we do see a more dovish Fed share in 2026, we should see a steepening yield curve, resulting in more demand for shorter duration credit. The 10-year U.S. Treasury has always been the benchmark of the CRE credit space, and it’s been the benchmark for decades. Unless there is a 3 handle on the 10-year, expect 5-year and shorter duration loans to dominate the sector.

Additionally, there is no shortage of capital in the market today. Credit markets are flushed with liquidity, and there’s a tremendous amount of equity on the sidelines ready to step in once assets start to clear. On the property side, multifamily fundamentals are improving. New supply is slowing and slowing meaningfully, concessions are burning off and in certain markets, rent growth is reemerging, especially in newer, higher-quality assets. Legacy 1970s and 1980s vintage stock will lag in a recovery, but strong assets in strong markets are beginning to see positive momentum. We’re also seeing healthy pricing signals. Cap rate tiering is back with real differentiation based on asset quality and market strength. That has been painful for buyers that closed acquisitions in late 2021, early 2022, but it’s ultimately the correct dynamic, one that supports more rational equity investing and lending.

Moving on to FBRT’s portfolio, let’s look at Slide 18. Today, we are down to 44% of our loan commitments, consisting of loans originated before the interest rate hikes. The majority of this collateral is multifamily, representing $1.7 billion or 79%, followed by hospitality at $196 million or 9%. 89% of these legacy loans are risk rated at 2 or 3, with the vast majority scheduled to mature by the end of 2026. We’ve addressed the positions currently requiring attention, and those are reflected on our watch list. Notably, total office exposure when adjusting for our net lease headquarter asset and prior quarter write-downs is only $105 million, 2.2% of total assets, not just legacy assets. That exposure is spread across 4 loans with an average loan size just under $18 million, a weighted average of $56 per square foot and 2 REO assets, one of which is currently under contract.

Slide 20 summarizes our watch list. Our watch list includes 8 positions. We continue to actively manage each and borrower engagement remains high. Within our positions, one is the Georgia office building that was extended in January with a principal paydown and has remained current on payments. The borrower on the 307-unit student housing property in Norfolk, Virginia is looking to liquidate the asset within the next 3 to 6 months. We added a Phoenix office building with a $13.5 million loan this quarter following the government lease termination. The borrower is currently marketing that asset for sale. The other watch list loans are multifamily deals from 2021 and 2022 that are behind on business plan. We’re in active dialogue with those borrowers, and one of the loans is under contract to be sold at par with a meaningful nonrefundable deposit, and we expect that sale to close imminently.

While the watch list count ticked up slightly, request for modifications continue to slow, which is another sign that FBRT is in the later innings of this cycle, specifically because we have been proactively addressing underperforming assets for years. Slide 21 covers our foreclosure REO portfolio. Over the past 2 years, we’ve taken 19 properties into REO, totaling roughly $560 million in UPB. 10 of those have been sold for $270 million, in the aggregate above our principal balance at the time of foreclosure, including $56 million of sales this quarter. Our remaining 9 foreclosure REO positions are 82% multifamily assets and at various stages of stabilization. Most importantly, our largest REO asset, a 472-unit multifamily asset in Raleigh, North Carolina, just achieved 90% occupancy.

As with past sales, we’ll rely on our asset management team to drive value before bringing them to market. Currently, 2 REO assets are under contract with another 2 under letter of intent and more properties are going to market for sale in Q3. Jerry already provided some quantitative feedback on NewPoint. I would add that after 30 days post-closing, my confidence and conviction in the acquisition has only grown. The team is incredibly strong and early collaboration, especially around cross-selling products has been excellent. We now have more than 300 professionals across 34 states, making us one of the largest middle market platforms in the country. The strategic fit between FBRT and NewPoint is clear. Finally, as Rich noted, our stock continues to trade at a meaningful discount to book value.

The market seems to be pricing in substantial unrealized losses in our legacy or pre-rate hike portfolio. To put that into context, for our book value to match the current stock price, we would need to recognize approximately $450 million in additional loan losses, $450 million. In current market conditions, that scenario is simply not realistic. In fact, we feel very good about our legacy book. It’s 79% multifamily or $1.7 billion. Over the past 8 quarters, we have received $1.5 billion in payoffs at par or better on 2021 and 2022 originated multifamily loans, including a $43 million payoff last week. Our multifamily REO sales in the aggregate have been sold above our principal balance at the time of foreclosure, and those liquidations occurred in a tougher market environment than what we face today.

We have $196 million of legacy hotel loans with the vast majority performing well and risk rated at 2 with none on watch list. Lastly, as I already mentioned, we only have $105 million of legacy office exposure. We re-underwrite every loan in this portfolio quarterly. And based on current market conditions and recent outcomes on loan payoffs and REO sales, I can say with absolute conviction that losses anywhere near the implied $450 million level are highly, highly unlikely. Losses of that magnitude would suggest that every legacy loan in our portfolio is valued at less than $0.80 on the dollar. Yet in the aggregate, we haven’t realized any losses on our legacy multifamily loans or liquidated multifamily REO, and we’ve received $1.5 billion in payoffs from peak vintage multifamily originations.

It is very, very difficult to connect these dots. In short, we believe the current stock price is meaningfully undervalued. With that, I would like to turn it back to the operator and begin the Q&A session.

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

Q&A Session

Matthew Erdner: So when it comes to the core portfolio, have you guys resumed originations and kind of at what pace since the closing of NewPoint? And then ideally, kind of once these CLOs are collapsed and you can start to get capital recycle, what’s the ideal portfolio size to kind of get back to dividend coverage?

Michael Comparato: Matt, it’s Mike. Thank you for the question. We have turned the treadmill back on. It’s going to start a little bit slow to get the machine running again, but we definitely are going to be picking up originations again. I think you’ll see that grow probably quarter-over- quarter here, as you suggested in conjunction with the calling of the CLOs. But yes, we’re back originating and actively looking to deploy that capital. In terms of portfolio size, Jerry, why don’t you step in and just talk about a minute what we typically target in terms of portfolio size to maximize dividend coverage?

Jerome S. Baglien: Yes. And this is kind of what I talked about in terms of calling the CLO and getting that contribution from some of that locked up equity, if you will, back into productive loan assets. And I see that as $0.5 billion plus of additional originations that we could put — net originations that we could put on the balance sheet. That puts you at about $5 billion or so on the core portfolio. I think a range around there, obviously, depends on the mix of specific assets and the yield on those assets. But generally, that range is more in line with where I think we’d like to be on a long-term basis.

Matthew Erdner: Got it. That’s helpful. And then with these originations, what are you guys seeing in terms of spreads compared to historical, say, a year ago?

Michael Comparato: A year ago, meaningfully tighter. I would say, tighter just than 60 days ago. We have seen an absolute deluge of liquidity come into the space. I think not just commercial real estate, kind of all credit sectors. The spread tightening has been very, very aggressive. So I would say, to directly answer the question, Matt, we’re probably 100 to 125 tighter on just a fairway multifamily loan versus about a year ago. And I would say you’re probably 25 to 50 tighter than just 60 to 90 days ago.

Operator: The next question is from Randy Binner with B. Riley FBR.

Randy Binner: Yes, this is all super helpful to kind of get — pull the model, get a model update. So just on the CLOs, I guess to the extent that those are called, do those need to be replaced with other debt in the model? Can you just walk us through that piece of it real quick?

Jerome S. Baglien: Yes. This is Jerry. Yes, that’s the theory. It’s really levering those back up, right? If you look at the specific leverage levels of our FL6, FL7, FL9, you can see those have factored down quite a bit from the original issuance. I think on a normal pool of loans, the CLOs start at 75% to 80% advances. You’re a decent amount under that if you just look at the collective of all those at this point. So I think you’d want to reset that back up to around some range in that starting point, probably not the higher end in this market, but 75% advance, give or take a little bit, at least as far as multi goes, that’d sort of be the target. I think you’d want to relever those assets up, too. And that, obviously, then frees up cash to kind of originate more was what I was getting at with my other remarks.

So yes, you should assume that you’re going to add a little bit of leverage. And if you look at our net leverage, right, we’re down to 2.2x, 2.5 to 2.75x. If you think of that as your additional leverage, that’s going to flow through and solve the kind of that core portfolio target that I just mentioned.

Randy Binner: Right. That makes sense. So that’s helpful. And then going forward, just 2 slides, and then I’ll go back into queue. But on Slide 14, you just — you talked about the Newport — I’m sorry, the NewPoint guidelines. And I guess the pro forma numbers you’re going to have out, like is that today or like next week? I’m just trying to understand kind of initially how to think of that is, will those pro formas effectively follow the same guidance here with like a volume — kind of volume and then us determining kind of a margin off of that. Could you just like expand maybe a little bit on how the pro formas are going to look relative to the Slide 14?

Jerome S. Baglien: Pro forma should be out in the next 24 hours. In terms of how they’ll look to this, I think this should actually be more helpful in terms of what the pro forma is showing. I mean those are just — the pro formas will be helpful in that they will show you the format and the future layout of how our financials are going to look, but you’re not running them in through 2026. So the reason we put in this additional disclosure is to be helpful from a modeling perspective to think about what kind of volume numbers you should run, where kind of we expect that range of end results to possibly be. And this is very much a volume-driven business. So I think how much you originate translates into the growth of the MSR book, the mortgage servicing right book, the yield that you get on that plus the gain on sale that you have.

So I think I would use the pro forma as sort of a guidepost in terms of thinking about how you structure the forward-looking combined business. I think it will be very helpful for that in terms of translating what you see there through the first part of the year into what you expect for the balance of this year and next year. These numbers should be helpful in putting those 2 pieces together.

Randy Binner: Okay. And just one related follow-up here. The — in any GSE privatization scenario or change in how those are operated, is there any — I mean, it seems like volumes are strong in this channel right now. Is there anything — is there any scenario where we would throw it off? Or could it actually help? I mean do you have any thoughts about that.

Michael Comparato: Yes. Randy, this is Mike. I think the important thing — there’s a few important things we’ve talked about this previously is, one, they weren’t government-sponsored previously. They were publicly traded. I don’t think it has any impact overall. I do think that almost every administration since they were — became GSEs has talked about taking them private and/or publicly traded again. It’s a very, very complicated web to untangle. So I just — I don’t know if it does happen or not, obviously. But I don’t think that it has an overall impact on the business overall. The reality is this is housing, the federal government is keenly wanting to keep liquidity in the housing sector, and it is always going to be the lowest cost of capital. anywhere in the commercial real estate sector. So it always has a spot. It should always be the cheapest capital out there. And as a result, it’s always going to have demand.

Operator: The next question is from Steve Delaney with Citizens JMP.

Steven Cole Delaney: Rich, Mike, Jerry, nice to be on with you today. A lot of good color on your introductory comments. It’s getting — I’m using a lot more paper on my legal pad now that you’ve got all these businesses. But the nice thing is it gives you some optionality on allocating capital. So it’s always been a solid story. I think it’s going to be pretty exciting over the next year. So we look forward to it. Mike, you were talking about — for starters, let’s just talk about the bridge business. I think that was the segment you were referring to a deluge of liquidity. Am I right?

Michael Comparato: Steve, it’s really everywhere. I think you’ve seen…

Steven Cole Delaney: Everywhere?

Michael Comparato: Yes, it’s in the bridge business, of course, but you’ve seen spreads just tighten kind of everywhere and capital flowing everywhere. I would say most notably in the securitized products market, anything in the CRE, CLO space, anything in the SASB space on a floating rate basis is just oversubscribed multiple times at every single tranche. So there is more liquidity in the system today than I think we’ve seen almost at any point post-COVID.

Steven Cole Delaney: Wow. Wow. Okay. Well, I guess people have just been sitting on a lot of cash and they’ve decided it’s time to put money to work and build — because they’re investors. This is institutional money, I assume we’re talking about primarily, looking for deals.

Michael Comparato: Yes. I mean, look, I think the reality is that I don’t want to call a bottom. That’s a pretty dangerous game. But I think most people are looking at the market for CRE saying the damage was done over the past 2, 2.5 years. If we aren’t at the bottom, we’re pretty darn close. So it’s a pretty comfortable time to be stepping into kind of credit position.

Steven Cole Delaney: Do you think — I mean, the nice thing you have this flexibility of wherever the market shows you opportunities, you can move your focus without ever stepping completely away. But on the bridge business today, when you look at the quality of what you’re seeing and the loans that you’re committing to and you roll that back to 2021, 2022, do you think that broadly, whether it’s the quality of sponsors, quality of appraisals, is it a better, stronger, more rational market today than the origination vintages that have created all the problems people are living with now?

Michael Comparato: Well, I’m only going to speak to the FBRT book, right, because that’s obviously the book [ we invest in ] and don’t want to speak to people. But when we talk to investors, this has been a focal point. I mean if you rewind to 2021, what was the vast majority of loans that were going on people’s balance sheet — or at least on our balance sheet. It was a lot of 1980s vintage, some 1990s Acacia, some 1970s vintage stuff. So we’re talking 30-, 40-, 50-year-old assets. and there was a business plan, right? These business plans were we’re going to come in, we’re going to put in $10,000, $12,000 a unit. We’re going to put in new appliances, a new countertop, new kitchens, new flooring, a coat of paint. We’re going to push rents $200, and we’re going to sell the thing 2 or 3 years later.

If you look at what we’re putting on our balance sheet today in large part, it’s all high quality, like very new vintage multifamily. I mean if you just look at the asset level, we’re talking brand-new assets, 5-year-old assets. There is no business plan. There’s no swinging hammers. This is more about a bridge time than a bridge of adding value at the asset level. It’s new construction loans that are getting paid off and just need time to fill. It’s borrowers. I mean, the stabilized multifamily loans that we’re writing is — I mean, we never saw that 4 or 5 years ago, where people are saying, “I’m 94% leased. I don’t want to sell in the current market. I also don’t want to lock in 10-year fixed rate debt with a bunch of call protection in the current market.

So I’m going to bridge this 12, 24, 36 months to what I hope are greener pastures.” So I would say, overall, asset quality is head and shoulders better than what asset quality was 4 or 5 years ago. And overall credit metrics just from a debt yield, LTV, that standpoint is also markedly better than it was 3, 4, 5 years ago.

Steven Cole Delaney: That’s great color. So we’re not going to hear the word heavy transitional very much as much as just a bridge loan being really what a bridge is supposed to be, right, from a temporary to lease-up and then get into a permanent financing.

Michael Comparato: That’s been the most popular loan that we’ve been writing for probably the past 2 years.

Steven Cole Delaney: Great. Congrats on NewPoint and the progress you’re making.

Operator: The next question is from Tom Catherwood with BTIG.

William Thomas Catherwood: Maybe starting with NewPoint, it seems to be on a similar origination pace as ’24. What does the platform need to ramp origination activity? Is it more capital, larger sourcing network, more infrastructure? Kind of how are you approaching that growth?

Michael Comparato: So it’s definitely not more capital. I would say that’s one of the top reasons to be in that business is it is incredibly capital light. I do think, as Jerry said in our prepared remarks, we’re going to have a very big third quarter at the NewPoint level, which is fantastic. I think that getting a larger net spread across the country is really what we need to do. We have a very large multifamily book already, $8 billion roughly of loans on balance sheet across all of our products. We have our own origination staff at FBRT and BSP that are going to be originating into agency. And then the amount of incoming calls that we’ve had from originators, right, that are looking at the platform saying, “Wow, you guys have everything.

You can do construction loans, bridge loans, mezz loans, CMBS, now agency.” There are going to be a lot of people that want to jump on the platform. And I think that that’s the primary driver is just expanding that net, adding people, and that should be what drives volume. Obviously, it’s going to be tied to interest rates as well, but we don’t have any control over that.

William Thomas Catherwood: Got it. And then maybe sticking with the interest rate comment because that might tie into the next question here. Mike, you talked about transaction markets rebounding as owners seek liquidity and lenders show less willingness to maybe extend and pretend, but that’s also been the hope since early middle ’24. What do you think finally sparks a sustained recovery in investment sales?

Michael Comparato: I mean, as we’ve talked about for several quarters, we’re pretty anti-pretend and extend, and we get this question a lot in private conversations. The answer is I don’t think there’s going to be a specific catalyst. There’s not — we’re not going to wake up one day and just something is going to happen and everybody says, “Oh, my office building loan in downtown Chicago at $225 a foot when the building across the street just sold for $60 is now impaired.” They know it. Everybody knows it. We’re just not marking them. And I think it’s just going to be exhaustion, right? I said in the prepared remarks, like we’re just going to come to the acceptance phase. I just think there’s a point where investors and regulators, if we’re talking about the banks, obviously, the regulators, but investors are going to say, guys, enough is enough.

You originated this loan 7 years ago. It’s not this. It’s not that. Like there’s just a point at which pretend and extend doesn’t work anymore. You can only pretend so long, I guess, is the short answer. So it just feels like we’re coming up. The clock is running low on pretend and extend. I’m not sure there’s going to be an aha moment where we wake up one morning and it happens. But I do think once it starts to happen, the wave undoubtedly goes across all of the banks, the mortgage REITs, the debt funds, et cetera, and everybody just says it’s time to move on.

William Thomas Catherwood: Appreciate that, Mike. And then one last one for me. Jerry, you mentioned migrating FBRT’s loans over to NewPoint’s servicer. Is there a savings related to that over time? And are there any loans at parent Benefit Street’s balance sheet level that are also migrating over to the servicer?

Jerome S. Baglien: Not apparent as in Franklin Templeton, but migrating the book means migrating all the loans that we manage at BSP, which is more than just FBRT. That’s the number that Mike was just talking about, $10 billion or so of loans, give or take a little bit. That’s what would migrate in. And yes, there’s definitely savings. You’re cutting out, obviously, all the markup that you pay today and picking up all of the entirety of the benefit on the float of all the cash reserves that you hold. So it’s really a twofold benefit directly to FBRT in addition to the additional servicing revenue and float from everything else you would move over. So that’s why I said it will be a meaningful increase as we roll that in over the next few quarters.

William Thomas Catherwood: And I assume that’s baked into that $0.08 per quarter that was mentioned at the outset. Okay.

Jerome S. Baglien: It is. Yes. That was fully contemplated when we consider the whole transaction is the benefit of adding that infrastructure and being able to roll our own products directly into it.

Operator: The next question is from Jason Stewart with Janney Montgomery Scott.

Jason Michael Stewart: Jerry, thanks for all these numbers. It sounds like you and the team have been busy. Just looking at your ROE disclosure on NewPoint, could you give us a sense of how you break that down between the origination and the servicing business in terms of ROE?

Jerome S. Baglien: I don’t think we have a disclosed breakout of that split anywhere. So I don’t know that I can provide the exact specifics between the 2. I don’t know that we have that detail even — you can see a little bit in the pro forma once we put that out, you can get a sense of where the income is being driven. But in terms of what we published so far, I don’t have that info out there.

Jason Michael Stewart: Okay. Fair enough. And then on ROE, Mike, when we look at incremental originations and where CLO execution is today, just assuming you stop the line in the sand, originate everything in 1 day and securitize it, what’s the marginal ROE on a new CLO gross?

Michael Comparato: We’re still probably achieving a low teens ROE on all new originations. So it’s the line I’ve been using speaking with investors is the returns are still excellent on a nominal basis. They’re outstanding on a risk-adjusted basis when compared to equity returns. They just aren’t euphoric, which they’ve been for the past 2 years, right? Everything we originated for the past 2 years has probably been the best returning credits that we’ve seen. I also think something that we didn’t touch on in the prepared remarks, but very, very different than probably the balance of the industry is we would get a net benefit from decline in SOFR just because of the amount of origination we did over the past 2 years and having very high SOFR floors on those loans.

So for the most part, everybody else stopped originating, exited the market, has been waiting. We put on a few billion dollars of new loans with SOFR floors that aren’t achievable today. So while I’m not inviting or not predicting what happens next, we’re kind of in a very, very unique spot where even if SOFR does come in, it doesn’t hurt us where it would hurt others. It actually benefits us.

Jason Michael Stewart: Yes. That’s a good point. Your 5 to minus 100 is plus $0.03. And then just to follow up on the asset level and multi, given the product transition, do you have a sense for where real-time renewal rates are in multifamily? I mean we’ve seen some of the equity REITs come out and they’re still fairly strong, but that’s a pretty high-quality product mix. I mean do you have a sense of where on the margin we are in terms of renewal rates and multi in your book?

Michael Comparato: I couldn’t answer it directly, Jason, on our book. It’s obviously going to fluctuate market to market. We’re seeing certain markets much stronger than others, obviously. But I couldn’t give you detail within our book on retention.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for any closing remarks.

Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. Thank you, and have a great day.

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