Matthew Erdner: Awesome, thank you guys.
Operator: Thank you. Next question will be from Stephen Laws at Raymond James. Please go ahead.
Unidentified Analyst: Hi, thanks for taking my questions. This is Clare Halotel [ph] on for Stephen Laws. First, could you please talk about your new investment pipeline and the overall competitive landscape and what were credit spreads on the new investments this quarter and how do you see credit spreads on new investments trending over the course of this year? Thanks.
James P. Flynn: Yes, I’ll let Zach give some color on the specifics of that. Look, we’ve certainly seen an uptick in the recent months of assets under review. Credit spreads is — they’ve been pretty wide, but they’ve stayed I would say roughly in the 300s, depending on the location, maybe you get something closer to 400. I don’t expect significant movement there. I think that’s probably about where we end up. You’ve seen some lower spreads for low levered, high quality sponsors, but that’s kind of where it’s been. So I do see — I think there’s pickup for a couple of reasons. One, we have seen some sellers needing to get out of their assets and so it’s created some transaction momentum. We’re still significantly below any normal environment, forget about just 2021.
We’ve also seen these recap financing options where bridge loans whether ours or more cases from other lenders or other places where either a new borrower or current borrower is coming in with capital to complete a business plan at what are now the current levels or new levels. So we have seen anecdotally some new opportunities. We’re not near the point where I would say it’s robust like it was a few years ago but encouraging. Zach, do you want to add a little to that?
Zachary Halpern: Sure. I mean, if I understood, speaking generalizations and multifamily spreads, I would say, in 2023 perhaps the wide to multifamily bridge was somewhere around 425 over SOFR. I think, as Jim Flynn alluded to, spreads have trended tighter. I think that baseline is somewhere between 350, 375 over SOFR right now. I think we’ve all seen the graphs of multifamily acquisition activity on the property side, and we know that, that remains substantially muted, which has caused now a lot of supply, and still enough lenders to keep the demand for loans escalated. I think that we settle into this sort of spread range here. Keep in mind that things like warehouse line, CREs CLOs spreads have also tightened in sympathy. And so economics are still in line despite tighter spreads.
Unidentified Analyst: Great, thank you. And then my last question is just given the positive resolutions of the two 5-rated loans since year-end, how do you think about your CECL reserve, do you think there’ll be a reserve release in Q1? Thanks.
James P. Flynn: Yes. I mean, yes, I mean you’re going to have a couple of things there. Jim talked about what is the macroeconomic environment that we’re going to see, right. So we have a one-year forecast period there. And the reserve is going to be driven by what we see there. I think from the positive resolutions our feeling is there’ll be some stability in our risk ratings. So that shouldn’t be a driver. I think it’s going to be driven more by the macroeconomic environment and what your views are of that and what reality ends up being.
Operator: Did you have any further questions?
Unidentified Analyst: No, that’s it. Thank you.
Operator: Thank you. [Operator Instructions]. And your next question will be from Chris Nolan at Ladenburg Thalmann. Please go ahead.
Christopher Nolan: Hi, given your comments in terms of landlords having a narrower operating margins, can you give any color in terms of where the interest coverage is for your portfolio in the fourth quarter, where it is compared to where it might have been in previous quarters?
Zachary Halpern: Let me try to step into that one. Keep in mind that all of our loans — well, the vast majority of our loans do have interest rate caps, meaning that the borrowers have bought options, if so, for rises in the majority of those capturing money. Fourth quarter versus third quarter, interest coverage really hasn’t changed all that much. SOFR has been pretty consistent. If I look at debt yield, which is an easier sort of metric to speak to, the yield has been fairly consistent. These loans are generally transitional bridge loans and so — yes, margins are — all else equal tighter. However, these loans are getting towards the point of their business plans where rents are picking up and perhaps occupancies may be increasing as these units are leasing up post renovation. And so I wouldn’t say that we’re seeing systematic stress quarter-over-quarter although just like any portfolio, there are heterogeneous things that pop up here and there.
James Briggs: This is Jim Briggs, I’ll just add on to that. Zach mentioned interest rate caps. We disclosed in our MD&A at 12/31, 97.7% of performing loans had interest rate caps and the weighted average strike was 2.5%.
Christopher Nolan: Okay. And then…
James P. Flynn: Yes, go ahead.
Christopher Nolan: No, no, please go ahead, I was going to go to another question, but go ahead.
James P. Flynn: No, no, I’m just going to say, I think Zach makes a good point that many of these assets have obviously gone through the stressful period that we’ve seen with rates increasing, that was preceded with every other cost increasing. But many of them were in the middle or early parts of their business plans. So even those that are — it really is an asset-by-asset look, meaning some assets are truly still turning units and putting new tenants in. And so much of the portfolio is still positively progressing in terms of debt yield, in terms of coverage, but most are not progressing at the original rate of their business plan. It doesn’t mean that they’re not having success in many cases, but it does mean that the success is the increase in NOI is less than anticipated, but from a business standpoint, it still makes sense.
