But again, the pipeline I would say is predominately on the multifamily side.
Stephen Laws: Great. Thanks, Tim. Appreciate the comments this morning.
Operator: Thank you. Our next question is coming from Mitch Germain with Citizens JMP. Your line is live.
Mitch Germain: Thanks a lot, guys. So it seems like rent coverage for new originations dipped a little relative to the overall portfolio. What’s driving that factor?
Tim Doherty: Hi, it’s Tim, again. Predominantly, look, I mean rates impact the deals. Also our underwriting standards in terms of how we factor in coverage when we close transaction. I think Brett has alluded to those factors that – what coverage is based on our underwriting versus actual performance, on the development side in particular. But look, these are high quality transactions that some of them are going through stabilization. So that’s where you see some of these on, I think some of the coverages in particular on the new investments.
Mitch Germain: So coverage will likely improve over time as the asset stabilizes is what you are implying?
Jay Sugarman: Yes. And I think the other factor you are seeing too is on the multifamily transactions tend to be tighter coverages on the other asset classes. It’s a market that has a lot of stability, embedded growth, in terms of the macroeconomics of those transactions in the markets we play in versus other product types. I think you are seeing a natural tightening with our portfolio, leading to heavier into multifamily space as well.
Mitch Germain: And does the slowdown in overall development activity potentially reduce an area where you guys have had some success in the past?
Jay Sugarman: Sorry, repeat the question, again.
Mitch Germain: Right. Just talking about development activity, volumes declining, and it seems like that was an area where you guys had some success after, obviously, replacing the capital stack as deals were completed. So, is that in area where you are not seeing as much activity these days?
Jay Sugarman: Development pipelines are down across the country. It’s hard to make those transactions work when there hasn’t been enough volume on the sales side to see where people should transact. So, again, as the transaction side in terms of investment sales picks up, those transactions that could work, or being picked up, on the development side, you are seeing a trickle of those come back in high quality markets where people aren’t seeing transactions like in the multifamily space, see traded at wide cap rates, they are still tight. In a lot of good high quality markets, you are seeing people pick up their pens on the development deals there. So, you are seeing some transactions. In terms of our pipeline, look, we are all – we are looking across the board, from development to existing value-add transactions, different product types.
So, sure, we have done some development transactions in the past when we feel that’s the right place to be. And that’s where there is again, actionable transactions. So, there are some development deals. But as you can see from our – the deals we close, it’s a solid mix.
Mitch Germain: Thank you.
Operator: Thank you. Our next question is coming from Harsh Hemnani from Green Street. Your line is live.
Harsh Hemnani: Thank you. Thinking through the pipeline, on the pricing side, a lot of the deals in the fourth quarter were priced, I want to say early in October. How good do you feel about achieving use in the mid-seven going forward thinking through 2024?
Jay Sugarman: Hi Harsh. Yes. Look, we think anything in the high sixes [Technical Difficulty] is a very attractive yield. You just look back historically. And that’s where you would like to play. And I think we got a little bit of a benefit in the fourth quarter, caught some timing just right, as I have said, these deals take time to put together, so by the – between where you start and where you finish, there is a lot of moving parts. So, I would always guide us right now to kind of what Tim said, the T plus 65, over the third 30 year with the bump structures and the inflation kickers, it’s still a sweet spot. So, high fours, feels good, nominally and sort of relatively. I don’t think sort of the mid-sevens is the target range where rates are today.
Harsh Hemnani: Okay. Thanks for that. And then I noticed there was a smaller gain on sale of an asset, about $0.5 million. Was the ground lease assets sold this quarter? And then if so, could you provide the aggregate value of the sale, any sort of yields that you were able to receive on the sale? And if there was any carrot implication associated with the sale?
Jay Sugarman: Yes. Small situation that started to take up more time than it was worth. So, it wasn’t really a strategic move. It was a dual ground lease with two separate assets. We just decided that it was more complicated than it needed to be and let one of those go so we could focus on the more stable of the assets. So, not a big deal in terms of dollars, but it was taken up too much time and made a small profit and just moved on from that one. Do you have any other color, Brett?
Brett Asnas: Yes. As Jay said, this was a small ground lease from years ago. So, again, the size of the trade was pretty immaterial, I would say.
Harsh Hemnani: Okay. Thank you.
Operator: Thank you. Our next question is coming from Rich Anderson with Wedbush. Your line is live.
Rich Anderson: Thanks. Good morning. On the topic of G&A, maybe you can – I know you had to make some tough decisions in the fourth quarter and you are trending lower than you had originally expected. What is the cadence of G&A just if you could remind us for this year that I believe the fees from Star Holdings come down, is it in April from 25 to 15, I might have that wrong. But if you could give sort of like the sort of the quarter-by-quarter sort of movement of G&A in 2024, as you see it now.
Brett Asnas: Hi Rich. It’s Brett. So, you are right G&A has come down from last year to what we expect to occur this coming year. I think the quarter-to-quarter fluctuations will be a result of what you mentioned, which is the Star Holdings management fees that we received. So, we received that after internalization from Q2 last year through Q1 of ‘24. And then it will continue to step down the year one through year four $25 million, $15 million, $10 million, $5 million is somewhat different for GAAP accrual. It’s based on timesheets been spent and time spent. So, that amount could fluctuate quarter-to-quarter. But also concurrently, as part of the internalization, the LTIP will also be coming down, so it’s somewhat of an offset.
So, quarter-to-quarter over the course of the year, it should continue to decline. We should see some of the efficiencies gained in the fourth quarter from that reduced headcount flow through in Q1 and thereafter. But as I have said in my remarks, certainly feels like the opportunity to take 2024 G&A down another 5% from this past year is an achievable target for the year.
Rich Anderson: But the 5% down isn’t relative to 2023, because you didn’t have the net number, there is a lower fee component, or are you saying the LTIP more than offsets that so that ultimately is down 5% from 2023?
Brett Asnas: It actually less than offsets it, right, because the Star Holdings management fees comes down at a faster clip than that LTIP accrual. So, we are actually picking up and benefiting even more from the reductions because the LTIP is lower than the management fees decline.
Rich Anderson: Alright. Okay. Thanks. In terms of the carrot, what happens with Marcos’ carrot ownership, and how does that change? I know you said Safe sold 82%, but will that number change slightly with his departure?
Jay Sugarman: Yes. Just, Marcos forfeited by contract about approximately a quarter of his units, so those go back to the company. So, the 82% that say fold downs will go up by the units coming back into the pot. Our long-term goal, Rich, is obviously to target long-term investors and put those in hands that can demonstrate the value. So, I think Safe’s goal here really is, get that value realized and so they have a little bit more flexibility now, just in terms of those units coming back.
Rich Anderson: Understood. So, does 82% go to just a nominal increase, or is it – can you share what that change…?
Jay Sugarman: Shorter percent, 20%.
Rich Anderson: Fair enough. Okay. Great. Thanks everyone.
Operator: Thank you. Our next question is coming from Kelly Kunath with Morgan Stanley. Your line is live.
Kelly Kunath: Thank you. I just wanted to dig back into the G&A quickly. Is all of that 5% structural and ongoing savings or is there a portion of that that needs to turn back on as origination volumes start to ramp back up?
Jay Sugarman: Yes, as I have said in my remarks, we will definitely want to add some talent as we grow. We think this opportunity is going to be very, very large. But we feel great about the team as it is today. So, we have got the resources we need, but I wouldn’t tell you this is a static number.
Kelly Kunath: Thank you.
Operator: Thank you. Our next question is coming from Kenneth Lee with RBC Capital Markets. Your line is live.
Kenneth Lee: Hey. Good morning. Thanks for taking my question. Just one around capital position and leverage, wondering if you just talk a little bit more about how you expect leverage to trend over the near-term? Thanks.
Brett Asnas: Hey Ken. So, from a leverage standpoint, we have always said that 2x debt to equity on our ground lease position is how we want to be able to fund this business two-thirds debt, one-third equity. Right now, we are creeping closer to that 2x. We have always said there may be moments here and there where that could creep – touch above 2x. When you think about our capital position both on existing commitments as well as having the joint venture on new deals that we do ones that will go through that joint venture, we fund 55% of those dollars. So, when you start thinking about the available capital, we have in addition to the pipeline that Tim and Jay both spoke about, I still feel like that’s the appropriate leverage target.
I think it’s also an important one that we are always monitoring when we think about ratings actions. As I mentioned in my remarks, Fitch recently affirmed our positive outlook. They would like to see us continue to maintain leverage around that 2x level. So, we are cognizant of that. But we certainly have enough capital tools in the toolkit to be able to continue to deploy capital here over the coming quarter. So, we will monitor accordingly and think about how and when to term out some of those borrowings on the revolver.
Kenneth Lee: Great. That’s all I had. Thank you very much.
Operator: Thank you. Our next question is coming from Matt Howlett with B. Riley. Your line of live.
Matt Howlett: Hey guys. Thanks for taking my question. With the rally in your bond, did I – maybe you talked about it, but are you looking at a 30-year public or private? On the term deal, what are you kind of looking at given the recent rally?
Jay Sugarman: Yes. The start of the year here has been much more constructive than where we were a few months ago. Feels like the options that we have today are exactly what you pointed to, which is, it could be somewhere between 10 years to 30 years. We could execute in the public markets, the private markets. You have seen us do everything from flat fixed rate debt to our stepped coupons. So, we are continuing to monitor those options. And certainly, we will look at the appropriate time to term out some of those borrowings. As I mentioned earlier, too, we are hedged. We think that’s a significant savings from what the headline costs will be when you start to factor in those mark-to-market gains and we unwind those hedges. So, to your point where we are going to actively look to those markets and see what the best execution is for both the short, medium and long-term.
Matt Howlett: And that was my question to recognize that cash is over $50 million, that would be – is that going to be time around the bond deal or when the Fed starts cutting just missed significant, just that cash coming in, can give us any more color on when that may be?
