Good morning, and welcome to Ladder Capital Corp's Earnings Call for the Second Quarter of 2024. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended June 30, 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 statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the Company's financial performance. The Company's presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Good morning. We are pleased to present an overview of Ladder's performance for the second quarter of 2024 and an update on our progress towards becoming an investment grade company. During the quarter, Ladder generated distributable earnings of $40.4 million, or $0.31 per share. This performance yielded a return on equity of 10.2%, supported by modest adjusted leverage of 1.4x. In addition, we successfully priced a $500 million, seven-year unsecured corporate bond offering, resulting in positive rating actions from all three rating agencies. We're pleased to note that both Moody's and Fitch placed Ladder on positive outlook and S&P upgraded both our corporate credit rating and our bonds. Moody's and Fitch are one notch away from assigning Ladder investment grade rating. We believe this milestone will enhance our distinction among peers in the commercial mortgage REIT space and position us as an attractive option for traditional equity REIT investors. Pro forma for the $500 million offering, 53% of our debt is comprised of unsecured corporate bonds. As of July 25, Ladder has $1.9 billion in liquidity with $1.6 billion, or approximately 30% of our balance sheet comprised of cash and cash equivalents. With this enhanced liquidity, we can now squarely focus on offense. As we have stated in the past, our core objective is striving for the highest possible return on equity, while prioritizing principal preservation and employing modest leverage. This disciplined and differentiated strategy, supported by our diversified business lines and conservative capital structure, has enabled Ladder to generate stable and attractive returns. Specifically, over the past 12 months, and against the challenging backdrop, we reduced assets to $5 billion from $5.6 billion from loan payoffs and asset sales, almost doubled our liquidity to $1.9 billion as of July 25, reduced debt resulting in a modest adjusted and gross…

Thank you, Pamela. In the second quarter of 2024, Ladder generated $40.4 million of distributable earnings, or $0.31 per share of distributable EPS, for return on average equity of 10.2%. Our earnings in the second quarter continued to be driven by strong net interest income and stable net operating income from our real estate portfolio and was complemented by gains from the sales of real estate properties. As Pamela discussed, the unsecured bond issuance that priced at the end of June and closed in July further strengthened our balance sheet. Ladder issued $500 million of unsecured corporate bonds at 7.0% with a seven-year term, which is callable after year three in 2027. Unsecured corporate bonds are the foundation of our capital structure with now $2.1 billion outstanding across four issuances. Pro forma for the issuance 91% of our debt is comprised of non-mark-to-market financing with 53% of total debt being unsecured corporate bonds with a weighted average maturity of over four years and an attractive weighted average fixed rate coupon of 5.2%. We remain committed to the corporate unsecured bond market as our primary source of financing and are now the closest we have been to an investment grade credit rating than at any point in Ladder's history. As Pamela discussed, both Moody's and Fitch placed Ladder on positive outlook and Moody's upgraded and unnotched the rating on our bonds to Ba1, aligning our bonds with our corporate credit rating. Additionally, S&P also issued an upgrade to our rating on both our bonds and our corporate credit rating. With Moody's and Fitch just one notch away from investment grade, and now with a positive outlook on our corporate rating, Ladder is one step closer to achieving our long held goal of becoming an investment grade company, which opens Ladder to…

Thanks, Paul. We're pleased with our second quarter results, especially because we were able to issue a $500 million unsecured corporate bond with constructive commentary from all three rating agencies. The issuance was another important step in our continued quest to become an investment grade company. It also sets the table for us to increase our asset base and grow earnings in the years ahead. With the Fed signaling that they are likely to begin an easing cycle before year-end, market optimism has become more prevalent. At Ladder, we share that optimism, and why not? Our quarterly cash dividend is well covered, despite our use of relatively low leverage while having nearly $2 billion of liquidity providing us with substantial earnings power going forward. Because we are beginning to invest our significant cash position into higher yielding investments at a time when lending in commercial real estate is increasingly falling under the domain of non-bank lenders, we think the future looks bright for our shareholders in the quarters ahead. Our loan portfolio continues to pay off at a comfortable pace, and even when we've had to take back a few properties, we've been able to sell them in short order generally at a gain to our basis. We still feel like the acquisition of securities offers the best risk/reward proposition for our investment dollars. As Pamela mentioned earlier in the second quarter, we acquired $81 million of AAA rated securities at an unlevered yield of 7.1%. We have continued to acquire additional AAA securities into the third quarter. We also purchased a minority interest in a Class A office building in Midtown Manhattan for $13 million. Our purchase price was at a price of just under $350 per square foot. Our investment was made just a few weeks before news…

[Operator Instructions]. And our first question comes from the line of Stephen Laws with Raymond James. Please proceed.

Hi, good morning. Hey, Pamela. Hey Brian, I want to start with the investment pipeline and focus on offense. And I know you guys both touched on security purchases. And Brian, I think you mentioned those provide where you're seeing most attractive returns. But given the leverage, you don't get a lot of capital deployed there. So if you think about moving on offense in the second half of the year, when do you see kind of new loan investments accelerating? Is that a 3Q event, or is it going to take time to kind of get the pipeline and origination activity restarted and more 4Q growth on the loan portfolio? And when you look at, what are you looking at there, are you looking at maybe helping fill the void in construction financing? Are you looking at possibly mez loans? Kind of how do you think about turning the loan originations back on?

So hey Stephen, so a couple of things, I think you asked a lot of questions there, on the securities portfolio, I just want to be clear. Right now, our securities portfolio is unlevered. So we actually are deploying cash, and it's really quite competitive with the returns on loans right now. It's over 7% unlevered. And given our cash position, it's a nice compliment to that. On the loan portfolio, listen; we are actively looking at loans. We are not waiting to go on set on offense, waiting to see the right opportunities to deploy our capital. Given the fact that we are covering our dividend well and we feel comfortable with our credit, we're looking to add accretively. So I do think we're starting to see the pipeline build close along this quarter. We have loans in pipeline, but realistically, I think you'll start to see some momentum in the third quarter, and we're hoping it will really rev up in the fourth quarter.

Great.

I think that answers your questions.

That's fine. And Stephen and I just, I'll add, don't plan on getting into construction lending. That's not a forte of ours and -- but we do, there's just not a lot of demand right now. And the interesting part, as I mentioned is that, volume has been quite low in production and not just at Ladder but also in the CMBS world, CLO world. The Wall Street Journal published, I don't know, about a decade chart of CMBS and single asset deals. And single assets are up because they're usually big sponsors that have to borrow but the volumes have been well way down since 2017, 2018. And you would think normally that would create a supply problem. I mean a lack of supply would create a pricing difficulty because it would be very tight. But in fact the opposite is true. They're quite wide. In fact, mortgage spreads are nearly as wide as I've ever seen them and that doesn't make a whole lot of sense. But I do believe it gets pushed wider by T-bills, as I said, in the mid-5s. And also the fact that the public -- you've actually very quietly shifted how mortgage interest rates are made. What like who sets the rate? And we used to avoid large loans in big cities because there frankly were too many lenders. And I felt like we didn't really stand a chance at least hitting the hurdle rates we wanted to hit because a lot of lenders were making loans to accommodate clients. That's not happening anymore. No one announced it and nobody sent anybody an email. But the markets are now setting the rates on mortgage deals at the closing. So what they'll do is they'll go out and suggest to the market a structure…

Appreciate the color there. As a follow-up around the dividend, incredibly strong coverage now seems like the outlook as you move to offense both out of cash into higher yielding securities and loans, and then eventually leverage, probably sometime next year, that coverage likely only continue increasing. So when you have your discussion with the Board and you look at the dividend, it's like a six handle yield on undepreciated book value. What are the considerations that go around? When is the right time to increase that dividend? Or if increasing it's the right way to go, how do you think about setting the right level for the dividend moving forward?

Well, higher dividends follow higher earnings, especially in a REIT that distributes 90% of its income. So, one, the earnings will come first, and then the dividend will follow. But if you just take a look at cash holdings on our balance sheet right now, if we simply lever that 50% and you can easily see how our asset base can get a lot bigger, it can go up to $3 billion, and that will create tremendous earnings power. So if we're out earning our dividend while holding almost $2 billion in cash, it shouldn't be a big step to start thinking about raising it as we get through the tail end of the downturn and also the beginning of what I would call the expansion.

Great. Appreciate the comments this morning, Brian. Thank you.

Yes. Thank you.

And the next question comes from the line of Steve DeLaney with JMP Securities. Please proceed.

Thanks. Good morning, everybody. Well, congrats on the new bond issue and all that that implies, and also just a very solid quarter all around. So look, I think we -- Brian, we've got more clarity now on the Fed, the outlook for the next couple of years. And if we get 50 basis points this year, 100 nets something in that magnitude. How impactful really is this to the overall CRE market? Obviously, that's short rates, but you got to figure the longer intermediate rates will be impacted by the Fed's actions. Will that rate environment over the next 15, 24 months? Is that going to bring fresh equity, institutional equity off of the sidelines into CRE? And isn't that what you need to be able to -- you need equity to come in the market, so that creates new transitional bridge loan opportunities. It just seems like the problem is there are not enough borrowers, even with the banks falling back and stepping away. Just curious how that plays out the Ladder competitively in a lower rate environment. Thank you.

Sure. Well, I think the first step there is transaction volume will increase because more dollars will go to the equityholder than the lender relative to today. So that would be like chemistry Class A, just the first year, you would want to see transaction volume pick up. If transaction volume picks up and there's plenty of equity around. I mean, as we mentioned, we sold, I think, four properties in the quarter. Typically, we think about selling it and then the phone rings and before, we have an auction going on. And it's oftentimes people who have been looking at the asset but not talking to us, they've been talking to the prior owner. And we may be a little bit guilty of basis trading because I do think some of these are pretty cheap. But I think the first step is lower rates. And just the jawboning of lower rates has already created a bit of an optimistic feeling in the market that you might remember from January when we were at Crespi down in Miami, everybody was thinking six to eight cuts and they were ordering the expensive cabernets again. That all fell apart pretty quickly. But this time it kind of looks like we're at the end of the Fed cycle, and it looks like they're going to embark on a lower rate cycle going forward, because they seem to have. I've never thought they were going to get to 2% inflation. I think they're at 3%, and I think they're going to live with that. And -- but then on the other hand, they now have a dual mandate, so they've got to watch. I mean, they've always had a dual mandate, but they tend to only focus on one at a time. But as…

And real quick follow-up, you did this JV part interest in a partnership. Could we see a transaction where you saw a building, you and other investors created a partnership bought the building it needed to be rehabbed or whatever. Could you put equity into a project and also make the bridge loan to the partnership? Would you get two bytes at the same apple?

Sure. I'll even offer a third byte. There's a scenario where you stretch a senior and you basically make your equities a debt instrument. Sometimes we call it dequity internally, and instead of just owning the real estate with the partner, because all of your investment dollars are senior to his, then you just put a rate on it. So you combine a senior with a mez and you take a participation in the building. So there's three versions of it. One is, yes, we could be a lender to the partnership. Two, we could be an equity borrower in a debt outfit with a higher stretch on the size of the loan. Or else, we could just be equity in the deal and borrow from somebody else like we just did.

Thank you very much.

Sure.

The next question comes from the line of Jade Rahmani with KBW. Please proceed

Thank you very much. You all have been sitting on ample amount of cash for quite some time and are in an enviable position versus competitors. Yet, originations were pretty subdued in the quarter. So I'm wondering if you feel that the market is actually in fact too competitive with debt funds chasing a very limited pool of deals. For example, CRE showed commercial mortgage originations up 38% and they said debt fund volumes were up 70%. Isn't the markets too competitive actually?

The market that's a big word and it covers a lot of ground. But the addressable market, in our opinion, not exclusively, but largely lands in borrowers seeking debt on acquisitions. So you just got rid of 75% of the addressable audience. And if it's a multifamily, then it's too competitive. Yes, I think it is. But it isn't too competitive because there's too many competitors. It's because there's really no volume. But you're seeing the market react. And it is the purchase that we made during the quarter of an office building. That's a reset on price. And as you see more and more of that happen, you'll see more and more acquisitions. So I don't think it's too competitive. I think there is just a lack of demand. When there is a high quality investment possibility on a lending assignment, it is very competitive, but it's not like they're losing money. I know it's not that bad. But what is happening, I think is that a lot of volume is being driven by the sake of transacting as opposed to margins, or making a lot of money. Because I don't really understand how you make money lending at 250 to 275 over SOFR and then selling AAAs at 190 to 200. And you would think with a lack of supply, like you just mentioned, there is this tremendous widening going on in the securities market, because I just believe the pricing mechanism is inefficient. And for the first time in my career, we're seeing the price of the interest rate on a mortgage is being set by the public markets, not by a banker who's taking a risk.

On the origination side, could you say as to the volume of term sheets you put out and the success rate you're hitting? I'm just trying to gauge competition, if you're really actually losing out on a lot of deals.

We're not losing out on when we bid on something that we like. We are losing some, of course, as you always do, but not at a -- in fact, probably at a lower clip. Where we're seeing fallout take place is you've got a lot of new buyers coming into the market who have been pretty good stewards of capital through the last decade and didn't really lever up on low interest rates. So they're now acquiring assets at lower prices because of the reset. And many of them have never seen documents from CMBS shops or CLOs. And so they're bank lenders primarily. And when they see our documents, they're like, oh, this is scary. And so sometimes they just step away, or sometimes the rate is so high that they just fund it all cash, even after we send a term sheet out. So there's a myriad of reasons why even the small volume that we are sending out isn't really coming back with productive situations, but it has little to do with competitors at lower rates. It's more nuanced than that.

Okay. Just in terms of property type mix on the loan portfolio, office increased to 34% from 31%. And I think that you probably are seeing repayments proportionately outside of office, there's probably some office, but maybe more in the other asset types. Are you at all concerned about the increased concentration in office? And do you maybe provide a comment on how you feel about the office portfolio?

Sure. Well, multifamily is the easiest thing to pay off, so we are seeing that. And obviously, office is the hardest thing to pay off. So you're naturally selecting to hire, as you take a billion in payoffs over a year. The office sector is not punching above its weight in the portfolio. What we do particularly like about it though is that our office buildings loans, we look at every loan, never mind office or multifamily, as if we're getting it back. And if we're going to get it back, we want to know what we're going to do with it. I think you will start to see, first of all, in the CMBS world, a lot of office is going into those deals. They're going in at very non-courageous debt levels, but makes sense. But it used to be you couldn't put an office loan in. Now it's probably the highest concentration of property type, and I do believe it's because of these resets that are taking place. But the way we approach our office portfolio, we've been triaging some of these for a couple of years, and our sponsors are hanging in for the most part, and they're paying it down and we're deleveraging these situations. So every time a borrower writes a check for $5 million in principle and buys a cap for $1 million and posts reserves for the leasing commission, you just sort of think, all right, that's probably not going to default. And we are seeing quite a bit of that. The vast preponderance effect in our portfolio that's happening. We're probably the most dangerous part of the portfolio would be in large cities where there is a still difficulty with many things as never mind just real estate, but return to work…

Great. Thanks so much.

Sure.

The next question comes from the line of Tom Catherwood with BTIG. Please proceed.

Thank you, and good morning, everybody. Maybe Pamela or Paul, appreciate the commentary in your prepared remarks on Moody's and Fitch's outlook for Ladder. What are the next steps or hurdles that the rating agencies are looking for as you progress toward investment grade rating?

I can start, and Paul, feel free to jump in. The short story is we have met the objective. They have objective tests, and we met them already with the last issuance, which is why I think you saw some positive action on us. I think we made it really difficult for them to do nothing. We would have liked to have achieved the investment grade rating when we hit the hurdle. But given the market backdrop in commercial real estate, all the agencies were reluctant to do anything too aggressive in terms of an investment grade rating in this environment. So if you ask me with not a lot of knowledge, I can tell you, I think if we continue to perform, we demonstrate what Brian said earlier. We have real confidence in our CECL reserve, which is currently $54 million. We think that should be more than ample to cover any potential losses we may incur. As we turn the balance sheet, the market moves out of this state of distress and we start to see rates come down. I think with the next issuance, we are very hopeful to see an investment grade rating. Paul, is there anything you'd want to add to that?

I'd say, as we mentioned in the remarks, Tom, 53% of our liabilities are now unsecured corporate bonds, and we're well over 50% in other words, in utilizing our secure corporate bonds in our liability structure. So as Pamela said, quantitatively, within the hurdles, it's really a matter of the series backdrop that we think is the biggest hurdle.

Understood. Appreciate those thoughts. And then last for me, maybe Brian, given your comment earlier that you're happier to be acquiring securities at 175 to 210 over rather than originating them. Is it likely that activity on the conduit side of the business could remain more muted in the near-term?

Likely, I think, and you'll really see the first sign of a thawing out in that business will be when you don't have 13 originators, each putting in three loans. That's a pretty unusual roster of originators, and that just tells you they don't have enough size or demand to go it alone. So they're combining forces with a lot of other lenders. But I think the security the CMBS business will pick up when you see a steepening of the yield curve, because if you write a 10-year loan off of a rate that's lower, a base rate that's lower than the two-year, you have to hedge that. And when you start hedging a 10-year that's below the two-year you start, there's no carry in the business, pretty much, and it is a substantial component of profitability when that business is functioning properly. So I think as the Fed cuts rates, the curve will steepen, and that business will pick up. It will start in the five-year category, and it will progress to the 10-year category.

Got it. Got it. That's it for me. Thanks, everyone.

Okay.

[Operator Instructions]. And our next question will come from the line of Matt Howlett with B. Riley Securities. Please proceed.

Yes. Hey, thanks. Good morning. Just to follow-up on the investment grade rating, what do you think it will save you? I mean, in terms of, I know once you get it, there might be a lag in terms of the yields on the new debt that you issue, but just sort of, what do you think you could do debt at, you did what 7% on the seven-year debt. Just curious, what do you think will save you ultimately?

Yes. Pamela, you can take it if you want, but I would just say the first one, probably not that much, because you're kind of new to the space, but because we've done seven issues at this point, never know. But if I were -- and I'll listen to Pamela and Paul, they may know better than I, but I would quickly cuff it at 200 basis points in the beginning and maybe 300 at the end.

I think it's a little less than that. On the crossover credit, I think we were hoping to build into. But on the first crossover credit, when we -- the next issue is we would hope to save at least 50 basis points. I think for us, Matt, it's a longer-term play. We think that there's a real spot in the world for a mortgage REIT with primarily, basically exclusively at this point, senior secured assets delivering a high-single-digit, low-double digit return. And the reality for Ladder is, given our high insider ownership and internal management; we have consistently run this company since we opened the doors in 2008 with leverage of 2x to 3x. So it is not -- that is the leverage constraints we'll be living with. The only difference will be that we'll have a higher component of unsecured debt, which in this environment, we think has proven to be not only safer, but accretive at a time like this. I think we have the lowest cost of funds on the Street right now. So for us, I think the way we think about it is we will have long-term savings. And we're also very -- we're looking forward to trying to convert traditional equity REIT investors because we basically check every one of their boxes in terms of internal management, insider ownership, low mark-to-market debt. And the investment grade box is really the only box we don't check. We'll be a little bit constrained by. We're not obviously going to be a huge growth company, but we think that there'll be a big appetite for us. So we don't think we'll just see it on the debt side. We think we'll see a conversion of our institutional and retail ownership on the debt -- on the equity side as well.

What I'd also add, Matt is, yes, you have to watch flow of funds and like, where things are going right now, the high yield market is not charging a lot of premium because there's not a lot defaults. But if you just look at the ETFs like JNK and LQD, it'll give you an idea of the differential. Although because we're in the commercial real estate business today, we trade on the wide end and -- but because we're not a single B, we probably are more towards the middle of the high yield index. On the other hand, if we -- and that's a four-year, it's not a seven-year on average. But if we were to go to an investment grade credit, LQD is dividending a little over 5%. So it may be aggressive. It's hard to say, but the first time you go, you'll learn a lot and you'll probably not get the rate you want because you'll look at the index, but they're going to say, you're new, we're penalizing you. So they will. However, in the long-term, the high yield market, the size of the corporate bond market in the investment grade is massively higher than the junk bond market. So you've got a much bigger group of people, and they tend to own the same names over and over, and nobody owns us in the investment grade space. So it's a lot of factors that go into it. But I still think you price wide the first time, and then after that you do better.

Well, it's clearly going to put you in a stronger position. We already have the best, probably the best balance sheet in the space right now. I guess where I'm going with this is, I mean, we see all the news, we see your peers, big and small, having issues, Brian. I mean, at what point do you think -- at what point would you get aggressive? Do you see deal? Are you getting calls from bankers looking at maybe taking something over time? I mean, do you want to make a splash? Just you got tons of cash, tons of liquidity, and there's a lot of peers struggling, and there's obviously could be a lot of flow coming out of the banks over time. We keep hearing that, but what about making a splash? Are you saving the capital for that?

No. Ladder is not a flashy company at all, and not at all interested in making it splash. Far more interested in just developing attractive return profile safely. We don't like big flashy buildings, we don't like big flashy companies, and we don't like high leverage, which makes us a little unique in the REIT space. So, no, we're not saving it. We just think there's a big opportunity coming, but we'll probably stick to our knitting. The only thing I would tell you that I think is developing is if you have a $20 million loan, you can rebalance it. Yes, I mean, there is a place you can go. You may pay more than you want to, but it's not like it can't be done. And if you have a $350 million loan, you can go to one of the big banks and have them take it to the rating agency. And yes, they'll take you to market and the market will tell you what your rate is. But if you have an $80 million or a $90 million loan, you're sort of in this air pocket between too big for a bank and too small for a single asset deal. So I think that $70 million, $80 million, $90 million area is a very, very attractive place for somebody who wants to commit capital without going to, with the certainty of the capital markets spreads. So to me that's an inefficiency that has bubbled up here that I think will stay there for a little while. The trick to that though is if you want to start writing $80 million loans to securitize them, you can't write two or three of them, you have to write 10 or 20 of them. And therein is the rub. But I think if the volume picks up and transaction buildings start getting. So I think we might very well go into that kind of states and acquire $1.5 billion, $2 billion worth of loans and do a single sponsor securitization, where we hold the B piece because we know all the credit and go sell the bonds to the public. But we would have the rate on the mortgage definitely, because it won't all close on one day.

Got you. Just to follow-up on that, one of your newer peers came out and sort of said, there's got to be the secondary market supply. Let's just say I don't think you're talking about on securities as much as he's talking about just senior loans and sporting it, saying leverage yields are between 12% and 16% and we've raised the fund and we're dedicated just to taking all this stuff down, presumably mostly from the banks over the next few years. Do you see that, like that secondary market opportunity where banks just capitulate due to the capital rules and you see these leverage yields? And then --

I mean the banks are under a lot of regulatory pressure. So that part is true. And -- but I would just say that a bank selling loans, probably with some financing, generating at 12% to 16%, that's fine, but why would you do that if you can make 20% to 25% on a AAA.

Right.

With leverage, obviously, and the safety of being able to sell it pretty -- in most markets pretty quickly. So I don't think I would steer Ladder towards taking a risk at 12%, 13% on a bank sale. I would prefer we move into the safety of AAAs. And as Pamela said, we're not levering them right now at all. So yes, we have a lot of cash, and yes, we have a lot of liquidity. We also have a few hundred million dollars of unlevered AAAs too, if we feel like generating some cash. The key for us at this point has been to keep the balance sheet fortress like. And investors gravitate towards strong balance sheets during difficult times. But as it airs itself out and you get a little long in the tooth in the cycle, these yields will compress. I don't believe we're going to be talking about AAA, the 200 over or 190 over for much longer.

And we have been hanging around the hoop of our originators are actively talking to the banks and we're watching anything that is or will be coming for sale. We are -- we will be looking at and considering it in the context of what Brian just said.

And these AAAs, I mean, just living through the financial crisis and knowing not everything was AAA that they said was AAA. These are real AAA. They have like 20% subordination. I mean, are they -- I mean, what --

I mean, we have 70% subordination.

This is just incredible.

Well, interestingly, what goes on in the CLO market is as loans default, which they're picking up the pace there. If the sponsor is in good shape, he pulls them out of the deal and it looks like a payoff. So bad is good unless you own it at a premium. But if you can buy them at 99 and get paid par on a defaulted loan, that's very attractive. So I would say the -- in the CLO space, the subordination level starts at 40, 45. And if you get through a few payoffs or defaults, you quickly get to 60% or 70% subordination and they're still trading very wide.

That's incredible. I mean, I hope these deals stay around for a while, but like you said, I don't think there will seem like if we --

I don't either but will, we're very good at taking what the market gives us, rather than forcing our opinions. So we can live a long time. We don't need the market to tighten. We don't need to lever them. But yes, if the market does tighten, we'll sell some and maybe we'll lever some others when we need to. But the best time to borrow money is when you don't need money. And I think in our supplement, on our website, if you want to just get the picture that sold all the bonds, it's on Page 5. It's a snapshot of us last year and this year. And when we look at the rating agencies, they were saying it's a very difficult market. And we said, yes, look what we did in that market. Let's go back a year. We took a billion in payoffs, and we delevered the company. We raised a lot of cash. So yes, that's experience. We've been out in bad weather before, and yes, we saw it there for what it was, and we're not out of it yet. We still think there's a little bit left in this downturn. But I think we're and past the most dangerous part. I don't think we'll be surprised by anything at this point.

Look, you've been right all along, Brian, on this, so I got to give you credit. Definitely paying attention to you when you give out that, that when you call bottoms like this and start talking about things, I certainly pay attention. So I really appreciate all the color and comments.

Yes. I mean, if you think no one's ever going to an office again, probably we might have something wrong here. I don't believe that. I don't think it's ever going back the way it was. I don't think people are going to be charging off the beaches in the Hamptons at 3 o'clock on Sunday to get to work on Monday. But if you're only in the office four days a week or you still rent the office. And the main difference in the office space isn't that you can't rent it. You tend to have to pay a lot for a tenant. But in most of our office loans, the buildings are being leased, and they're being leased at rents that were higher than we underwrote. The biggest problem is they're not fully leased. There's a lot of cost involved in a tenant acquisition to get them in the building, and the ROE is just poor. And when you ask them to go buy a cap at 1% or 2%, when the prevailing SOFR rate is 530, it gets very expensive. So I think what you'll see, and not just with Ladder, but you'll see this with a lot of other people, too. They're going to be taking buildings back that are -- they're doing okay. They're not empty, and there's some cash flow. It may not be perfect, but it wouldn't signal a large loss either.

Well, you certainly made a great call in New York City. You were one of the first to call that. So congrats on the --

You can feel it, right? I mean, New York City is doing better. And if you walk around that area of the Plaza District North of Grand Central on Park Avenue, or that that's doing just fine. And when I say fine, I mean there is massive expansion going on there. And so the idea that I don't think J.P. Morgan is buying an extra building next to its headquarters because they think the office market's going South.

No, not at all. I really appreciate it.

Sure. Thank you.

Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back to Brian Harris for any closing remarks.

I'll just end by saying thank you for hanging with us. Especially thank you to the bondholders that, that purchased our recent offering. We won't let you down there. And we hope to be revisiting that space down the road in an investment grade outfit. So thanks again, and yes, see you soon. Bye.

This concludes today's conference. You may now disconnect your lines. Enjoy the rest of your day.