03/12/2022

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TPG RE Finance Trust, Inc. (TRTX) Q3 2022 Earnings Call Transcript

TPG RE Finance Trust, Inc. (NYSE:TRTX) Q3 2022 Earnings Conference Call November 2, 2022 10:00 AM ET

Company Participants

Deborah Ginsberg – General Counsel

Matthew Coleman – President

Doug Bouquard – CEO

Robert Foley – CFO

Conference Call Participants

Steve Delaney – JMP Securities

Don Fandetti – Wells Fargo

Eric Hagen – BTIG

Rick Shane – JPMorgan

Aaron Seganovic – Citi

Operator

Greetings, and welcome to the TPG Real Estate Financial Trust Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Deborah Ginsberg, General Counsel. Thank you, Deborah, you may begin.

Deborah Ginsberg

Good morning, and welcome to TPG Real Estate Finance Trust conference call for the third quarter of 2022. I’m joined today by Doug Bouquard, Chief Executive Officer; Matt Coleman, President; and Bob Foley, Chief Financial Officer. Doug and Bob will share some comments about the quarter and then we’ll turn the call for questions.

Yesterday evening, we filed our Form 10-Q and issued a press release and earnings supplemental with a presentation of our operating results, all of which are available on our website in the Investor Relations section.

I’d like to remind everyone that today’s call may include forward-looking statements, which are uncertain and outside of the Company’s control. Actual results may differ materially. For a discussion of some of the risks that could affect results please see the Risk Factors section of our Form 10-Q and our Form 10-K. We do not undertake any duty to update these statements and we will also refer to certain non-GAAP measures on this call. And for reconciliations you should refer to the press release and our Form 10-Q.

With that I turn the call over to Doug Bouquard, Chief Executive Officer of TPG Real Estate Finance Trust.

Doug Bouquard

Thank you, Deborah, and good morning everyone. Thank you for joining the call.

As I complete my second quarter as CEO, I’m excited about the opportunity ahead for TRTX. We find ourselves in the midst of an attractive time to be a lender. And given our liquidity position the real-time information flow we see as part of the TPG Real Estate investing platform, I believe TRTX is well positioned to take advantage of the current macroeconomic and real estate investing landscape.

Over the past quarter the market continued further along the same trend lines. Tightening financial conditions, slowed capital markets activity, reduced available liquidity, widened loan spreads and reduced real estate values across nearly all property types. As we head into end of the year, we anticipate an acceleration of these trends as risk appetite continues to weaken. Furthermore transaction activity remains muted due to a widening gap between our buyers and sellers will transact.

In the first two quarters of the year, TRTX deliberately reduced our investment activity and bolstered our liquidity, as we anticipated the continued effects of tightening financial conditions on real estate debt and equity markets. As we conclude the third quarter, we have begun to opportunistically deploy capital on attractive terms while maintaining sufficient liquidity to mitigate the effects of further market deterioration and risk manage our current portfolio.

Given the continued pressure on real estate values, particularly within the office sector, we’ve adjusted the risk rating on certain loans and increased our CECL reserve. The very same conditions that foster an attractive lending environment do create challenges for our existing investments.

Fortunately, our real estate platform has investing in asset management experience that spans multiple economic cycles and is well positioned to drive resolutions that will both maximize shareholder value and position us to redeploy capital into an opportunity-rich investing environment.

From a liquidity perspective, we ended the quarter with $571 million of total liquidity. We continue to take the same measured approach in balancing the deployment of capital while maintaining ample liquidity in the context of broader economic backdrop. As evidenced in our Q3 originations, which I’ll speak about in a moment, we continue to diversify our funding away from the CRE CLO market, while maintaining attractive blended cost of funds for the Company at a spread of 200 basis points and an advance rate of 79%.

Over the past quarter we continue to grow the portfolio with an investment bias towards multifamily exposure. We made investments of $984 million across 10 loans, with a weighted average credit spread of 3.52%, a blended LTV of 65% and worth knowing that over 70% of these new investments were multifamily loans and 80% of the loans were acquisition financing. It is also worth noting that 100% of our QP investments were financed via non-mark-to-market structures and the spot ROE of these investments at closing exceeded 12%.

Given the recent contraction in liquidity, the ability to execute newly funded non-mark-to-market financing last quarter is a testament to the depth and breadth of TPG’s relationships with the bank community.

In addition, in the past quarter, we received repayments totaling $371 million, 82% of which were office loans. So as a result, as you think about our current portfolio, we — over the past 12 months, we have nearly doubled our multifamily exposure to approximately 44% of the portfolio while reducing our office exposure one-third down to 28% of the total portfolio.

Similar to the last few quarters, you should expect that TRTX will continue to focus on lending in sectors with attractive long-term fundamentals, such as multifamily and industrial. As real estate values reset lower and liquidity contracts across debt markets, TRTX can command more spread at a lower debt basis compared to prior vintages.

Given our conservative liquidity profile, a lender-friendly environment, combined with the depth and breadth of the TPG investing platform, we expect to take full advantage of this opportunity for the TRTX shareholders over the coming quarters.

With that, I’ll turn it over to Bob to provide more detail on our results.

Robert Foley

Thanks, Doug, and good morning, everyone. Thank you for joining.

Three quick data points. Book value per common share declined quarter-over-quarter by $1.75 to $14.28 from $16.03 due to the $132.3 million increase in our CECL reserve. Diluted distributable earnings per share for the three quarters just ended covered our $0.24 per share quarterly dividend at a ratio of 1.1x. We earned $0.19 per share in the quarter for the quarter. Our current quarterly dividend of $0.24 per common share generates an annualized yield of 6.7% to book value and 11.4% to yesterday’s closing stock price of $8.44.

I’ll cover five topics this morning. First, changes to our CECL reserve, net interest margin and our return during the third quarter to being 100% interest rate sensitive on both sides of our balance sheet, our capital strategy, our leverage and our liquidity. First, regarding the CECL reserve.

We recorded a net increase in our CECL reserve of $132.3 million to $225.6 million. or 390 basis points as compared to 180 basis points for the preceding quarter. This expense is unrealized noncash and does not reduce distributable earnings. The increase was comprised of $71.1 million relating to the general CECL reserve and $61.2 million related to four individually assessed office loans, all with risk ratings of five.

In management’s judgment, this significant increase was warranted by the rapid and material weakening of the debt capital markets and the investment markets for office properties, which we have observed since we downgraded eight office loans at the end of the first quarter of this year, and that pace is especially accelerated during the past four months.

We are cognizant of market reality, but this morning’s message should not ignore some positive trends. For example, Office is a share of our total office of our total portfolio has declined 28% of commitments from 43% one year ago due to loan repayments, asset management and targeting new loan investments in multifamily and industrial profits. Of our year-to-date loan repayments of $1 billion, a full 45% were office loans.

In the past 12 months, our office borrowers have infused $204 million into their loans via partial principal repayments, replenishments of interest reserves and borrower funded interest payments, capital improvements and leasing commissions. Included in this amount is a $62 million partial principal repayment on our largest office loan and office property here in Midtown Manhattan. For the office loans that contributed most to the general reserve increase, all are performing and have a risk rating of four or better.

Approximately 82% of our four and five risk-weighted loans to which much of our CECL reserve increase relates are financed on a non-mark-to-market basis. We believe our current CECL reserve accurately reflects our risks based on what we currently know, observe and expect from the economy, capital markets and the performance of our loans.

Regarding net interest margin, in September 2022, we again became 100% rate sensitive on both sides of our balance sheet as the last of our high rate floor loans became out of the money or the related loan was repaid. Quarter-over-quarter net interest margin did decline $7.6 million because growth in interest income lagged growth in interest expense due to loan repayments that occurred early in the quarter, new loan investments that occurred late in the quarter and a few high rate floors that didn’t become out of the money until the August reset date. During the quarter, LIBOR surged to 3.14% from 1.79%. At quarter end, our weighted average rate floor was 0.85%, and the rate on our highest floor was 2.3%.

Turning to capital strategy, low-cost non-mark-to-market financing from a diversity of counterparties remains the foundation of our financing strategy. At quarter end, non-mark-to-market financing comprised 75% of our financing, consistent with prior quarters and our long-standing policy target. We’ve revived our old-school pre-CLO-era approach to loan syndications. And since the beginning of the year, we have arranged senior financing with four new counterparties.

The result, 100% of our third quarter investment activity was financed on a non-mark-to-market basis. We’ve continued to diversify our debt funding base, and only 25% of our funded liabilities have any sort of mark-to-market feature with which one exception is limited to credit-based marks.

During the quarter, we extended the maturities of one credit facility. The majority of our remaining maturities fall in 2025 and beyond. Our two CLOs with open reinvestment periods are extremely valuable to us. The current weighted average spread is 179 basis points, which by our estimate is roughly 120 basis points tighter than comparable new CRE CLO issuance today.

The maturities of those CLOs are tied to the maturities of the underlying loans, which is a helpful hedge against loan extension risk. Our target leverage remains at 3.75:1 as compared to our actual debt-to-equity ratio of 3.1 as of September 30. This leaves room to increase leverage in prudent fashion and suitable investment opportunities are sourced by our team. We have $1.8 billion of financing capacity under existing secured credit agreements, an additional $286.6 million of reinvestment capacity in our CLOs. That leverage is already reflected in our debt-to-equity ratio of 3.1:1. Plus we have the proven ability in the current market to source non-mark-to-market financing from new and existing counterparties. We remain comfortably in compliance with our financial covenants.

Regarding liquidity at quarter end, cash on hand was $236.1 million, and reinvestment capacity in our CLOs was $286.6 million. The latter requires no paired equity or debt to fund new investments. We’re well positioned to simultaneously play offense and defense, which our team capably demonstrated in the third quarter.

And with that, we’ll open the floor to questions. Operator.

Question-and-Answer Session

Operator

Thank you. Our first question is from Steve Delaney with JMP Securities. Please proceed with your question.

Steve Delaney

Hi. Good morning everyone. Thanks for taking the question. I’m just curious on, obviously, the specific reserve on the Dallas loan and the subsequent foreclosure there in the fourth quarter or deed in lieu, I should say. Can you comment on generally the conditions with that property or conditions with the borrower. At June 30, it was four rated at September 35 its five rated and now you own it. This kind of — in that specific case, what changed, I guess, here over the last three to four months with the actual conditions in the property?

Robert Foley

Hi, good morning Steve, and thanks for your — thanks for your question. We did take title via negotiated deed in lieu of that office property, which is located in near North Dallas. And what changed is the borrower, the former borrower, which is a very large institutional sponsor had sought to sell the property. It was a late life investment in one of its funds and it was unable to reach agreement with the best of the bidders that it had identified through a formal and broad marketing process.

So at the end of the day, the borrower opted not to infuse more capital. And we took the property back shortly after quarter end as we disclosed. It’s a solid property. I would say not much changed to property operations during the quarter. It was really the borrowers’ assessment that it couldn’t close a deal with a prospective purchaser, and it was not prepared to infuse more capital. To be clear, it had infused substantial capital in the deal prior to the end of September.

We are in advanced discussions with a purchaser for that property, and we would expect it to close before the end of the year.

Steve Delaney

Wow. Okay. So my follow-up question was going to be like what’s the current rent roll and cash flow, but it sounds like at this point, you don’t — you hope not to be operating the property well into next year, it sounds like.

Doug Bouquard

That’s correct. I mean it’s a solid property. It’s got solid in-place cash flow to our basis, but we haven’t identified a buyer, and we have an interim property manager, and we would expect to be out of it, barring any unforeseen changes by the end of the year.

Steve Delaney

Got it. Excellent. That’s helpful. And Bob, just one quick follow-up for you. Your liquidity $570 million. It sounds like a lot of money, but over half of that is tied up in the CLOs. It’s good to have it there, but it’s not money that you can spend today. I’m just curious if that level of $230-some million if you expect to grow that just because of the uncertainty in the market. It sounds like your financing is pretty solid, but I guess at some point, there are situations like what happened in Dallas, where you may have something financed that you have to take it off the line. Thanks.

Robert Foley

Yes. I think a good follow-on question, Steve. I think two sub-questions, let me take part two first. There may be instances and there have been instances in the past where we’ve had loans and CLOs that we have elected to buy out, and we’ve used cash on the balance sheet or other sources of financing to do that. We’ve been doing that for years. And sometimes those loans are sold, sometimes they’re paid off, sometimes they’re amended and put back into CLOs.

The first part of your question had to do with the utility of the cash available for reinvestment in those CLOs. The eligibility criteria for putting new loans into those CLOs, we understand very clearly because we negotiated them. And I think what you will see and what you have seen steadily is our ability to originate or acquire new loans and put them directly into CLOs or to move existing loans financed elsewhere in our panoply of financing arrangements into CLOs or we have a credit facility among a group of five or six banks where we can warehouse for up to 80 days, recently closed loans and then migrate them into CLOs. So that cash is actually pretty useful and immediately available virtually immediately available.

Steve Delaney

Got it. So it sounds like the money in the CLOs is definitely going to be put to work here over the next couple of months.

Robert Foley

Yes. And if you look historically, we’ll have cash on the balance sheet at the end of the quarter, cash and CLOs. And you’ll see that it’s typically deployed very quickly.

Steve Delaney

All right, thank you both for the comments.

Robert Foley

Thank you, Steve.

Operator

Thank you. Our next question is from Don Fandetti with Wells Fargo. Please proceed with your question.

Don Fandetti

Hi. Can you talk a little bit about the — I think there were two new NPLs or nonperforming loans. And where are those financed? How are they financed?

Doug Bouquard

Sure. Good morning, Don, and thanks for joining. So we have four, five risk-rated loans. Actually, I may step back for a minute. About 82% of our risk loans are financed on a non-mark-to-market basis. They may be in CLOs more likely, they’re in single asset or small pool node-on-node financings that are non-mark-to-market and nonrecourse with single counterparties. And so that’s the case in three of the four instances, the fourth instance, the property that Steve inquired about earlier is actually currently held unlevered.

Don Fandetti

So you had two new NPLs this quarter? Is that right?

Doug Bouquard

We have two loans that are on nonaccrual. That’s right

Don Fandetti

Okay. And I guess, can you talk a little bit about your expectation for nonperforming loans next quarter? Do you feel like you’ve kind of captured everything? Or are there some office loans that moved into four rating and could quickly move to five based on kind of what we’re seeing.

Doug Bouquard

Yes, sure. It’s a great question. I would say, first of all, our CECL reserve really reflects our view of potential losses during the life of that loan, I would say, one. I would say, two, I’ve highlighted in prior quarters that we do have a portion of office loans that all do have either a near-term extension or potential final maturity coming up over the next year. And I think that really what we saw over the past quarter is illustrative of how that can play out to use the one example that Bob mentioned, one of our largest office exposures in New York City.

That was a loan that had a balance of $288 million going into the quarter. We received a pay down in excess of $60 million to satisfy that extension. So that’s again an example of where we’re seeing borrowers infuse more capital. And then on the other side, I think again, not to be too repetitive, but Bob mentioned about the asset in North Dallas where you had a borrower who ultimately decided to not remain committed to the asset, and we’re looking to quickly resolve that.

Don Fandetti

Got it.

Operator

Thank you. Our next question is from Eric Hagen with BTIG. Please proceed with your question.

Eric Hagen

Hi, thanks. Good morning. Hope you guys are well. Follow up on the office portfolio. Can you say what the average remaining lease term is in the portfolio? And any — maybe any mitigants to risk in cases where there is a near term — more near-term lease maturities concentrated in the portfolio? And just how you’re thinking about that and its connectivity to the CECL reserve more generally?

Robert Foley

Sure, good morning, Eric thanks for joining. I can’t provide an exact Walts for the portfolio as a whole right now but can offer some general indications and then I can talk very briefly about how that informs our CECL reserve. But before saying that, I would say that generally speaking, office performance is pretty good. What’s changing in the market environment and has changed quickly is valuation multiples applied to net cash flow from properties. And that’s really what we see in the markets today, and that’s been a heavy influence in our decision to increase our CECL reserve to the level it is at September 30.

In terms of office Walt, CBD walls are typically five to seven years and suburban walls are typically three to five. As we look across our portfolio, we don’t see particular near-term holes or impending holes. We’re more focused from a risk management standpoint on the broader trends in demand for space and actual leasing absorption.

Doug Bouquard

Yes. Look, also, I think I’d add to Bob’s point, again, it’s a little bit less about the micro and more about the macro right now. I mean we’re just seeing liquidity drying up across really all property types to varying degrees. And I would say that office is a sector that has probably been hardest hit as sort of the double whammy of both secular trends and then also just the move higher in rates.

And I think that what you’re seeing and hearing from us as we think through our CECL reserve is just trying to reflect the fact that it’s really more about the capital markets activity, appetite for real estate — sorry, appetite for office lending has really tapered off into the end of the year. And I think that’s really driving more of our views around CECL and then particularly, some of the uncertainty in terms of our current office exposure.

Eric Hagen

Got you. That’s helpful detail. Thank you. Maybe going back to the CLO for just a second. Are there any conditions which could drive you to buy out loans other than for a delinquency, like is there some other trigger related to the capital structure, the loans themselves, which would drive this need or desire to control the deal ahead of their being an actual delinquency?

Doug Bouquard

Bob, go ahead.

Robert Foley

The answer is no, not really. Typically the way the indentures are written, there needs to be either a triggering a credit-related triggering event or the expectation of an impending credit event. And with that, the collateral manager, which is us can remove alone.

Doug Bouquard

And also I’d say on the CLO front, I mean, these are really valuable liquidity tools for us. And I would bear in mind that we have three outstanding series CLOs, FL3, 4 and 5. FL4 and 5 both have outstanding reinvestment capacity. FL4’s capacity lasts through the end of the first quarter and then FL5 into the beginning of the beginning of 2024.

So really, what we have within those vehicles is on a blended cost of funds basis, FL4 is at in advance of 83% and plus 160 spread and then FL5 is at 84% advance and a 202 spread. But what that really means is that we have an increasing amount of liquidity options available to the company. So over the past quarter with what — with our nearly $1 billion of investments, all of those investments for finance be non-mark-to-market structures, but we’ve been sort of holding that CLO reinvestment capacity in our back pocket a bit and really first exploiting both the A-note or note-on-note market first and then second, potentially looking at the CLOs for financing options. So again, those CLOs remain a really valuable financing valve for us as we think through liquidity in the near term.

Eric Hagen

That’s great detail. Thank you guys very much.

Robert Foley

Thank you, Eric

Operator

Thank you. Our next question is from Rick Shane with JPMorgan. Please proceed with your question.

Rick Shane

Hi guys, thanks for taking my questions this morning. One thing in looking at the originations for the third quarter, interestingly enough, three loans, all in your top 10, all designated as bridge loans. I’m curious when you think about Bridge and Bridge by your definition, means more immediate draw, less milestones. I assume that those business plans really are more reliant upon marketing and absorption and price appreciation. I’m curious, given where we are in the market, how to think about that as opposed to what might be more value added enhancements by sponsors.

Doug Bouquard

Sure. Yes. I’m happy to cover that. So I would say over the past quarter, again, as you highlighted, we roughly had direct originations and secondary loan purchases roughly 50-50. — of the loans that we purchased, those were all 100% performing loans at a pooled LTV of approximately 61%.

And those loans we were able to buy at a discount given that the seller needed a certain amount of liquidity on those loans. And those loans tended to be, I would say, of marginally more advanced in terms of where they were in their business plan relative to our typical direct origination.

And I think frankly just closer to a potential refinancing or capital market exit. So again, we view that acquisition as an opportunity where we were able to buy a portfolio of low leverage performing loans that had basically a blended DM when your account for the discount at which we bought them of about 578, and we were able to finance those with term nonrecourse non-mark-to-market financing.

But again, at the heart of your question is these loans were definitely, I would say, more stabilized relative to what we typically are originating, which we really like at this point in the cycle.

Rick Shane

Got it. No. And look, I noticed that was actually going to dovetail to my second question. It looks like specifically, there’s San Francisco multifamily that you got at a pretty healthy OID with the maturity next year. So obviously, there is some — with a fully extended maturity next year. So there’s some execution risk there given what’s going on in San Francisco. But I look, for example, largest loan on your books now is a July 22 multifamily in San Jose, Bridge, relatively high LTV, that doesn’t — that looks like a directly originated loan. I’m just curious, given — and again, hard to differentiate what’s going on in San Francisco, which I’m really aware of versus San Jose, where it’s probably a little bit different but what the execution for a loan that appears to be more marketing and absorption driven in a challenging market? How to think about that?

Doug Bouquard

Sure. So the moment you’re mentioning within San Jose, that was a newly acquired asset by Oaktree and MG properties. And we like the fact that, that was fresh cash acquisition into that deal on. And I would say, too, that’s an asset where it really is just about leasing up and burning off concessions. So again, I would say it’s later in its business plan.

And I think, frankly, if that loan were to have come to the market even 12 months ago, I would say the borrowing cost on that likely would have been 100 to 125 basis points tighter — and I think, frankly, likely would not have gone to someone like TRTX is more of a traditional lender. It probably would have gone into a nearly stabilized type financing.

So we view that as an opportunity to, again, have exposure to newly built multifamily. And again, with the business plan that was frankly, later in its cycle rather than a full lease-up of a vacant asset.

Rick Shane

It’s actually really helpful and good context.

Doug Bouquard

This is — again, this is sort of that theme of like, as we’ve been highlighting, as the liquidity picture has changed, there are loans that, again, I would describe as very close to a stabilization point that otherwise would have been going into a SASB deal or a conduit deal.

And right now, they’re basically coming to lenders like TRTX and saying and effectively bridging that with us until — so I would describe it to really like have it be more succinct from my response, I would say, it’s more of a bridge towards capital market stabilization than a bridge towards a really heavy business plan that’s going to take three to four years. And that’s kind of, I think, more of what you saw in Q3 from us. And I think you’ll probably continue to see as the CMBS market continues to be choppy and expensive in terms of where loans can execute.

Rick Shane

Great. That’s very helpful, thematically. And I apologize for asking one last question. But as you know, we have a pretty broad coverage universe, and we cover a lot of consumer finance names. And one thing we heard during the quarter is that there is a divergence between consumer performance based upon borrowers who are homeowners who were more resilient and renters who have faced such persistent inflation in terms of rent increases. How risky do you think is the sort of industry shift towards multifamily, how much risk is it creating if we’re going to start to see some reversal of that really persistent long-term trend in terms of rental inflation?

Doug Bouquard

Yes, sure. It’s a great question. And obviously, given that it’s 44% of our portfolio, we think about that frequently. And I would say really a couple of things. One is we continue to like the multifamily space driven primarily by the fact that we do think that there is — there are very positive long-term fundamentals. And we’re still seeing rent growth continuing really across our portfolio. So we’re not really seeing any slowing. And I think that, that rental growth has been really driven by the fact that, again, to your point, with residential borrowing rates closing in to 7%, we expect to see more and more demand into the rental space.

I would say, secondly, in terms of — given that — again, we’re not the equity, we’re the debt, and we’re generally coming in at roughly 65% approximately LTV, given our discount to values and the available financing that really still remains in multifamily, we still feel really confident about the multifamily sector as a space where we want to be orienting our investments. But at the same time, we are — as we think about exit cap rates and as you think about valuation, we are reflecting the fact that, without question, rising benchmark rates are widening out cap rates. I mean, you can see it with where the apartment REITs are trading at approximately a 6% implied cap rate, we are seeing transactions live as those that are looking for financing spot.

And we’re starting to see private market cap rates if generally speaking, perhaps cap rates were being modeled in the 4.5% to 4.75% range, we’re seeing cap rates being modeled closer to about 100 basis points wider — or I shouldn’t say model. Actually, that’s where we’re seeing acquisition activity is approximately 100 bps wider in terms of private markets.

So again, I think public markets have come out wider. But again, we’re looking at really all the available financing channels when we think about how our loans get taken out. And then we’re just — we’re simply — we’re just underwriting higher cap rates on the exit to reflect the fact that, again, I think asset valuation is clearly down within multifamily. But again, I feel we feel tolerate that it’s going to be buy by just the long-term structural demand for housing.

Rick Shane

Okay, great, that’s helpful. And thank you for taking for letting me take some of your time this morning. Thanks a lot.

Doug Bouquard

Thank you, Rick.

Operator

Thank you. Our next question is from Aaron Seganovic with Citi. Please proceed with your question.

Aaron Seganovic

Thanks. I just wanted to follow up on the cap rate rising for office. It seems to me that it’s more of a liquidity kind of driven issue in the office performance and cash flows for those properties are generally pretty good. And is the cap rate just a function of the fact that the liquidity is so weak or this talk kind of tighten a bit? Or do you feel like that this is just kind of a new level that everybody just has to get used to?

Doug Bouquard

Well, I mean, I think it’s — as you can imagine, it’s somewhat circular, I would say that the lack of financing has also been a major contributor to widening cap rates. But that’s really been in conjunction with just a broader drop in demand for office space, just given all the trends that we’re kind of seeing in the post-COVID world.

So I think it’s really a mix of both. I think as I think about perhaps how our borrowers are thinking about it, they’re definitely looking at what do they think is the long-term demand picture for each specific asset in that market. And it’s getting increasingly hard, I would say, to speak about office in general because I think that each of these loans in each of these stories is just very idiosyncratic and kind of loan specific.

But again, I would say that on the office side, it feels like very likely there will be pressure around capital markets activity for a longer period of time. And I could see the other sectors as in multifamily, industrial, life sciences kind of bouncing back quicker relative to office seems to just have a longer-term structural demand issue that’s also being exacerbated by the fact that available financing is getting harder and harder to identify.

Aaron Seganovic

Okay. And then I guess in terms of some specifics, the — I mean your fifth largest loan comes due in March of next year. It’s an office property in New York, it’s three rated. What’s the risk there. There’s a Houston property that’s five rated that is, I guess, maybe you already mentioned this, but it’s a past due. Did that get extended. And then there’s another New York property, it’s your about a $54 million one that’s also coming due in February. Given these liquidity issues, are these all likely to become REO — and maybe you could just talk a little bit about some of the nuances between them?

Robert Foley

Sure. So let’s see if I can remember those and take those in order. So the nearest term maturity is an office building here in New York, which is in January of next year, first quarter. And that’s actually one of our five rated loans. So the borrower has been working to sell that property, and there will either be a property sale and a resolution of our loan or there won’t be.

The next is an office building in New York that matures later in the first quarter. There is an option to extend there strong institutional borrower. Don’t want to predict fully anything, but the likelihood is that, that’s going to — that the borrower will satisfy the requirements to extend the loan. That property actually has some very strong credit tenancy in it.

And then the third loan that you mentioned is an office building in Houston that I mentioned earlier, where the borrower marketed that property to sell. And in all likelihood that loan will be amended and extended based on the very good market intelligence that we got from the marketing process that the borrower undertook.

Aaron Seganovic

Okay. All right. Thank you.

Operator

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Doug Bouquard for any closing comments.

Doug Bouquard

Yes. Again just want to thank everyone for dialing into the call this morning and look forward to continuing to update you guys on the progress here TRTX. Thank you.

Operator

This concludes today’s conference. You can disconnect your lines at this time. Thank you for your participation.