TPG RE Finance Trust, Inc. Price & Performance (TRTX)

We expect real estate investment activity to increase in 2025 driven by the deployment of dry powder in the new acquisitions and the forcing mechanism of elevated short term and long term interest rates. These factors create an excellent dynamic for opportunistic debt investing, especially for well positioned platforms like DRTX. Regardless of causal factors, we intend to continue to provide acquisition and tailored financings to recapitalize broken capital structures at reset valuations. We expect our increased 2024 loan investment volume to accelerate in 2025 driven by one, an offensively oriented balance sheet with substantial liquidity and a flexible liability structure and two, we robust sourcing channels fed by TPG's TPG fully integrated global real estate platform encompassing both credit and equity investing. By all metrics 2024 TPG, was a successful year for TRTX. We accomplished precisely what we set out to do, Number one, build a fortress balance sheet with substantial liquidity. Number two, maintain a 100% performing balance sheet at year end with stable credit risk ratings, Number three, register consistent reductions in our CECL reserve throughout the year and four, generate distributable earnings after realized losses that fully covered our $0.96 per share common dividend for 2024 And on a pre realized loss basis, we generated $1.08 per share for the year, covering our dividend at 1.1 times.

We are exceptionally well positioned to pull on the many levers that TRTX possesses to grow earnings, including number one, deployment of excess liquidity into new investments, two, recycling equity currently supporting REO assets three, accessing undrawn capacity from our existing lenders and four, creating additional liquidity by taking advantage of the improving capital markets environment. Our strong operating results for the full year 2024 reflect the success of our strategy advantageously positioned to continue its loan investment activity 2025 and beyond.

The second half of twenty twenty four, TPG increased net earning assets by 3% due to $446,000,000 of new loan commitments, comprised primarily of multifamily and industrial portfolio with an LTV of approximately 60% and a weighted average spread of SOFR plus three twenty five. In the New Year, our investment team has built a substantial investment pipeline that will fuel new origination activity in 2025 TPG. We currently have in excess of $300,000,000 of live investment opportunities that we are in various stages of pursuit and diligence look forward to updating you on progress in subsequent quarters. With our shift to a more active new investment posture, we have not taken our eye off the strategy that created our comparative advantage. Thoughtful, assertive, value oriented risk and asset management. Our latest example is a recently completed accretive amendment to a loan secured by a Class A office building in New York City. Bob will share more granular details, but I will highlight 30 key facts that speak to our risk management approach. Over the past three years, the loan commitment amount has been reduced from $200,000,000 down to $130,000,000 Our recent amendment attracted an infusion of $60,000,000 of new institutional equity capital and the newly amended lower LTV loan is expected to generate an improved return on equity for our shareholders as compared to the pre amendment loan.

Most importantly, this deal is illustrative of the expertise of asset management team when buttressed by our broader TPG real estate investing platform. This combined experience allows us to competently navigate through complex transactions to maximize shareholder value. In summary, we intend to continue in 2025 to pull on our levers of accretive growth. All of which are immediately actionable to drive earnings and shareholder value. Our current share price, TRTX generates an 11% dividend yield. A compelling return in the context of several comparatively favorable fundamental metrics including number one, liquidity as a percentage of total assets, number two, low leverage, and number three, a 100% performing loan portfolio at year end. From a risk and liquidity perspective, we are fortunate to be able to remain both committed to our share repurchase plan and make new investments at the same time. We will continue to optimize capital allocation to the benefit of our shareholders. When you combine these factors with a $0.24 per quarter dividend, which is supported by our current run rate, With upside potential embedded in our deployable cash, untapped financing capacity, the near term prospect of capital recycled from our REO portfolio and the sourcing and investing of TPG's integrated real estate debt and equity investment platform.

We believe today's share price offers an attractive value proposition. With that, I will turn it over to Bob to provide a detailed summary of our financial results.

Thank you, Doug. Good morning, everyone.

Thanks for joining us. Our strong operating results for the full year 2024 and this fourth quarter and provide a springboard for increasing loan investment activity in 2025 and beyond.

In the fourth quarter, we increased net earning assets for the second consecutive quarter to $242,000,000 of new loan commitments. With strong liquidity of 320,800,000.0 leverage of only 2.14:one A CECL reserve of 187 basis points that has continued to decline in response to the solid credit performance of our loan book and stabilizing real estate market conditions, weighted average risk rating of three point zero that hasn't wavered in four quarters $6 annual dividend throughout 2024 and distributable earnings before realized losses that covered our annual dividend by 1.1 times TRTX continues its march to increase earnings, and shareholder value. TRTX's share price performance is the strongest among its peers since January 20 with a cumulative return of 61% through last Friday. The levers that Doug detailed further support the compelling value TRTX offers at today's share price. Our operating results for the year and the quarter are earnings supplemental and Form 10 ks, all of which were filed with the SEC after yesterday's market close and are available on the TRTX website. Regarding our loan portfolio, 100% of our loan portfolio is performing and current. Have only two four rated loans, and no five rated loans. Weighted average risk rating is three point zero, consistent with the prior four quarters.

For the year, we originated eight loans total $562,300,000 of commitments. For the fourth quarter, we originated two loans totaling $242,000,000 of commitments funded $4,700,000 of deferred fundings on existing loans and we collected full and partial loan repayments of $110,200,000 Earlier this month, we amended an existing office loan as part of the sale by the original institutional equity investor of its interest in the property to another sizable highly experienced global institutional real estate investor. The new investor injected $60,000,000 of fresh equity capital into the joint venture. As part of the amendment, we received a $20,000,000 principal repayment that reduced our loan amount to $130,500,000 Improve the seniority of our credit position because the recapitalization terminated a former ground lease on a portion of the building site. Thus facilitating consolidation into a single fee interest to lease land beneath one of the connected buildings. We enhanced property cash flow because our borrower lease the remaining 13% of the building's net rentable square footage to an existing tenant through early twenty Consequently, our loan now has an in place debt yield of 11.7% stabilized debt yield of 14.4% leased occupancy of 100% TPG, and a weighted average remaining lease term greater than eight years.

We extended our loan for three years through February 2028 We preserved our advantageous financing of this investment and consequently boosted our asset level leveraged return on equity.

Combined with previous principal repayments totaling 40,000,000 Our asset management team has over time engineered a $70,000,000 reduction in our loan commitment amount and improved our credit position.

An already strong New York City office property.

Regarding REO, we own eight REO properties with an aggregate carrying value of 275,000,000 comprising 7.4% of our total assets. The four multifamily properties represent 56.5% of our REO holdings and four office properties represent the remainder. The integrated TPG real estate platform continues to apply its experience, platforms and network resources to improve operating performance of our REO, determine the best strategy to optimize shareholder returns, and execute each business plan efficiently and quickly. As previewed last quarter, we foreclosed during the fourth quarter on two [indiscernible] and the other in Chicago. We immediately seized operational control are now stabilizing and reenergizing these properties to ripen them for sale. Both of our California office properties are currently in the market for sale. Only one of our REO properties is encumbered by mortgage debt. We expect REO sales will over time generate capital for reinvestment. And we have a track record of selling REO properties at in excess of our carrying values. Our net equity in REO totals approximately $50,000,000 Assuming a 9.5% net ROE on loan investments, every $100,000,000 of recycled REO equity equals $0.03 per share of distributable earnings per quarter. Refer to footnote four of our financial statements for a snapshot.

Of our REO portfolio.

As usual, we've been quick to take advantage Our cost of liabilities for new loan investments continues to decline and we expect to capture further savings in 2025 TPG. Our share of non mark to market non recourse term financing held steady at 77% at year end. Confirming our long standing emphasis on non mark to market term funding of our investment portfolio. Our total leverage was virtually unchanged quarter over quarter at 2.14 to one. Paired with $4,000,000,000 of financing capacity, our liability structure will drive continued growth in earning assets as market dynamics continue to improve. Last week, we closed on a three year extension and $85,000,000 upsize, $375,000,000 an existing non mark to market secured borrowing arrangement. All six of our current syndicate members renewed and upsized their commitments, plus we added a seventh lender. Improving terms and conditions in the CRE CLO and note on note markets make this an opportune time for TRTX to refinance certain existing liabilities at a higher advance rate and lower cost of funds. We were in compliance with all financial covenants at 12/31/2024 TPG, Regarding liquidity, have substantial immediate and near term liquidity to support accelerating loan investment activity. In year end, liquidity of $320,800,000 included $190,200,000 of cash in excess of our covenant requirements, We also have $33,400,000 of unencumbered loan assets plus several unlevered REO properties.

During the quarter, we funded $4,700,000 of commitments under existing loans. Quarter end, our deferred funding obligations under existing loan commitments totaled only $127,900,000 a mere 3.7% of our total loan commitments. We expect another strong year in 2025 TPG. We set the table last year and for the past few quarters have focused on executing our growth strategy. Our advantages include accelerating momentum due to two consecutive quarters of net growth in earning assets, We outrank our primary public peers in a variety of key financial measures. We have a 100% performing loan portfolio, and a highly predictive CECL reserve that has steadily declined in dollar amount, and basis points. Have stable loan risk ratings. We have a low share of REO and non accrual loans. In fact, had no non accrual loans for five consecutive quarters. A run rate distributable earnings that covers our $0.24 per quarter dividend with upside potential due to deployable cash, untapped financing capacity, the near term prospect of capital recycled from our REO portfolio, Our ample liquidity TPG financing capacity means our new loan We expect our dividend yield will decline as the market fully recognizes our prior performance, solid credit quality accelerating growth in earning assets and the results generated by the growth discussed this morning.

And with that, open the floor to questions. [indiscernible] Thank you.

Will now be conducting a question and answer And our first question comes from Tom Casagwod with BTIG.

Maybe Bob starting with you on the two multifamily loans that you took in for foreclosure, those were for risk rated last quarter. Can you talk us through kind of what the change was over the course of the quarter that took those from the four risk rating all the way to foreclosure? And then how much needs to be done to bring those properties to stabilization?

Sure. Good morning, Tom. Thanks for the question.

As we discussed in the third quarter call, and pretty heavily previewed, These were two loans where we've been pretty engaged with the borrower And on the third quarter call, you'll everyone I think will recall that we said these things might be modified and resolved or we might enforce our remedies. In both situations, we did choose to enforce our remedies in the fourth quarter. That's consistent with our overarching REO philosophy, which is the max value for our shareholders. [indiscernible] after reaching a point with both borrowers where it became clear to us that either borrower is going to meet the terms that we've set forth for modification was consistent with our principles, which are meaningful reduction in [indiscernible] [indiscernible] outstanding replenishment of interest reserves and so on. We went immediately toward the enforcement path and took back all three properties in two in November and one in December. In terms of the path forward from here, The two properties in San Antonio, well, with respect to all the properties, we immediately put our swap transition and property management teams in place we've used them on other properties that we've taken back in the past. In San Antonio, we're working to stabilize and rebuild occupancy and we expect to do some on the properties to achieve that.

Property in Chicago is well leased. It's in excess of 90% leased.

And we would expect that we would move reasonably quickly to South Got it. Appreciate that, Bob. Then following up on another item you discussed, you talked about tapping your financing capacity as you continue to ramp originations, how do you expect leverage to scale through the year? And could we see you out in the market looking to do a new CLO as well? Good question. First, with respect to overall scaling of financing. I would say that as we continue to invest, which we've been doing on a net growth basis the past couple of quarters. We've got substantial liquidity already in place on the balance sheet. We have significant cash as I would expect that we would and are in the are in the process actually of deploying that First, then we'll back lever. We have ample capacity to do that.

With existing credit facilities. I mentioned table funding facility that we renewed for three years upsized We're a very active borrower in the note on note market, which is I mentioned in my prepared remarks continues to become more liquid and cheaper. From the standpoint of borrowers like TRTX And last, with respect to the CRE, CLO market, that market has become increasingly active over the last couple of call it, two point five to three quarters TRTX has been a leader in the CRE CLO market since it revived in early twenty eighteen TPG. And so I wouldn't be surprised, although I'm not committing here and now, that we would be a participant again as a new issuer in that market at some point in 2025 TPG.

Actually one last thing, and I didn't fully answer your question. So our current leverage is 2.14 to one.

We have historically operated the business in the sort of three to 3.3 times leverage. As we continue to increase the pace of our deployment. I think you'll see that debt equity ratio, march up steadily.

Got it. Thank you, Bob. And last one for me. Doug, in your prepared remarks, you noted the steeper yield curve as a forcing mechanism. Is that do you think of that as kind of forcing borrowers to sell assets if they can't find relief? Is it forcing borrowers into shorter term floating rate paper or is it forcing something else in the CRE market? How do you kind of think of that statement that you made?

Yes.

I mean, it's a little bit of all the above. I would say that when we think about the interest rate market, Look, I think first, with the with the move in forward so for let's just say kind of generally anchoring around four That does put pressure on existing transactions that are out in the market where there might be a need for a newly capitalized debt financing and we are looking at those types of transactions where we can be opportunistic. But I would say again that with SOFR being elevated, the forcing mechanism is just that some borrowers may look to kind of fix their broken capital structures and that's one. And then I would say two as it relates to interest rates as well. Clearly, on the fixed rate takeout side as the ten year treasury has kind of hovered around 4.5%. I think that's also putting a little bit of pressure on the timing for certain kind of term out financings within perhaps the conduit or agency market. So I think all of that again will help drive opportunity set And I think all that [indiscernible] founded in the fact that the interest rate market is also shifted so far from a pipeline perspective in that the second half of 2024 is really characterized by elevated interest rate volatility and that there's a lot of uncertainty in terms of the path of SOFR, kind of where perhaps the tenure would settle.

For what it's worth, as we've turned the calendar into January and February, we have begun to see a reduction in interest rate volatility which generally means that should be met with an increase in real estate activity. I think that when real estate owners have a little bit more clarity in terms of the path of rates, they tend to deploy capital with, I would say, a bit a bit higher pace. So I think those are kind of some of the big macro trends that are affecting our business. And again, all signs point to a very 2025 investment pipeline. Thank you. Thank you.

And our next question comes from Stephen Laws with Raymond James. Please proceed with your question.

Hi, good morning. Two questions, I guess.

Good morning, Doug. Can you give us an update on your life sciences exposure? I know Things in that property type really seem to be asset by asset. So we'd love to get a little bit of color on your exposures there and how those loans are performing.

Absolutely. So we began the quarter with with four Life Sciences deals on our And so we're actually now down to three Life Sciences transactions. When you think about our current exposure, think that one of the things that are kind of really important to highlight is that first of all, none of our assets are in shell condition. And that they're all built out and it's really just a kind of a function of identifying tenants for those spaces. Secondly, from a borrower perspective, we've really kind of centered the highest quality borrowers, experienced borrowers in the market and those that we think are going to have a particular edge in terms of that lease up. Then I'd say, lastly, if you zoom out for a moment and kind of think about TPG's expertise within life sciences, it really is kind of first class both in terms of having real estate equity and debt exposure within life sciences then also just the broader TPG, health investing platform, which can provide some insights into some of the trends around the demand for life sciences space And I say, Lastly, Stephen, as we have some insights in terms of our real estate equity business, we actually have seen a a slight uptick in terms of leasing and touring activity over the last ninety to one hundred and twenty days.

So while we fully acknowledge, I'd say business plans are going certainly slower than they were one to two years ago, We've been investing in this asset class for many years we are starting to see a little bit of pickup in terms of activity.

Great. Appreciate those comments, Doug. Bob, a couple of questions related to REO. Excuse me. I think ARIO revenue is flat. I think that makes sense given your comments Expenses, I believe I read in the K were up. $1,200,000 related to the new assets. Can you talk about how you expect those line items to move forward? I think the Chicago you mentioned 90% leased, but probably came in late in the quarter. So maybe add some real estate income there, but then expenses, we need a full quarter impact [indiscernible] the partial impact from Q4. Is that Is that fair? Are there other factors I'm not considering Thanks for your question, Steven. I think there's a sort of macro macro and then some property specific answers. I would say generally speaking, most of our current REO properties are cash flow positive.

Increase in real estate owned expenses that you cite was a one timer. And related entirely to the San Antonio property. That we converted in early November. And with respect to Chicago, and other multifamily properties in particular that we own, The two Chicago properties that we own are both 90 plus percent leased.

They're very cash flow positive.

Expenses are stable. So we would expect those to move sale reasonably quickly And I would add, although you didn't ask, we don't really envision much in the way of capital expenditure, excuse me, across the portfolio as a whole.

Great. And I'll ask the difficult question as do you define reasonably quickly? I think you mentioned in your prepared remarks, I think the two California assets may be being marketed for sale. You mentioned Chicago is leased up, so something that could move quickly. When you think about the eight properties in the REO bucket, is there a way to estimate how many may move in the first half or in 2025 TPG other side of it, how many are kind of longer term execution pass?

Sure. Well, let me I won't answer very specifically, but let me review this again. [indiscernible] [indiscernible] job one with respect to REO is to maximize shareholder value. [indiscernible] for us that means constantly evaluating the buy versus hold decision and then executing accordingly.

We did that and we have two properties in the market right now. And we would expect those to resolve themselves in this at or near the end of the second quarter. We have offers on one and we expect offers on the other in early March. We then have a second tranche of properties that we have that we have seasoned and we would expect to bring those to market shortly thereafter. I would say in general terms, by the end of twenty twenty five, I would expect that our existing REO portfolio would be reduced by about just to give you a general sense of timing.

That's great color. Thanks, Bob. Appreciate the comments this morning.

Thank you. Now our next question comes from Steve Delaney with JMP Securities TPG.

Please proceed with your question.

Thanks. Good morning, everyone, and congrats on a strong close to what was certainly a challenging year for the broad CRE market. From your comments, it sounds like you have a far more constructive view of 2025. I'm hearing that's not only from your own internal and view of the economy, but also a lot of feedback from real estate equity investors in the marketplace. So cutting right to the portfolio, which was $3,400,000,000 It certainly sounds like you have the opportunity to grow and you have the relatively low leverage of 2.1x, Is it realistic to think and I'll just go straight to some spiff specific numbers and you can talk me off the mountain, but just year end 2025 TPG, if we model a portfolio of somewhere between $4,500,000,000 and $5,000,000,000 even. How how realistic in your mind would that level of portfolio growth be for 2025 TPG?

Good morning, Steve, and thanks for your question. As you know and as everybody on the call knows, we've never been in the practice of providing guidance. Having said that, Let me offer a little illumination on how we're thinking about the year. Doug was very clear that The year has set up very nicely for increased investment activity He has described the factors driving that. From our standpoint, we've got significant liquidity on the balance sheet today that's available to us for new investment frankly without leverage, without recycling REO capital, without anything else. So in rough terms, If we were to deploy say $200,000,000 of that at three or four:one, that's $800,000,000,000 to $1,000,000,000 of new loan investment activity Off the back, in our peak years, the company is typically done around $2,000,000,000 a little more than $2,000,000,000 of investment activity. On the repayment side, Doug made clear in his remarks that higher rates in this more steeply sloped yield curve, excuse me, would suggest that on balance, existing loans are probably more likely to lengthen a little bit than prepay, Obviously, every loan is a little bit different. But we've had strong steady repayments throughout the year, including the life science deal that Doug mentioned earlier.

So I would expect that new investment activity would comfortably outpace loan repayment activity for the year. And so we would expect pretty significant growth in in net earning assets. But I'm not in a position nor are we in the practice of providing a specific number.

Understood. That's very helpful color. And Chris and I'll work that out. But I've heard more certainly more positive the opportunity that you're facing to invest capital in 2025, these the past year. Just curious a little bit, my little quick follow-up. You've covered so much in these first few questions. Of the two new loans of $242,000,000 dollars I mean on the surface it looks a bit chunky But then again, it's pretty clear you guys are not in the small balance CRE lending market, which we would normally put it at 25 or 50. TPG does that just reflect TPG from an institutional standpoint, your borrower mix Would you consider yourself more upper middle market? I don't know really how CRE lenders other than the small balance segment, which is so obvious. How you really peg yourself in between the very mega borrowers and the small borrowers. But it seems like to me what you're saying, a loan of $100,000,000 to 150,000,000 on an individual loan to one borrower.

I'm hearing that that's not any kind of a heavy lift for TRTX. Is that Is that a fair statement?

Yes. And happy to kind of speak to sort of how we think about loan sizing. I would first highlight that the two loans that we did in Q4 Both of those do have some inherent diversity within the loans and that they are portfolio So as we do kind of lean, perhaps above the $100,000,000 size, will also orient ourselves towards portfolio where we get the benefit of diversity and that's statement one.

Got it.

I would say secondly, these deals as well, also are very focused on repeat borrowers. So we're seeing a lot of that both in the deals that we closed and the second half of twenty twenty four TPG a lot of what we're seeing in our pipeline is repeat borrower heavy. When you think about sort of average loan size to kind of go back to the data, we've again in approximate terms average typically loan size is closer to kind of the $75,000,000 range. So I think that Stephen, while we're somewhat uniquely positioned is that we do have range. I mean, we can go down to $25,000,000 to $50,000,000 if we do see opportunities there, which we have done over the past year. But also if we do see a deal that's $150,000,000 or more, we can pursue that as well. So put a fine point on it, I would say that we're really trafficking really across both the middle market and upper middle market And I think as we look at more and more institutional borrowers and institutional real estate is where we tend to sometimes have some somewhat larger loan sizes.

That's helpful. Nice kind of nice wide bandwidth there for you. So for your comments.

Thank you. Appreciate it.

Thank you. And our next question comes from Don Fandetti with Wells Fargo. Please proceed with your question. Bob, can you talk a little bit about the moving pieces in the allowance?

Like there was around $4,600,000 of provision and then were reserves sufficient to cover the conversion to the LO loaned REO this quarter? Good morning, Don. Thanks for the question. So I'll speak in numbers rounded to the nearest million. Dollars At the end of last quarter, our CECL reserve was about $69,000,000 As previewed, we can converted the two loans we've been discussing into REO That occasion a relief of the CECL reserve of $10,000,000 $250,000 to $300,000 of the reserve that we had previously been carrying with respect to those two loans. So the answer to your question is yes it was fully reserved for And those results are actually consistent with our historical CECL results where our realized losses have [indiscernible] been around 3% within 3% of what our CECL reserves were at the end of the quarter preceding the period in which the realized loss was taken. And then there was about $5,000,000 of expense as you said during the quarter The macro factor impact on our general reserve, we have no specific reserves and we've had no specific reserves for a while. It's all general. And so inflation, steeper yield curve, higher rates, a lot of these factors as they course through the loss given default model that we and many of our competitors use to develop our CECL reserve, that's what gave rise to that.

Approximately $5,000,000 boost. So sixty nine minuteus 10 gets you to 59 plus five gets you to 64 TPG.

That's 187 basis points, which is actually 15, almost 20 basis points lower than the preceding quarter end and just reinforces the steady decline in that reserve rate expressed in basis points that we engineered over the last number of quarters.

So do you think what's your sense on provision going forward because you could argue that there are some improving areas of commercial real estate And I guess, what would be your thought what's your thought process in terms of like 3% to 4% rated? Do you feel like you're pretty stable there? And just kind of generally thinking about provision expense going forward?

Well, let me disaggregate your question into two parts. The first is on a forward looking basis?

I would expect given where we are in the cycle and the 100% performing nature of our current that the the CECL rate expressed in basis points would not increase And theoretically, over time, that rate should converge with sort of the long term loss rate. For us as a company or our peers as a company. As you know, CECL has been in effect for only five years. So all of us are still building our own sample center universe of actual loans and losses and in the interim we're using these large data sets that we contract with other companies to get So I would expect that the rate would kind of be flat or decline, but it's probably not going to go up. In dollar terms, as we continue to grow our book, which we have been doing, we expect and you should expect that the dollar amount of the CECL reserve will increase because it has to, given how the CECL pronouncement is applied. Every loan is going to attract some amount of general reserve. As soon as it's booked. So I hope that answers that question. The second part of the question was I think really about migration.

We have only two four rated loans that's less than or it's about 3% of our current loan book. Otherwise, our risk rating average has been three point zero a number of quarters. So we don't anticipate much migration Historically, most of the for rated loans that we've had have either re performed and become 3s or they've been resolved through payoffs. Obviously, some have migrated in the other direction, but that's not the majority, it's the minority. [indiscernible] You bet.

Thank you. And our final question comes from Rick Shane with JPMorgan.

Please proceed with your question.

Hey guys, thanks for taking my questions this morning. I've got a few actually and a lot's been sort of covered.

Just curious, last quarter you were very, very clear about the potential path of the fours, the two of the fours becoming REO. You've got two remaining fours. Are you going is your intent to be as aggressive potentially in terms of REO solutions or do you see different paths [indiscernible] Good morning, Rick, and thanks for your question. Before commenting specifically on those two loans, allow me to restate again. Our view about loan asset management and REO management as well as our job is to max shareholder value.

So we're going to make the decision in Based on the facts and circumstances of each loan, as they develop, and as the situation presents itself. So we've got two four rated loans currently don't think it's really a matter of us being more or less aggressive We've been very clear to the investor market and we're very clear to the borrower market that we'll be commercially reasonable on loan modifications and extensions. But commercially reasonable to us means that a borrower is going to reduce its loan principal, it's going to replenish an interest reserve, it's going to buy the interest cap that it's obligated to buy under the loan agreement and so on.

If people do that, then we'll be commercial. And if they won't, our view is that shareholder value is best delivered by us owning it and doing whatever needs to be done and then then monetizing the property at the right time. With respect to the two properties, I think one's in office property in Honolulu and the borrower looks like they're going to sell that property and repay us. And the other is a mixed use property in Southern California. We continue to engage in discussions with the Board about a potential modification that if it occurred would need to conform with the framework that I just described.

Got it. Okay. Thank you. Second question, you guys have been Recently renewed your facility. So you are close to that market as anybody. You're also, as you pointed out, very experienced CLO ish issuers. We've seen the market reopen their over $5,000,000,000 issued year to date. When you look at the terms that you just received on your renewed facility, and you look at what is happening in the CLO market, can you compare give us some context in terms of available leverage, spreads? What are the puts and takes versus the two markets right now.

Sure.

While we're look, we're fortunate that we're part of TPG, so we have constant feelers out into the capital markets and here within the real estate credit platform and TRTX in particular, where active users of the capital markets. With respect to the bank facility that you referenced, that market is pretty well developed and I would say recovering. I'm going to distinguish the market we just tapped from the the repo market. The repo market, we're moderately active and we don't use a lot of repo. It's typically 20% to 25% of our wings max. But in the syndicated bank loan market, it's pretty active. It's receptive to companies like ours that have strong credit profiles and and a good track record. I would say specifically on that deal, we found strong receptivity to our pricing. To the structure We're able to move things on and off of that facility don't really have restrictions on what we can put on it. Which is really, really valuable to us as we optimize the liability structure of the company. We have seen over the last couple of years very strong investor interest in the note on note market and you've seen in our You've heard in our previous discussions and seen in our filings that we've been really active in that market.

Advanced rates have held steady strong in the mid to high, I call, 75% to 80% range.

And spreads have come in. Finally, with respect to the CRE CLO market, we have seen a lot of new issuance and industry observers expect that to remain strong for the remainder of the year. We've seen improved structure, in particular, longer reinvestment periods for managed transactions. And we've seen spreads come in steadily. And we've also seen investor demand for transactions that have property types other than multifamily only and that includes seasoned collateral as well as newly originated collateral. So we see that as really interesting market where we have a strong brand and reputation and we monitor all these markets and we try to optimize. That's our job. On behalf of shareholders.

Got it. And then if I could one last question and this goes back to a discussion that actually the two of us had almost five years ago to the day. You talked about loan growth and implementation or initial CECL reserves.

Five years ago, the industry was somewhat encumbered by the fact that you were using data where there was for the past decade very little default inventory. Now we're entering a period where there's a high degree of defaulted inventory. I'm curious when you think about the models, how they adjust for that sort of recency bias will we see initial CECL general reserve rates be higher because of this? And how do you sort of manage that sort of barbell timeframe?

Sure. Good question. I do remember that conversation. And you're right, but these datasets are different today than they were early twenty twenty because we've been through a Fairly pronounced commercial real estate correction where values have declined some instances materially. But all of that loss data is timely and accurately captured by the various providers and compilers of the data And look, the idea in these models and frankly in the management's judgment of how to apply them is to if necessary, adjust for what you term recency bias But clearly, loss rates for the couple of years leading into 2020, were quite low But if you would look at those loss rates extending back to 1998, which is when the dataset actually begins, They had been through a couple of cycles as well. And now we have I hate to say this, but the benefit of the last five years, at least in terms of lost data.

And so that will inform how we and others apply those loss rates to their CECL estimates each quarter. But I feel confident of our ability to do that.

But I do believe that again, these are forward looking The pronouncement is focused on forward. It's a current estimate of expected losses in the future. And so it needs to take into account not only [indiscernible] loss experience, but also macroeconomic data rates, GDP growth, LTV, basis per square foot, the consumer property price index and a lot of other factors that are prospective [indiscernible] historical.

Got it. Okay. Thank you very much. It's going to be interesting to see how that develops over time, particularly as the industry resumes starting to grow loans again. Thanks Rick.

Thank you.

And with that, there are no further questions at this time. I would like to turn the floor back to management for closing remarks.

Just wanted to thank everyone for joining us this morning on our call and we look forward to updating all of you on the continued progress here at TRTX. Have a great day. Very much.

Thank you.

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