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Management characterized 2025 as a transition year, achieving the second-largest investment volume in company history at $12.7 billion despite broader market volatility.
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Performance was impacted by temporary timing issues, including high cash balances from $4.4 billion in capital raises and the initial dilution from the $2.2 billion net lease acquisition.
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The company is intentionally avoiding forced liquidations of distressed assets, choosing to take over management and execute value-add plans to protect long-term shareholder basis.
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Strategic diversification has reduced commercial lending to 54% of the asset base, with U.S. office loans now representing a record low of only 8% of the total portfolio.
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The special servicing segment acted as a counter-cyclical hedge, with fees reaching their highest level since 2017 due to increased CMBS maturity defaults.
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Management emphasized a conservative leverage profile of 2.4x, significantly lower than peers, prioritizing balance sheet durability over near-term earnings maximization.
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Management expects dividend coverage to improve steadily throughout 2026 as $1.9 billion in unfunded commitments fund and excess liquidity is deployed.
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The new net lease platform is projected to turn accretive in 2026, supported by 2.3% annual rent escalations and optimized capital structures.
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Guidance assumes a recovery in transaction volumes driven by lower interest rates and a significant reduction in multifamily supply over the next 18-24 months.
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The company is targeting the resolution of approximately $1 billion in nonaccrual and REO assets during 2026 to recycle capital into higher-yielding originations.
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Management is exploring the integration of AI and data analytics to streamline underwriting and reduce embedded structural costs across its various business cylinders.
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Three assets migrated to a risk rating of 5 this quarter, including a $108 million studio production asset and a $269 million New York asset where the sponsor ceased capital contributions.
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A $91 million multifamily loan in Phoenix was classified as credit deteriorated, resulting in a $20 million specific reserve reclassification.
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The Woodstar affordable housing portfolio saw a $17 million unrealized fair value increase, with rents remaining 30% to 50% below market rates in key Florida markets.
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Management noted that if non-cash losses and cash drag were excluded, distributable earnings would have fully covered the dividend in 2025.
